Following a joint investigation by the Federal Bureau of Investigation and divisions of the U.S. Department of Justice, the department announced that eight Northern California real estate investors — including one from Berkeley — agreed to enter guilty pleas for their alleged involvement in conspiracies to rig bids at foreclosure auctions and commit mail fraud.
Charges were filed against eight men — David Margen of Berkeley, Thomas Franciose of San Francisco, William Freeborn of Alamo, Robert Kramer of Oakland, Thomas Legault of Clayton, Brian McKinzie of Hayward, Jaime Wong of Dublin and Jorge Wong of San Leandro — in U.S. District Court, Northern District of California in Oakland on June 30.
According to court documents, from around May 2008 to around January 2011, the conspirators controlled prices on certain foreclosed properties in violation of both the Sherman Antitrust Act — a piece of 1890 legislation that opposes the combination of entities to hamper business competition — and Section 1349 of the United States Code, which concerns conspiracies.
Court documents state that the real estate investors entered into a conspiracy and agreed “to suppress and restrain competition” by refraining from competitively bidding against each other, paying one another off for doing so and obtaining titles to price-rigged properties in the Contra Costa and Alameda counties.
The documents also state that in addition to agreeing not to bid against each other, the investors set up private auctions after buying price-rigged properties and divided the difference between the rigged price and the secondary auction price between themselves.
Franciose, Jaime Wong and Jorge Wong were charged with one count each of bid rigging in Alameda County and one count each of conspiracy to commit mail fraud. Freeborn and Legault were charged with one count each of bid rigging in Contra Costa County and one count each of conspiracy to commit mail fraud.
Kramer, Margen and McKinzie were each charged with two counts of bid rigging in Alameda and Contra Costa Counties and two counts each of conspiracy to commit mail fraud.
The maximum charges for violating the Sherman Antitrust Act are up to 10 years of imprisonment and a fine of $1 million or double the gross gain or loss of the felonious transactions. For conspiracy to commit mail fraud, the maximum penalties are up to 30 years in prison and a fine of $1 million.
According to Rebecca Nemeth, a realtor with Berkeley Hills Realty, the complex process for foreclosure auctions forces real estate agents to work hard to assemble all the documentation necessary to make a transaction, causing the whole process to often resemble “the wild west.”
“It’s pretty loosely monitored, if at all, and if somebody is going to do something crazy, that’s where they’re going to do it,” she said. “(The conspirators) are altering the market, affecting how appraisals are going to turn out and making prices drop for everyone else in the area.”
Berkeley City Councilmember Laurie Capitelli, who has 31 years of experience as a realtor, said foreclosure processes are fairly transparent but “guys with fistfuls of cashier’s checks and cellphones” frequent courthouse steps to discuss deals — a place Capitelli calls “sleazy.”
“Fixing prices is a pretty bad thing to do,” he said. “The entity that’s foreclosing is getting cheated out of money that should rightfully have gone to them. Not very often does extra money go back to the homeowner.”