FORMER EXECUTIVE SENTENCED FOR ROLE IN SCHEME TO DEFRAUD WELLS FARGO BANK

FROM:  U.S. JUSTICE DEPARTMENT 
Wednesday, December 11, 2013
Former Chief Executive of Mortgage Servicing Company Sentenced for Scheme to Withhold Funds from Wells Fargo Bank

Earl Gross, 74, of Las Vegas, the former President and Chief Executive Officer of U.S. Mortgage, a loan servicing company, was sentenced to serve 18 months in prison for his role in an $8 million scheme to defraud Wells Fargo Bank.

Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division, U.S. Attorney Daniel G. Bogden of the District of Nevada and Special Agent in Charge Laura A. Bucheit of the FBI’s Las Vegas Field Office made the announcement after the sentence was imposed by U.S. District Court Judge Andrew P. Gordon of the District of Nevada.

On June 11, 2013, Gross pleaded guilty to one count of bank fraud.   In addition to his prison term, Gross was ordered to forfeit $8,440,439 in fraudulent proceeds.

According to plea documents, Wells Fargo Bank contracted with U.S. Mortgage to service pools of residential mortgage loans held by investors in mortgage backed securities.   Under the agreement, Gross and U.S. Mortgage were obligated to collect from the borrowers the monthly payments that the borrowers made toward their mortgage obligations and forward these proceeds to Wells Fargo Bank.   In the event that a borrower paid off the loan – usually by selling the mortgaged property – U.S. Mortgage was obligated to remit to Wells Fargo Bank the full payoff amount.   U.S. Mortgage agreed to provide Wells Fargo Bank with monthly reports that described the status of the loans, and it received servicing fees for each loan it serviced.

According to the indictment, from 2004 to 2009, Mr. Gross and U.S. Mortgage withheld over $8 million in loan payoffs that were due Wells Fargo Bank by submitting to the bank reports stating that numerous borrowers were continuing to make monthly payments when in fact they had paid off the loans in full.   Rather than remit the full payoff amount to Wells Fargo Bank, Gross and U.S. Mortgage forwarded only what the borrowers’ monthly payments would have been and retained the difference in U.S. Mortgage’s bank account.   To deceive Wells Fargo Bank about the status of paid-off loans, Gross and U.S. Mortgage created fake amortization schedules indicating that borrowers who had sold and paid off homes were continuing to make monthly payments.   In addition to withholding loan payoff amounts to which he was not entitled, Gross charged Wells Fargo Bank fees to service mortgage loans that had been paid off.

The case was investigated by the FBI and prosecuted by Deputy Chief Charles La Bella and Trial Attorney Brian R. Young of the Criminal Division’s Fraud Section, with assistance from Roberto Iraola of the Office of International Affairs and the United States Attorney’s Office for the District of Nevada.

Today’s guilty plea was a result of efforts by President Obama’s Financial Fraud Enforcement Task Force (FFETF), which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 U.S. Attorney’s Offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory, and regulatory agencies ever assembled to combat fraud.  Since its formation, the Task Force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations.  Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants, including more than 2,700 mortgage fraud defendants.