Case 2:01-x JAC Document 28 Filed 01/25/2007 Page 1 of 30 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION

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1 Case 2:01-x JAC Document 28 Filed 01/25/2007 Page 1 of 30 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION UNITED STATES OF AMERICA, ex rel. WALTER MARK LAZAR, -vs- Plaintiffs, WORLD WIDE FINANCIAL SERVICES, INC., d/b/a LOANGIANT, a Michigan Corporation, JACK B. WOLFE, ROBERT S. SILVERSTEIN, HOWARD M. BABCOCK and ANDREW C. JACOBS, Jointly and Severally, FILED EX PARTE AND UNDER SEAL Civil No Honorable Julian Abele Cook, Jr. Magistrate Judge Carlson Defendants. / COMPLAINT IN INTERVENTION OF THE UNITED STATES The United States of America ( United States ) having partially intervened in this action pursuant to 31 U.S.C. 3730(b)(1), hereby brings this action against defendants, World Wide Financial Services, Inc. and Jack B. Wolfe ( Defendants ), under the False Claims Act 31 U.S.C et seq., and the common law, to recover damages and civil penalties. This Complaint substitutes for and supersedes the Complaint of Walter Mark Lazar ( the Relator ) to the extent it asserts the same allegations against the Defendants. This Complaint does not substitute for or supersede the Relator s Complaint to the extent that it does not adopt Relator s Complaint, or asserts claims different from, allegations made by the Relator. 1

2 Case 2:01-x JAC Document 28 Filed 01/25/2007 Page 2 of 30 INTRODUCTION 1. This is a civil action brought by plaintiff, the United States, to recover treble damages and civil penalties under the False Claims Act, as amended, 31 U.S.C , arising from a fraud upon the United States Department of Housing and Urban Development ( HUD ) in connection with HUD-insured mortgage loans for the purchase of residential properties located in the Eastern District of Michigan. 2. As one of its functions, HUD, through its Federal Housing Administration ( FHA ), insures lenders, including mortgage companies, against losses on mortgage loans to home buyers pursuant to the provisions of Title II of the National Housing Act, 12 U.S.C et seq. Under HUD s mortgage insurance program, if a homeowner fails to make payments on the mortgage loan and the mortgage holder forecloses on the property, HUD will pay the mortgage holder the balance of the loan (together with interest due and other costs) and assume ownership and possession of the property. HUD then incurs additional expenses for the management, maintenance, rehabilitation, and marketing of the property ( holding and sales expenses ) until it is resold. The United States herein seeks redress for the Defendants conduct in fraudulently assisting others to obtain HUD-insured home mortgage loans, which led to substantial monetary loss to the United States. THE PARTIES 3. At all times material to this civil action, HUD was an agency and instrumentality of the United States and its activities, operations, and contracts were paid from Federal funds. 2

3 Case 2:01-x JAC Document 28 Filed 01/25/2007 Page 3 of Defendant World Wide Financial Services, Inc., d/b/a LoanGiant, ( WWF ) was approved by HUD/FHA to originate FHA-insured mortgage loans. 5. At all times material herein, WWF acted through its co-owners, employees and/or agents, including but not limited to Jack B. Wolfe and Susan Haidar. JURISDICTION AND VENUE 6. This Court has jurisdiction over the subject matter of this action pursuant to 31 U.S.C. 3732(a) and 28 U.S.C Defendant WWF is a Michigan corporation with its principal place of business in Southfield, Michigan, and it is subject to the jurisdiction of this Court. Venue is proper in this District pursuant to 31 U.S.C. 3732(a), 28 U.S.C. 1391, and 28 U.S.C. 1395(a). 8. Defendant Wolfe is, and, upon information and belief, was, for all times relevant to this Complaint, the Chief Financial Officer and co-owner of Defendant WWF and upon information and belief, is a resident of the State of Michigan. Venue is proper in this District pursuant to 31 U.S.C. 3732(a), 28 U.S.C. 1391, and 28 U.S.C. 1395(a). PROGRAM BACKGROUND 9. HUD is authorized pursuant to section 203(b) of the National Housing Act, as amended, 12 U.S.C. 1709(b), to insure lenders against losses on mortgage loans made to buyers of single-family housing. The program is designed to help low and moderate income families become homeowners by lowering some of the costs associated with mortgage loans and providing protection to lenders. Lenders are 3

