Seven California Residents Charged with Operating Boiler Room Mortgage Loan Modification Scheme

Seven defendants arrested in California for allegedly falsely promising to provide home mortgage loan modification services in exchange for upfront fees ranging from $2,500 to $4,300. The indictment alleges that these individuals operated under a number of false aliases and under the names of at least 30 different California- based companies targeting individuals who had a rough time repaying their home mortgage loans. The boiler room scheme involved cold calling and impacted Connecticut residents and across the US. The alleged victims of this scheme were instructed to mail their checks to addresses set up in states other than California. One of the defendants already pled guilty to conspiracy to commit wire fraud. Each of the named defendants is facing a maximum term of 20 years per count with certain sentencing enhancements if convicted.

The mortgage loan modification scheme involved false misrepresentations of the following: home owners were already preapproved for loan modifications on amazing terms and that these terms had already been negotiated with the homeowners’ lenders. The alleged victims were also told they qualified to receive assistance from government mortgage relief programs (when in fact many of them did not) and that they would receive a full refund in they were not able to obtain a favorable mortgage loan modification.

The individuals indicted are also facing sentencing enhancements for participating in “telemarketing” fraud and what is known as “vulnerable victim enhancement.” Under USSG Section 3A1.1 (b),  a sentencing enhancement increase of 2 levels is mandated if the defendant knew or should have known that a victim of the offense was a “vulnerable victim”.

What is a vulnerable victim? It’s a person who is “unusually vulnerable” due to age, physical or mental condition, or is otherwise particularly susceptible to criminal conduct.”

Defenses in these types of enhancement may explore whether there was in fact a connection between the victim’s vulnerability and the crime’s ultimate success. The burden of proof on the government is that they must prove that the defendant knew or should have known that a victim of the offense was vulnerable, but not necessarily in every case must the defendant know of the vulnerabilities.

It is important to note that the government cannot just presume vulnerabilities among broad classes of victims. This is incorrect and disfavored as a basis for the enhancement. Typically it must be shown that the victims’ vulnerability was known from the outset, or learned of in the course of the conduct deemed to be fraud.  An offender must have prior knowledge of his victims’ vulnerabilities.

Other enhancements faced by defendants could be for responsibility as a manager/ supervisor, or for mass marketing, or where the loss exceeded $1,500,000.

The government seeks to protect “vulnerable victims” such as senior citizens or as in this case those alleged over the age of 55, because they are most likely to own their own home, they consist of a generation that tends to be more polite or trusting and they are less likely to report fraud. Moreover, it may take this segment of the population more time to discover the fraud and when they do, they make poor witnesses because of deficiencies in memory.

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