Mark Neuman, Timothy Larkin and Lane Lyons said they never meant to defraud anyone when they invested client money into dozens of personal real estate deals and loans to Central Oregon businesses, friends and family.
But a federal jury this month found the three co-owners of Bend-based Summit 1031 Exchange guilty of wire fraud and money laundering conspiracies, funneling $75 million into their investments over nearly 10 years without telling clients.
The Summit case was just one of several multimillion-dollar fraud cases built around Central Oregon’s red-hot real estate market in the last decade.
The housing bubble brought a wide range of professionals from across the region into the investment scene: real estate brokers, loan officers, construction-related business owners, certified public accountants, attorneys, even a Bend police captain.
With real estate values soaring between 2000 and 2007, the Bend area “was ripe for that type of investment,” said Van Pounds, securities enforcement chief with the Oregon Division of Finance and Corporate Securities.
Three Central Oregon fraud schemes alone cost investors more than $35 million when Bend’s bubble burst in 2008.
The crimes took place when the market was hot and mortgage lending standards were almost nonexistent, said FBI Supervisory Special Agent Joe Boyer, who investigated white-collar crimes in Oregon from 2007 to 2011.
Few people saw the trouble at Bend-based Desert Sun Development until its 2007 bankruptcy. Investigations launched after the bankruptcy revealed a tangled web of deceit in which a dozen people tied to the company submitted falsified loan and tax documents. That allowed the defendants to secure $19 million in bank loans for commercial development projects that were never completed, and to create a real estate investment program between 2003 and 2008.
Starting in 2007, “what we saw was a steadily increasing number of reported mortgage fraud cases,” Boyer said. “We did see some of it coming. But our problem from a federal law enforcement standpoint is, until you have a (monetary) loss, you don’t have a victim.”
Like the Summit co-owners, former Bend real estate broker Tami Sawyer and her husband, former Bend Police Capt. Kevin Sawyer, said through their attorney in federal court early this year that they never meant to defraud clients.
The couple spent more than $7 million from their clients on personal expenses and property deals, including a multimillion-dollar vacation home in Cabo San Lucas, Mexico.
The couple told clients their investments would yield steady returns, pledging to use their funds to flip foreclosed properties for a profit.
But the Sawyers’ use of client money came to light when the market cooled. Despite their pledges as far back as 2009 to repay all their clients, more than $4 million was lost in their investment scheme.
Responding to the wave of fraud cases in Central Oregon and across the country, the U.S. Department of Justice in June 2010 established Operation Stolen Dreams, a nationwide, joint effort between the FBI, IRS and other agencies to prosecute those who commit mortgage fraud. The busts related to Operation Stolen Dreams included the 13 Desert Sun defendants.
Many cases tied to the housing collapse have already been settled, said FBI agent Boyer, and tightened lending standards offer some safeguards against the rampant investments that cost clients so much money.
But the potential for fraud is still out there.
Pounds said the architects of fraud schemes will seek out any asset that’s gaining value and attracting investors, whether it’s gold, diamonds, foreign currency or other commodities.
In Central Oregon, real estate just happened to be the vehicle for several large-scale fraud cases during the boom years.
Investors need to be diligent when seeking opportunities to increase their wealth — and be skeptical of deals that seem too good to be true.
“When someone says an investment is risk-free, that’s probably a lie,” Pounds said. “Every investment has an element of risk.”