4 Case 2:01-x JAC Document 28 Filed 01/25/2007 Page 4 of 30 encouraged to make loans to borrowers who might not be able to meet conventional underwriting requirements, but who are otherwise creditworthy. Generally, in order to insure a loan, HUD requires that the borrower: (i) have a source of income sufficient to cover the projected monthly mortgage payment and other fixed expenses; (ii) have an employment and credit history acceptable to HUD underwriting standards; and (iii) have assets sufficient to cover the necessary down payment for the property. 10. HUD operates a Direct Endorsement loan program where the lender determines whether the proposed mortgage is eligible for insurance under the applicable program regulations and submits the required documents and certifications to HUD. During the periods relevant to this Complaint, WWF was approved by HUD to originate FHA mortgage loans and was a Direct Endorsement lender. 11. For the loans giving rise to this action, loan officers, processing agents and underwriters, on behalf of WWF, collected the loan applications and supporting documents, then purported to verify the application information, and purported to underwrite the loans. 12. Mortgage applicants are required to submit information to the lender, including the applicant s name, address, social security number, date of birth, employer s name, monthly gross pay, prior ownership of property, and documentation of any other assets and liabilities. In addition, the applicants are required to certify their intention to occupy the properties for which they are seeking mortgages, whether they have been declared bankrupt within the past seven years, whether they have any outstanding judgments against them, and whether they have been subject to any 4

5 Case 2:01-x JAC Document 28 Filed 01/25/2007 Page 5 of 30 foreclosures. An employee of the lender, in this case WWF, then confirms the information, typically by sending out Verifications of Employment to employers listed on the application and Verifications of Deposit to listed banks to verify that the applicant actually holds a job and has sufficient money in the bank to justify the applicant s qualification for the mortgage loan. The lender must complete these verifications prior to underwriting. 13. The lender underwrites the loan, based on the information compiled and verified, and determines whether the property and borrower are eligible for mortgage insurance according to HUD s requirements. Thereafter, the lender causes the loan to be closed and submits the prescribed paperwork to HUD for insurance endorsement. 14. Loans must be submitted to HUD for insurance endorsement within 60 days after closing, unless additional time is permitted by HUD. HUD does not permit late endorsement for loans that are in default when submitted, meaning the mortgage payment due in the previous calendar month has not been paid. Assuming that a loan is not in default, HUD permits loans to be submitted for late endorsement if the loan submission meets certain requirements. One such requirement is that the lender must submit a certification that the borrower s escrow accounts are current and intact. Another requirement is that the payments under the mortgage must not be delinquent when submitted for endorsement. A delinquent payment is one that has been past due for more than 15 days. 15. After the loan is closed and HUD has endorsed it for insurance, the insured loans are frequently sold and assigned to other approved lenders. 5

6 Case 2:01-x JAC Document 28 Filed 01/25/2007 Page 6 of After HUD insures the mortgage loan, if the homeowner defaults on the loan and the lender forecloses, the current holder of the mortgage note may submit a claim for mortgage insurance under which HUD will pay the balance of the loan (together with interest due and other costs) and assume ownership and possession of the property. HUD then incurs additional expenses for the management, maintenance, rehabilitation, and marketing of the property until it is resold. 17. The term knowledge or knew as used in this complaint means actual knowledge, deliberate ignorance or reckless disregard of the truth or falsity of the information. THE FRAUDULENT SCHEME Overall atmosphere of fraud 18. Wolfe was the primary supervisor over WWF s government loans department which originated and underwrote the loans that were submitted to FHA for insurance and are at issue in this action. He personally oversaw many of the FHA insured loans being issued and underwritten by WWF. Wolfe frequently pushed WWF underwriters and loan officers to commit fraud in order to issue new mortgages and refinances. When approached with a loan that did not meet underwriting guidelines, Wolfe would instruct the loan officer to get it done. In many cases the documents that were needed to underwrite the loans would appear the next day, even though it should have taken longer to procure authentic documents. 19. Wolfe created a culture at WWF that encouraged fraud, or at least tolerated fraudulent acts. 6

