Four men from Buffalo and Rochester face charges of wire and bank fraud for what federal prosecutors allege was a scheme to fraudulently obtain mortgages worth $167.5 million for apartment complexes in Buffalo and other cities.
A federal grand jury Tuesday returned a 62-count indictment accusing two Erie County men and two men from Monroe County of giving lenders false rent rolls and using other tactics to make it look as though apartments had more income than they did.
Frank Giacobbe, 43, of Amherst; Patrick Ogiony, 34, of Buffalo; Kevin Morgan, 42, of Pittsford; and Todd Morgan, 29, of Rochester; were each charged with conspiracy to commit wire fraud and bank fraud, and substantive wire fraud and bank fraud charges, the U.S. Attorney's Office said.
The Buffalo News has previously reported that federal investigators had obtained records and questioned people about financial arrangements on properties in the Buffalo area owned by companies connected to Morgan Communities and Morgan Management. Those loans appeared to exceed either the purchase price recorded on government documents or at least 80 percent of the property's value, the cap that most banks use when deciding how much to lend.
Kevin Morgan is vice president of the Pittsford-based real estate company Morgan Communities, where Todd Morgan works as a project manager. Giacobbe owns Aurora Capital, a commercial mortgage firm based in Buffalo, and Ogiony works for Giacobbe.
The men are accused of providing the lenders with false rent rolls suggesting that properties had more occupied units, at higher rental rates, and generated more income than they, in fact, did. They're also accused of offering false information about other income received at the complexes, providing the lenders with fraudulently altered leases; and preventing inspectors touring the properties from discovering vacant units by turning on radios and placing mats and shoes outside apartment doors.
“This investigation is focused on stopping people from undermining the residential and commercial financing industry," Gary Loeffert, Special Agent-in-Charge of the Buffalo Division of the FBI, said in a statement announcing the indictments. "Fraud for profit aims to misuse the mortgage lending process to steal cash.”
On at least one occasion, according to prosecutors, the men hired someone to stage an apartment as if it was lived in and to pretend to be a tenant of an inspected unit.
On another occasion, prosecutors allege, one of the men asked another where storage space income figures came from. The other defendant replied: "magic."
According to federal prosecutors, between March 2011 and June 2017, the men conspired to defraud financial institutions, such as Arbor Commercial Mortgage and Berkadia Commercial Mortgage, as well as government-sponsored enterprises, including Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association.
“Most of those loans were in turn sold to Fannie Mae or Freddie Mac, entities which were created by Congress to perform and an important role in our country’s housing finance system," U.S. Attorney James P. Kennedy Jr. said in a statement announcing the indictments. "As a result of the fraudulent conduct alleged in this indictment, defendants’ conduct not only unjustly enriched them but threatened to undercut the very foundations upon which our mortgage banking and investment systems are based.”
The indictments Tuesday follow a multi-year investigation by the FBI, the Federal Housing Finance Agency, and the U.S. Attorney's Office, and come just over a week after the FBI raided the Pittsford offices of Morgan Communities. The FBI separately obtained a search warrant for Kevin and Todd Morgan's email accounts, filing an affidavit in support of the search that detailed much of what is now in the indictment.
The federal probe was first reported by The Buffalo News in late September last year, after an investigation by the newspaper found companies connected to Morgan Communities appeared in public records to borrow more than they had paid for numerous properties in the Buffalo area.
Robert Morgan, who started and runs Morgan Communities and Morgan Management, was not charged in the indictment. He has previously told The News there was nothing unusual or suspect about the way his companies obtain their mortgages.
His companies own some 36,000 units spread across 14 states, mostly east of the Mississippi. They own or manage 3,500 Buffalo-area apartments.
The indictment alleges fraud at seven different properties, not all of which involved all of the men charged. The properties are Morgan Ellicott Apartments and Amherst Garden, both in Buffalo, two apartment complexes in Syracuse, one in Avon, N.Y., one in Rochester and some in the Pittsburgh area.
Some of the defendants will be arraigned on Wednesday afternoon before U.S. Magistrate Judge H. Kenneth Schroeder.
If convicted, they each face a maximum of 30 years in prison.