The federal fraud indictment that points an accusatory finger at two executives of Rochester's Morgan Management and two mortgage brokers also creates unwanted attention for two other players in Buffalo's real estate industry.
While Brett Fitzpatrick and Aaron Siegel have not been charged or even named, last week's indictment alleges fraud occurred with one of their projects.
Chesed Properties, a company owned by Fitzpatrick and Siegel, bought the 202-unit Amherst Gardens apartment complex for $8.57 million in June 2014, financed by a $7.87 million loan from Arbor Commercial Mortgage. Unlike the other deals cited in the indictment, Morgan's companies are not involved in the ownership of that property.
However, according to the grand jury, the property's value appeared to soar, rising by more than 70 percent in 15 months. The federal indictment alleges that two mortgage brokers from Buffalo's Aurora Capital Advisors gave inflated income statements and rent rolls to the appraiser, who soon valued Amherst Gardens at $14.7 million in September 2015.
The higher value enabled Chesed to refinance Amherst Gardens with a new $11 million loan from Arbor, which was later packaged with other mortgages and sold to investors on the open market through Fannie Mae.
Fitzpatrick, owner of Somerset Companies, did not respond to an email seeking comment. Siegel called The News to distance himself from Morgan Management and to stress that the Rochester-area developer was not involved in Amherst Gardens.
But Siegel would not detail what he knows about the property's rise in value. Nor would he say whether he knew that the mortgage brokers that arranged the Amherst Gardens refinancing – Frank Giacobbe and Patrick Ogiony – gave inflated figures to the appraisal company and to a so-far unidentified co-conspirator, as prosecutors allege.
Giacobbe, Aurora's owner and principal, and Ogiony, the small firm's managing partner, face multiple counts of bank fraud and wire fraud related to financing they obtained for seven properties listed in an indictment made public last week. Giacobbe walked away with a $110,000 fee for his company's role in obtaining the Amherst Gardens loan based on false information, the indictment says.
Six of the properties in the indictment are owned by companies linked to Morgan Management, the firm begun by Robert C. Morgan. Federal investigators found that two company executives, both relatives of Robert Morgan, participated in efforts to make the properties look more valuable than they really were, enabling them to obtain loans that would not have been approved if lenders knew the truth. The indictment does not allege the owners of the seventh property, Siegel and Fitzpatrick, deceived anyone.
Charged along with Giacobbe and Ogiony are Kevin Morgan, a Morgan Management vice president, and Todd Morgan, a project manager for the company. Kevin Morgan is Robert Morgan's nephew, and Todd Morgan is Robert's son. All have pleaded not guilty.
The indictment also makes reference to unidentified "co-conspirators" but does not elaborate.
However, during a news conference last week to explain the indictments, U.S. Attorney James P. Kennedy Jr. said the federal probe is in its early stages, and he left the door open for others to be charged.
"Everybody is in play that may have been engaged in fraudulent conduct," Kennedy said.
Fitzpatrick and Siegel own hundreds of apartments around Buffalo, not including Amherst Gardens. In 2014, they bought 13 apartment buildings on 10 sites in the city – including the historic but neglected Red Jacket Building on Main Street, directly across from the Buffalo Niagara Medical Campus. The $16.5 million deal included 295 residential units.
Fitzpatrick, without Siegel, invested with Robert C. Morgan in Rugby Square, a 212-unit complex in Syracuse that is part of the indictment. Mortgage documents and data gathered by the industry research firm Trepp show that Rugby Square, similar to Amherst Gardens, shot up in value soon after its purchase. In less than a year, Rugby Square's appraised value nearly tripled, to $13 million in 2012, justifying a new $9 million loan, the documents show. That was millions more than was borrowed to buy the property months earlier.
Federal prosecutors and the grand jury now allege Rugby Square's new loan was obtained after Giacobbe presented "false and inflated" income documents to the appraisal company and to the lender, Berkadia Commercial Mortgage. Berkadia is partly owned by Berkshire Hathaway, owner of The Buffalo News.
Story topics: Aaron Siegel/ Aurora Capital Advisors/ bank fraud/ Brett Fitzpatrick/ Frank Giacobbe/ grand jury/ indictment/ jonathan d. epstein/ Kevin Morgan/ Matthew Spina/ Morgan Communities/ morgan management/ mortgage fraud/ Patrick Ogiony/ Robert Morgan/ Rugby Square/ Todd Morgan/ U.S. Attorney/ wire fraud