7 Case 2:01-x JAC Document 28 Filed 01/25/2007 Page 7 of 30 Phantom loans. 20. Wolfe devised a scheme he referred to as Phantom Loans in which WWF, acting through its loan officers and underwriters, knowingly submitted or caused to be submitted false and fraudulent statements concerning the existence of a fictional WWF loan that would be refinanced by a HUD-insured loan. 21. WWF used the Phantom Loans to take advantage of the fact that refinance mortgages were subject to different FHA requirements regarding the percentage of loan amount to property value that could be utilized depending on whether the borrower was receiving cash from the new loan. If the borrower would not be receiving cash, i.e., if the refinance loan would be limited to paying-off the existing loan and covering the costs of refinancing, FHA would insure a loan for a greater percentage of the property s value than in those transactions where the borrower would be receiving cash. In order to qualify for the greater loan-to-value ratios of refinanced mortgages that do not have cash-out, WWF implemented a scheme in which WWF appeared to be refinancing its own Phantom Loan with the issuance of the FHA loan. 22. The alleged existing WWF loan was merely some paperwork prepared to appear as if that loan was being refinanced. The Phantom Loan was never funded, but the loan paperwork was then combined with other fraudulent documents, such as fraudulently altered credit reports, to appear as if the refinance loan qualified for insurance. WWF then submitted the package to HUD. Through this scheme, WWF was able to deliver cash-out to a borrower through the vehicle of a high-ratio FHA loan that purportedly did not have cash-out. 7

8 Case 2:01-x JAC Document 28 Filed 01/25/2007 Page 8 of FHA insured these loans on the basis of WWF s representations that these loans were refinances of prior WWF loans that never existed. In addition, contrary to the impression created by the fraudulent financial documentation WWF submitted to HUD, the borrowers on these properties did not have the financial wherewithal, and/or did not intend, to make payments on their mortgage loans, and quickly defaulted on their obligations under the mortgages, in many instances prior to making any mortgage payments. 24. WWF benefitted from these transactions by earning fees on the mortgages and by misleading FHA to bear the financial responsibility of a default. Underwriting Incentives 25. A mortgage lender s underwriter verifies and certifies to HUD that HUD s rules and regulations have been followed in the issuance of FHA insured mortgages. In order to protect the integrity of the FHA insurance system, it is imperative that these underwriters are unbiased in their review of underwritten loans and encouraged to follow HUD guidelines. To insure this lack of bias, federal regulations prohibit compensating underwriters based on the number of FHA loans that they approve. 26. Wolfe hired Susan Haidar ( Haidar ) to underwrite WWF s government loans. Haidar, while underwriting a significant number of government loans, was paid fees or commissions on these loans by WWF, specifically arranged by Wolfe. These payments violated HUD s rules regarding financial incentives to underwriters and tainted the underwriting for every FHA loan Haidar processed. Improper First Payment on Late Endorsements 8

9 Case 2:01-x JAC Document 28 Filed 01/25/2007 Page 9 of Once a loan is closed and the underwriting process is completed by a mortgagee, it is submitted to HUD for endorsement of the insurance. Mortgages submitted to HUD for endorsement more than 60 days after closing are known as late endorsements by HUD. Under HUD regulations and guidelines late endorsements are only allowed for loans which are not in default. A lender that submits loans for late endorsement must provide a separate certification that, among other things, the escrow and loan payments are current and that the lender has not made payments on the loan on behalf of the borrower. 28. Following a policy established by Wolfe, WWF or its loan officers prevented loans from going into default before they had been endorsed by FHA by covering the first payment on any mortgage which the borrower failed to make prior to submission to HUD. FHA would not endorse a loan that was already non-performing at the time of submission. Under Wolfe s policy, the WWF loan officer either paid these amounts directly or WWF made the payments and deducted the amount from the loan officer s compensation. 29. WWF then submitted many of these loans to HUD for late endorsement with certifications that were false and/or without required certifications to induce FHA to insure loans that were already non-performing. Once these loans were endorsed for FHA insurance, no additional payments were made and they went into immediate default resulting in FHA paying mortgage insurance claims. Fraudulent Documents 9

