#261 Massive Mortgage Ponzi Scheme

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Massive to the tune of $167 million in fraudulent multifamily loans

Robert Morgan is one of the largest landlords in the United States and it turns out he’s been running a ponzi scheme to scam private and commercial lenders. More details abound in today’s episode

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 Show Transcription:

00:00 Hey everybody. Welcome back to another episode of rentprep for landlords.. I’m your host Eric Worral and this is episode 261 and we’re going to be talking about a top US landlord charged with running a Ponzi scheme and a massive multifamily mortgage fraud probe. So we’ve got all sorts of details on this recent news story that we’re going to dive into. We’re going to get to all of that right after to this…

00:27 1,2,3,4 ya ya ya…. Welcome to the RentPrep for landlords podcast. And now your host, Steven White and Eric Worral.

00:32 All right, so this story has been all over the news, but uh, this particular article I’m taking from housingwire.com, uh, it was written on May 23rd by Jessica Guerin and I mentioned the title of the article as the intro in this episode is Top U.S. landlord charged with running Ponzi scheme in massive multifamily mortgage fraud probe so that the DOJ and the SEC have filed multiple charges against Robert Morgan for multimillion dollar scam.

00:59 Just sounds like the type of name of somebody who might pull a multimillion dollar scam. But, uh, in this article I thought it was worth highlighting for a few reasons. It’s showing, uh, the scam on a very high level as far as what this person was doing to pull it off. But also, uh, on an investor level. So if you’re somebody who’s got some cash lying around or maybe you talked to other investors and they’re trying to pull you in on deals, I think that this particular story is a good reminder of why it’s important to do your homework and understand the financials of what the persons representing to you and making sure that S, it’s not too good to be true and B, that it will work in your favor in the long run. Obviously with any kind of investing, there’s risk, but sometimes you hear a number of that perks up your ears and you go, wow, that sounds too good to be true and there’s a good chance that it is.

01:45 So we’re going to get to that and explain that a little bit further. As you read the story. According to the author here, Jessica, who seems like a lovely lady, says that Robert Morgan was hit with multiple charges this week by both the Department of Justice and the Securities and Exchange Commission for allegedly running a Ponzi-type scheme that involves shuffling around money from investors and falsifying loan documents. So he was one of the largest landlords in the country who reportedly has 140 properties across 14 states. Nominate, assume that this means like you know, apartment buildings if we’re talking and one of the largest landlords in the country and he was hit with criminal charges on Wednesday by the DOJ for conspiracy to commit bank fraud, wire fraud and insurance fraud and then slapped with civil fraud charges from the SEC for siphoning andand misusing investor funds.

02:31 So it says that these charges came to light and last August they’re looking into fraud allegations involving loans and backings of 1.5 billion in mortgage securities issued by Fannie Mae and Freddie Mac. That particular initial investigation led to an indictment of four individuals for allegedly conspiring to falsify loan information in order to obtain more than 167 million in multifamily loans.

02:58 I’m sure you know, you and I can relate to these kinds of numbers quite easily, right? When I go down to the bank and say, Hey, I need a loan for $167 million. So two of the individuals that were caught up out of the four are related to Morgan, the owner of the properties, and tangled in the mortgage fraud. So it seems the authorities that shifted their focus to Morgan himself, pretty obvious thing to do, right? Hey, we got four people involved in $167 million loan fraud, and it turns out two of them are related to a guy who’s one of the, uh, largest landlords in the country. Maybe we should look at what he’s doing too. So, according to the DOJ, Morgan conspired with three others over the span of 10 years to fraudulently obtained monies, funds, credits, assets, securities, and other property from Fannie Mae, Freddie Mac, and other financial institutions including Berkadia, commercial mortgage and Arbor commercial mortgage.

03:51 So Morgan and his peeps, it didn’t really say that in the article it said associates allegedly provided false information to those and entities to obtain larger loans than they would have otherwise received on multiple properties. Even going as far to submit fraudulent construction contracts and invoices that inflated contractor payments and faking contracts for property purchases that inflated sales prices. So the DOJ alleges that Morgan and his crew, uh, kept two sets of books, one with accurate accounting and the other thoroughly cooked for lenders that needed information for servicing and refinancing the loans. I’ll a put an aside on here right now. There is a documentary on Netflix. I can’t recall the name of it, but uh, it’s about a studio 51, uh, the famous a nightclub in New York City. And it’s talking about how crazy it was in the 70s. And part of the documentary is about how I believe the owner’s mother kept the books, but she kept the like everything.

