Scheme to Defraud Homeowners and Lenders Fails
Fraud is rampant in the United States. People create schemes to defraud individuals and corporations because it is fairly easy, exceptionally profitable, and seldom prosecuted.
When prosecuted successfully the defendant – attempting to avoid prison – will appeal claiming multiple errors by the trial court and the prosecution. The attempts usually fail, as they did in United States Of America v. Avalon Betts–Gaston, United States Court of Appeals, Seventh Circuit, 2017 WL 2641120, No. 16-2034 (6/20/17).
Avalon Betts-Gaston was convicted at trial on two counts of wire fraud and, of course, appealed her conviction.
Avalon Betts-Gaston and co-defendant Dimona Ross formed a company that operated a scheme to defraud homeowners and mortgage lenders. Betts-Gaston and Ross found homeowners facing foreclosure and convinced them to participate in what the defendants said was a program to help them keep their homes. Betts-Gaston had the homeowners sign documents that deeded their homes to a trust the defendants controlled. Ross then arranged for straw buyers to obtain mortgages to buy the homes. Working with Betts-Gaston, she filled out loan applications that inflated the buyers’ incomes and misrepresented the purpose of the purchases. Once a sale was completed, the buyer deeded the property back to the defendants’ trust. When the dust on these transactions settled, the defendants had both the mortgage proceeds and title to the properties. The homeowners initially still lived in the homes but no longer had title to them or equity in them. At least two homeowners were eventually evicted.
Betts-Gaston and Ross were indicted for this scheme in 2011. Ross pled guilty and agreed to cooperate with the government. Betts-Gaston proceeded to a jury trial at which the government presented evidence of the Howard, Ravengate, and Trumbull transactions. She was convicted on both counts. A fourth transaction, called the Hermosa transaction, was introduced at sentencing. Betts-Gaston was ultimately sentenced to a fifty-seven month term in prison.
CHALLENGES TO THE CONVICTIONS
Brady v. Maryland, 373 U.S. 83 (1963), “requires the government to disclose evidence materially favorable to the accused,” including evidence that tends to impeach a government witness. Such impeachment evidence often includes plea agreements between cooperating witnesses and the government.
In this case, the government had a written plea agreement with Dimona Ross, who testified against Betts-Gaston. It gave that agreement to defense counsel, and Ross testified to its terms at trial. The plea agreement indicated that Ross could not be sentenced to a term of probation. Nothing was hidden from the defendant nor was a deviation from the agreement after the conviction change the information available to the defendant.
The Seventh Circuit found the government could not have suppressed it, as required for a Brady violation and there was no Brady error.
Betts-Gaston contended that the inquiries were insufficient for two reasons. First, she says the court should have asked all potential jurors about the burden of proof and presumption of innocence. The district court’s refusal to question potential jurors during voir dire on the issues of burden of proof and the presumption of innocence did not deprive defendants of a fair trial.
To show a violation of the wire fraud statute, the government had to prove that Betts-Gaston’s scheme to defraud employed material falsehoods or omissions. A falsehood is material if it has a natural tendency to influence, or is capable of influencing, the decision of the person(s) to whom it is addressed. Betts-Gaston contested that element at trial, arguing that the mortgage applications were not materially false because the lenders did not care about the information the applications requested, such as the borrower’s income.
Legitimate services case law in this and other circuits suggests that the dividing line between legitimate and illegitimate services has not been clearly defined. But a common thread in those cases is that services are legitimate when the victim agreed to pay for them. By contrast, in United States v. Crosgrove, 637 F.3d 646, 665–66 (6th Cir. 2011), the loss caused by defendant’s fraudulent sale of insurance coverage was not calculated since he, in fact, provided insurance. The victims were sold insurance coverage and would not have paid anything had they known the coverage was fraudulent.
Betts-Gaston wanted to convince the jury that the lenders involved here routinely behaved unreasonably—that, as a matter of policy, they ignored information that a reasonable lender would consider, like the borrower’s income. A false statement is material if it objectively had a tendency to influence, or was capable of influencing, a lender to approve a loan.
Her argument assumes that the jury must have considered each iteration of her scheme to defraud in isolation from the others. Not so. The same people, performing the same roles in connection with the same company during the same time period, found another homeowner struggling with his mortgage. The jury could reasonably have inferred from that evidence that Betts-Gaston procured that homeowner’s cooperation by the same method testified to in the Ravengate and Trumbull transactions: false statements.
Betts-Gaston’s own testimony also indicated that she made false statements to the Howard homeowner. In her telling, the homeowners her company served were not being deprived of all rights to their homes: they would become beneficiaries of the trust that held the property. But she also testified that the Howard property was never put into the trust.
The Seventh Circuit refuses to reward defendants “for success in baiting the judge,” and it allows reasonable latitude for normal human sensitivity in responding to such provocation. Judges, while expected to possess more than the average amount of self-restraint, are still only human. Defense counsel’s minor complaints were not convincing especially since defense counsel attempted to bait the judge into a temperamental response that she could later trot out as offensive conduct.
Some of the conduct complained of reflects preferences common among trial judges, such as the reluctance to use sidebar conferences, the requests to show the jury documents, and the dislike of long-pending cases and of being thanked for rulings.
The court’s comments in this case were few and (with the exception of the facial expression, which the jury was immediately instructed to ignore) not directed against the defendant. The jury may have inferred (correctly) that the court believed defense counsel was behaving inappropriately. The Seventh Circuit concluded that she was.
OBSTRUCTION OF JUSTICE
Finally, the district court adjusted Betts-Gaston’s guideline offense level because it found that she obstructed justice by testifying falsely at trial.
Nor did the court err in crediting Ross’s testimony. She described Betts-Gaston as actively involved with her father’s loan application, acting as a go-between to adjust his reported income and the purpose of the purchase until he qualified for the loan. In Ross’s account, Betts-Gaston proposed reporting that the property would be her father’s primary residence, but Ross refused to use such a blatant falsehood.
Betts-Gaston then said to say it would be his secondary residence, and Ross agreed to that. That testimony supports the district court’s application of the obstruction of justice enhancement.
A fraud perpetrator as wrongful as was Betts-Gaston deserves the serious sentence she actually received. Similar fraud schemes have succeeded and included insurance fraud by burning or vandalizing the homes and paying of the mortgages with insurance proceeds. The government stepped in to charge the fraudsters before the insurance fraud potential was stopped before it was born.
This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide
The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972
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