10 Case 2:01-x JAC Document 28 Filed 01/25/2007 Page 10 of In order for FHA to insure a mortgage, there are a number of requirements that the borrowers must meet and the lenders must verify. Key requirements relate to the borrowers current income and credit history. In numerous cases, WWF submitted fraudulent documents such as Verifications of Employment, Verifications of Rent, pay stubs, credit reports and other documentation required by FHA in order to ascertain whether the borrower meets the minimum income and credit requirements. Lenders are required to verify these documents. For numerous loans, WWF failed to verify these fraudulent documents. As the ultimate overseer of the government loan division, Wolfe knew that the verification process was not operating and that fraudulent documents were being submitted to FHA/HUD. 31. Contrary to the impression created by the fraudulent financial documentation WWF submitted to HUD, the borrowers on these properties did not have the financial wherewithal, and/or did not intend, to make payments on their mortgage loans, and quickly defaulted on their obligations under the mortgages, in many instances prior to making any mortgage payments. The false statements and misrepresentations pertained to the creditworthiness of the loan applicants, to the likelihood that they would meet their payment obligations under the mortgage loans and to the certification WWF made regarding its verification of these facts. As a result of the defaults, the mortgage holders ultimately foreclosed and submitted claims to HUD, which HUD paid, pursuant to its insurance obligations. 32. HUD, in reliance on, and by reason of, the false and fraudulent statements contained in the mortgage insurance applications and supporting documents presented, 10

11 Case 2:01-x JAC Document 28 Filed 01/25/2007 Page 11 of 30 or caused to be presented, to HUD by WWF, insured the lenders against losses on the ten mortgage loans described herein. But for the false and fraudulent information, statements, and misrepresentations made pursuant to the scheme, HUD would not have insured the loans. These ten loans are identified in Exhibit A, which is incorporated by reference herein, and further described below. THE FRAUDULENT MORTGAGE LOANS 33. Each of the ten mortgage loans went into default. The mortgage holders of each of the ten loans presented claims for insurance benefits to HUD, and HUD, in honor of its mortgage insurance commitments, paid the mortgage insurance claims. After gaining ownership and possession of the ten properties, HUD incurred additional costs including tax expenses, maintenance and operating expenses, and sales expenses. HUD s total damages on the ten loans are $1,444, GRIFFIN GRANDON, LIVONIA, MICHIGAN (FHA Case # ) 34. This loan was a result of the Phantom Loan scheme masterminded by Wolfe where WWF, acting through its loan officers and underwriters, knowingly submitted or caused to be submitted false and fraudulent statements concerning a refinance of the borrower s outstanding mortgage. 35. WWF falsely indicated that the loan was a refinance of a certain WWF loan that, in fact, never existed. The form HUD - 1 which was submitted to FHA showed a false pay-off amount. In order to continue the fiction of the Phantom Loan and to induce HUD/FHA to provide mortgage insurance for a loan concerning property located 11

12 Case 2:01-x JAC Document 28 Filed 01/25/2007 Page 12 of 30 at Grandon, WWF fabricated a false verification of mortgages and submitted credit reports that were fraudulently altered. 36. The borrower, Dan Griffin, did not legitimately qualify for a HUD/FHA mortgage, and defaulted on the loan immediately following his first payment. 37. WWF and Wolfe knew the statements were false and that WWF would submit the documents and information, or cause them to be submitted, to HUD/FHA to obtain insurance, and that HUD/FHA would rely on the documents and information in insuring the mortgage. 38. The loan closed on February 17, WWF submitted the loan and its supporting documents to HUD for insurance coverage, including the false and fraudulent documents. HUD endorsed the loan for insurance on March 10, The false and fraudulent documents and information were material to the issuance of mortgage insurance by HUD/FHA. 40. The mortgage holder ultimately foreclosed and submitted a claim to HUD on August 10, HUD/FHA paid the claim, pursuant to its insurance obligations, incurring expenses, including holding and sales expenses, of $187, MORGAN 3754 TYLER, DETROIT, MICHIGAN (FHA Case # ) 41. WWF, acting through its employees and agents, knowingly submitted or caused to be submitted to HUD/FHA false and fraudulent statements concerning the borrower s income and rental status of the property to induce HUD/FHA to provide mortgage insurance for a loan concerning property located at 3754 Tyler. 12