04:52 So like down to the penny had everything. So it had like this money was used for purchasing drugs and this money was used for this illegal activity and this illegal activity. So when they got raided, uh, by the feds, they just like had this book sitting there. There was just like, here’s everything you’ve done illegal. So, uh, you know, if you’re going to run a, uh, illegal business, don’t hire your mother to do the books because she’s very honest and she’s going to do you in. That’s the moral of the story here. But it sounds like, you know, Morgan here, it might’ve ran into this to other keeping two sets of books and one with the accurate information in one with the deceitful information for, uh, providing two lenders. So that, aside aside, the SCCs complaint adds more to the heap alleging that Morgan raised more than 110 million by promising an 11% return to investors and then diverted much of that cash to pay other investors in a Ponzi likes scheme.

05:48 So I thought that was really worth highlighting because if you read the books as far as how to raise private capital, um, there’s people who have marks on them. So what I mean by a mark is like, you may be somebody who might have money that you can contribute. So, uh, anybody who IS elderly, maybe they have a pension or an Ira that has, ah, been funded over years, um, maybe they have purchased recent property and that they can find that information through various methods. Um, there’s ways that people can figure out, you know, what, this person might have money, uh, they hang out in this type of club, they do this type of thing. And it might have a mark on you for people to try and say, Hey, I’ve got this great business idea. You know, and in this particular case, um, it wasn’t absolutely ludicrous the returns that he was promising at 11%, but it’s the fact that he promised an 11% return. I mean, as soon as you get into any kind of investment that’s like, we guarantee you 100% promise you that you’re going to have returns that are above average market rates. Like Warren Buffet’s not putting a promise on when he’s returns are going to be, they’re likely going to be pretty good because it’s more profit. But I feel like anytime you see here, those kind of absolute kind of discussion and the language being used when it comes to investments, that’s when the first red flag should go up to maybe do some digging as some homework on this individual.

07:09 So, uh, we’re all familiar with Ponzi schemes just based on, you know, the, the news in the last, you know, 20 years and, uh, some of the bigger cases that have arisen from Ponzi schemes. But it’s interesting to see this one being played out specifically on a Morgan raising private capital, uh, to the tune of 110 million and promising that 11% return to investors and then just diverting much of that cash to pay other investors in a Ponzi like scheme. I mean, that’s what a Ponzi scheme is, right? You just keep getting more money in to help pay the original people who start complaining and speaking up and eventually all of a sudden you have this big issue because people started finding out and everybody wants their money at the same time and they can’t pay you back. So it’s at the SEC said, Morgan’s investors are still owed 63 million. Uh, so more than half of 110 million. While the DOJ says lenders are holding the bag for more than 25 million and insurers are out 3 million as a result of this scheming of Morgan and his associates. I

08:08 t really just interesting story, uh, here and, uh, you, you wonder how many lives that this will impact too because this guy’s got loans for $167 million. Just means he’s got some serious properties, right? It says he’s got a 140 properties. We much be talking about thousands and thousands of units at each property. And what happens with these properties, I mean, you’re talking about tens of thousands of families that live in these properties. You’re talking about thousands of investors who have given their money to this person. I don’t like doom and gloom, right? I like to assume the bust. But uh, situations like this are a good reminder to just say, all right, take a breath. You know, I got this guy who was saying that, you know, he needs money for this investment property he’s building. He’s guaranteeing me 13% returns, no questions asked. He’s got to go on on. Well, it might be worth saying, you know what? There was this article I read rent prep for landlords podcast said this guy was guaranteeing people 11%. Maybe this guy who’s guaranteeing me even more than that, uh, is doing something a little bit strange or, you know, a lot of times people say something cause they want you to believe in them or they want you to, uh, you know, go with the deal.

09:21 But a guarantee isn’t always a guarantee in the end. You know. So I thought that this article is a, a great reminder for landlords and investors specifically to just make sure you’re doing your due diligence. Uh, looking into all the numbers. Uh, a really good book, um, I had him on for an interview is Matt faircloth of um, uh, Derosa group. They’re out in New Jersey area. Uh, he wrote the book on raising private capital. Uh, I did an interview with him actually on a Facebook live, but really goes into the details of what you need to be looking for, what you should be aware of. And it’s, you know, it’s written in a way to somebody who’s trying to raise private capital book for somebody who may invest, with somebody who’s raising private capital. It’s interesting too, just to know where their mindset’s at and what they’re looking for and what things you should be aware of and what to look out for.

10:08 So be smart with your money. Don’t just give it up because somebody has got a great opportunity. Uh, do your homework. That’s the the long winded, um, moral of this story. So, uh, yeah, you can check that out. Again, that’s at housing wire.com, and that’s courtesy of Jessica Urine, who was an editor there, uh, covering reverse mortgages and the housing wealth space.

10:28 So I’ll go ahead and check that out. Uh, episode 261, there’ll be a in the show notes along with other information as well. All right guys. Have a great rest of your week and take care