A federal appeals court upheld the $46 million mortgage loan fraud conspiracy of real estate agent Kyle Grasso Friday. Grasso was sentenced to a year in prison in 2010 for his role with Lila Rizk, an appraiser, in a sophisticated Ponzi scheme to defraud mortgage lenders by acquiring inflated mortgage loans on tony homes in exclusive Southern California neighbornoods, from La Jolla to Beverly Hills, bel Air, Holmby Hills, Malibu, Carmel, Pebble Beach and as far north as Mill Valley in Marin County.
Grasso was convicted of money laundering, bank fraud, loan fraud and conspiracy to engage in loan and bank fraud.
The 9th U.S. Circuit Court of Appeals concluded the evidence at trial “was adequate to enable a rational trial of fact to find the essential elements of each conviction.”
Rizk’s conviction was upheld in 2011 by the 9th Circuit.
The pair were part of a scheme crafted by Mark Abrams, a mortgage broker, and Charles E. Fitzgerald, a real estate developer, who used the real estate frenzy of the early 2000s to obtain loans for significantly more than the sale price, pocketing the extra money, according to Judge Sandra Ikuta.
To work, the scheme had to control a variety of steps in the transaction. The sellers’ agents had to keep the true purchase price of the home confidential; appraisal reports had to show inflated values; title and escrow companies had to prepare two sets of documents, one real for the seller and one bogus for the lender and finally the listing services had to show the falsely inflated prices.
The conspirators targeted banks that did not require rigorous documentation or approval standards, Ikuta said.
Over the life of the scheme, the conspirators made 80 fraudulent transactions, with the majority against Lehman Brothers, but also including GreenPoint Bank and RBC Mortgage Co. The banks lost a total of $46 million, according to the court.
Grasso argued the government failed to produce enough evidence to show he had knowledge of the object of the conspiracy. He argued he was targeted and manipulated by Abrams and Fitzgerald.
But the government showed Grasso got involved while looking to buy a home after he separated from his wife. Conspirators offered to front him the down payment on an expensive home and he would repay it after the inflated amount was received from the lender, according to the court.
A reasonable juror could determine that as earlier as 2000, “Grasso knew that the real estate transactions were structured to deceive Lehman Brokers, GreenPoint Bank, and other federally insured banks, and that he assisted in this deception,” Ikuta wrote.
Case: U.S. v. Grasso, No. 10-50116