13 Case 2:01-x JAC Document 28 Filed 01/25/2007 Page 13 of The borrower, Raymond A. Morgan, Sr. did not legitimately qualify for a HUD/FHA mortgage, and defaulted on the loan. 43. WWF caused the submission of falsified statements to HUD/FHA on, and accompanying, the borrower s mortgage application, including a fraudulent Verification of Income indicating that the borrower had sufficient income to make mortgage payments, a fraudulent lease, other documents falsifying the source for some of the borrower s income, and false statements allegedly provided by the borrowers. 44. WWF employees knew these documents, statements and information were false and that HUD/FHA would rely on the documents and information in insuring the mortgage. 45. Wolfe supervised the WWF employees who issued and underwrote this loan. He created an atmosphere where fraud was encouraged. 46. WWF underwriter Susan Haidar underwrote this mortgage on behalf of WWF and was improperly paid an incentive to approve this loan by WWF. Her compensation was directed by Wolfe. 47. The loan closed on October 31, WWF submitted the loan and its supporting documents to HUD for insurance coverage, including the false and fraudulent documents. HUD endorsed the loan for insurance on December 22, The false and fraudulent documents and information were material to the issuance of mortgage insurance by HUD/FHA. 13

14 Case 2:01-x JAC Document 28 Filed 01/25/2007 Page 14 of The mortgage holder ultimately foreclosed and submitted a claim to HUD on June 12, HUD/FHA paid the claim, pursuant to its insurance obligations, incurring expenses, including holding and sales expenses, of $76, HAMMOUD 7911 BINGHAM, DEARBORN, MICHIGAN (FHA Case # ) 50. WWF, acting through its employees and agents, knowingly submitted or caused to be submitted false and fraudulent statements concerning the borrower s income and employment to induce HUD/FHA to provide mortgage insurance for a loan concerning property located at 7911 Bingham. 51. The borrower, Nadir Hammoud, did not legitimately qualify for a HUD/FHA mortgage, and defaulted on the loan after making only two payments. 52. WWF employees caused the submission of falsified statements to HUD/FHA on, and accompanying, the borrower s mortgage application, including a fraudulent Verification of Employment indicating that the borrower had sufficient income to make mortgage payments, and fraudulent documentation demonstrating the credit worthiness of the borrower. 53. WWF employees knew the documents, statements, and information were false, and that HUD/FHA would rely on the documents and information in insuring the mortgage. 54. Wolfe supervised the WWF employees who issued and underwrote this loan. He created an atmosphere where fraud was encouraged. 14

15 Case 2:01-x JAC Document 28 Filed 01/25/2007 Page 15 of WWF underwriter Susan Haidar underwrote this mortgage on behalf of WWF and was improperly paid an incentive to approve this loan by WWF. Her compensation was directed by Wolfe. 56. The loan closed on April 26, WWF submitted the loan and its supporting documents to HUD for insurance coverage, including the false and fraudulent documents. HUD endorsed the loan for insurance on June 22, The false and fraudulent documents and information were material to the issuance of mortgage insurance by HUD/FHA. 58. The mortgage holder ultimately foreclosed and submitted a claim to HUD on January 29, HUD/FHA paid the claim, pursuant to its insurance obligations, incurring expenses, including holding and sales expenses, of $203, ZURAWSKI MAYWOOD, BROWNSTOWN, MICHIGAN (FHA Case # ) 59. WWF, acting through its employees and agents, knowingly submitted or caused to be submitted false and fraudulent statements concerning the borrower s creditworthiness and credit history to induce HUD/FHA to provide mortgage insurance for a loan concerning property located at Maywood. 60. The borrower, Dorn Zurawski, did not legitimately qualify for a HUD/FHA mortgage, and defaulted on the loan after making only two payments. 61. WWF employees caused the submission of falsified statements to HUD/FHA on, and accompanying, the borrower s mortgage application, including fraudulent documentation demonstrating the credit worthiness of the borrower. 15

16 Case 2:01-x JAC Document 28 Filed 01/25/2007 Page 16 of WWF employees knew the documents, statements and information were false and that HUD/FHA would rely on the documents and information in insuring the mortgage. 63. Wolfe supervised the WWF employees who issued and underwrote this loan. He created an atmosphere where fraud was encouraged. 64. WWF underwriter Susan Haidar underwrote this mortgage on behalf of WWF and was improperly paid an incentive to approve this loan by WWF. Her compensation was directed by Wolfe. 65. The loan closed on May 17, WWF submitted the loan and its supporting documents to HUD for insurance coverage, including the false and fraudulent documents. HUD endorsed the loan for insurance on June 27, The false and fraudulent documents and information were material to the issuance of mortgage insurance by HUD/FHA. 67. The mortgage holder ultimately foreclosed and submitted a claim to HUD on August 13, HUD/FHA paid the claim, pursuant to its insurance obligations, incurring expenses, including holding and sales expenses, of $199, MORTADA 8730 SHADDICK, DEARBORN, MICHIGAN (FHA Case # ) 68. The borrower on this loan, Wael Mortada, failed to make the first payment on the loan. The loan was submitted to HUD by WWF more than 60 days following the closing of the loan. In order to submit the loan for FHA insurance endorsement, WWF, 16

17 Case 2:01-x JAC Document 28 Filed 01/25/2007 Page 17 of 30 either directly or through a WWF loan officer, paid the first payment so the mortgage would not default until after FHA insured. 69. WWF, acting through its employees and agents, improperly paid a mortgage payment on a defaulted mortgage and falsely certified to HUD in order to obtain a late endorsement. 70. WWF, acting through its employees and agents, knowingly submitted or caused to be submitted false and fraudulent statements concerning the borrower s mortgage application, Verification of Employment, and the certification for late endorsement to induce HUD/FHA to provide mortgage insurance for a loan concerning property located at 8730 Shaddick. 71. The borrower, Wael Mortada, did not legitimately qualify for a HUD/FHA mortgage, and immediately defaulted on the loan never making a payment. 72. WWF employees caused the submission of falsified statements to HUD/FHA on, and accompanying, the borrower s mortgage application including a fraudulent verification of employment indicating that the borrower had sufficient income to make mortgage payments and a certification that the mortgage and escrow were current and the lender did not make any payments to affect the status of the loan. 73. WWF employees knew the documents, statements and information were false and that HUD/FHA would rely on the documents and information in insuring the mortgage. 74. Wolfe supervised the WWF employees who issued and underwrote this loan. He created an atmosphere where fraud was encouraged. 17

18 Case 2:01-x JAC Document 28 Filed 01/25/2007 Page 18 of The loan closed on September 24, WWF submitted the loan and its supporting documents to HUD for insurance coverage, including the false and fraudulent documents. HUD endorsed the loan for insurance on January 3, The false and fraudulent documents and information were material to the issuance of mortgage insurance by HUD/FHA. 77. The mortgage holder ultimately foreclosed and submitted a claim to HUD on June 24, HUD/FHA paid the claim, pursuant to its insurance obligations, incurring expenses, including holding and sales expenses, of $119, OGILVIE 8411 FIELDING, DETROIT, MICHIGAN (FHA Case # ) 78. The borrower on this loan, Ogilvie, failed to make the first payment on the loan. The loan was submitted to HUD by WWF more than 60 days following the closing of the loan. In order to submit the loan for FHA insurance endorsement, WWF either directly or through a WWF loan officer paid the first payment so the mortgage would not be in default until after it was FHA insured. The policy requiring this treatment of the loan was adopted and enforced by Wolfe. 79. WWF, acting through its employees and agents, improperly paid a mortgage payment on a defaulted mortgage and falsely certified to HUD in order to obtain a late endorsement. 80. WWF, acting through its employees and agents, knowingly submitted or caused to be submitted false and fraudulent statements concerning the borrower s mortgage application, income and employment, and the false certification for late 18

19 Case 2:01-x JAC Document 28 Filed 01/25/2007 Page 19 of 30 endorsement to induce HUD/FHA to provide mortgage insurance for a loan concerning property located at 8411 Fielding. 81. The borrower, Christopher Ogilvie, did not legitimately qualify for a HUD/FHA mortgage, and immediately defaulted on the loan without making a payment. 82. WWF employees caused the submission of falsified statements to HUD/FHA on, and accompanying, the borrower s mortgage application, including a fraudulent Verification of Employment indicating that the borrower had sufficient income to make mortgage payments, and a certification that the mortgage and escrow were current and the lender did not make any payments to affect the status of the loan. 83. WWF employees knew the documents and information supporting Ogilvie s mortgage application were false, that WWF would submit them, or cause them to be submitted, to HUD/FHA to obtain insurance, and that HUD/FHA would rely on the documents and information in insuring the mortgage. 84. Wolfe supervised the WWF employees who issued and underwrote this loan. He created an atmosphere where fraud was encouraged. 85. The loan closed on October 2, WWF submitted the loan and its supporting documents to HUD for insurance coverage, including the false and fraudulent documents. HUD endorsed the loan for insurance on January 10, The false and fraudulent documents and information were material to the issuance of mortgage insurance by HUD/FHA. 19

20 Case 2:01-x JAC Document 28 Filed 01/25/2007 Page 20 of The mortgage holder ultimately foreclosed and submitted a claim to HUD on August 15, HUD/FHA paid the claim, pursuant to its insurance obligations, incurring expenses, including holding and sales expenses, of $77, SHEEKA ANDOVER, SOUTHFIELD, MICHIGAN (FHA Case # ) 88. WWF, acting through its employees and agents, knowingly submitted, or caused to be submitted, to HUD/FHA false and fraudulent statements concerning the borrower s income and employment to induce HUD/FHA to provide mortgage insurance for a loan concerning property located at Andover. 89. The borrower, Waleed Sheeka, did not legitimately qualify for a HUD/FHA mortgage, and defaulted on the loan. 90. WWF employees caused the submission of falsified statements on, and accompanying, the borrower s mortgage application, including a fraudulent Verification of Employment and falsified pay stubs indicating that the borrower had sufficient income to make mortgage payments. 91. WWF employees knew the documents, statements and information supporting Sheeka s mortgage application were false, and that HUD/FHA would rely on the documents and information in insuring the mortgage. 92. Wolfe supervised the WWF employees who issued and underwrote this loan. He created an atmosphere where fraud was encouraged. 20

21 Case 2:01-x JAC Document 28 Filed 01/25/2007 Page 21 of The loan closed on December 15, WWF submitted the loan and its supporting documents to HUD for insurance coverage, including the false and fraudulent documents. HUD endorsed the loan for insurance on February 6, The false and fraudulent documents and information were material to the issuance of mortgage insurance by HUD/FHA. 95. The mortgage holder ultimately foreclosed and submitted a claim to HUD on December 17, HUD/FHA paid the claim, pursuant to its insurance obligations, incurring expenses, including holding and sales expenses, of $217, EL-ALALI 5421 MEAD, DEARBORN, MICHIGAN (FHA Case # ) 96. WWF, acting through its employees and agents, knowingly submitted, or caused to be submitted, to HUD/FHA false and fraudulent statements concerning the borrower s income, employment and status of mortgage as a refinance to induce HUD/FHA to provide mortgage insurance for a loan concerning property located at 5421 Mead. 97. The borrower, Ahmad T. El-Alali, did not legitimately qualify for a HUD/FHA mortgage, and defaulted on the loan. 98. WWF employees caused the submission of falsified statements to HUD/FHA on, and accompanying, the borrower s mortgage application, including a fraudulent Verification of Employment indicating that the borrower had sufficient income to make mortgage payments and inconsistent documentation as to the refinance status of the loan. 21

22 Case 2:01-x JAC Document 28 Filed 01/25/2007 Page 22 of WWF employees knew the documents and information supporting El- Alali s mortgage application were false, and that HUD/FHA would rely on the documents and information in insuring the mortgage Wolfe supervised the WWF employees who issued and underwrote this loan. He created an atmosphere where fraud was encouraged The loan closed on October 19, WWF submitted the loan and its supporting documents to HUD for insurance coverage, including the false and fraudulent documents. HUD endorsed the loan for insurance on February 26, The false and fraudulent documents and information were material to the issuance of mortgage insurance by HUD/FHA The mortgage holder ultimately foreclosed and submitted a claim to HUD on December 11, HUD/FHA paid the claim, pursuant to its insurance obligations, incurring expenses, including holding and sales expenses, of $169, CALLOWAY EVERGREEN, DETROIT, MICHIGAN (FHA Case # ) 104. WWF, acting through its employees and agents, knowingly submitted, or caused to be submitted, to HUD/FHA false statements concerning the borrower s income and employment, to induce HUD/FHA to provide mortgage insurance for a loan concerning the property located at Evergreen The borrower, Zaire Calloway, did not legitimately qualify for a HUD/FHA mortgage, and defaulted on the loan after making only one payment. 22

23 Case 2:01-x JAC Document 28 Filed 01/25/2007 Page 23 of WWF employees caused the submission of falsified statements to HUD/FHA on, and accompanying, the borrower s mortgage application, including a fraudulent Verification of Employment indicating that the borrower had sufficient income to make mortgage payments, fraudulent credit documents, and a false verification of rent WWF employees knew the documents and information supporting Calloway s mortgage application were false, and that HUD/FHA would rely on the documents and information in insuring the mortgage. Wolfe supervised the WWF employees who issued and underwrote this loan. He created an atmosphere where fraud was encouraged The loan closed on January 29, WWF submitted the loan and its supporting documents to HUD for insurance coverage, including the false and fraudulent documents. HUD endorsed the loan for insurance on February 13, The false and fraudulent documents and information were material to the issuance of mortgage insurance by HUD/FHA The mortgage holder ultimately foreclosed and submitted a claim to HUD on July 22, HUD/FHA paid the claim, pursuant to its insurance obligations, incurring expenses, including holding and sales expenses, of $80, GRIGG NOURBURNE, REDFORD, MICHIGAN (FHA Case # ) 111. WWF, acting through its employees and agents, knowingly submitted, or caused to be submitted, to HUD/FHA false statements concerning the borrower s 23

24 Case 2:01-x JAC Document 28 Filed 01/25/2007 Page 24 of 30 income and employment, to induce HUD/FHA to provide mortgage insurance for a loan concerning the property located at Nourburne The borrower, Dorothy L. Grigg, did not legitimately qualify for a HUD/FHA mortgage, and defaulted on the loan WWF employees caused the submission of falsified statements to HUD/FHA on, and accompanying, the borrower s mortgage application, including a false rental agreement and statements as to the status of other owned properties WWF employees knew the documents and information supporting Grigg s mortgage application were false, and that HUD/FHA would rely on the documents and information in insuring the mortgage Wolfe supervised the WWF employees who issued and underwrote this loan. He created an atmosphere where fraud was encouraged The loan closed on October 29, WWF submitted the loan and its supporting documents to HUD for insurance coverage, including the false and fraudulent documents. HUD endorsed the loan for insurance on November 19, The false and fraudulent documents and information were material to the issuance of mortgage insurance by HUD/FHA The mortgage holder ultimately foreclosed and submitted a claim to HUD on August 22, HUD/FHA paid the claim, pursuant to its insurance obligations, incurring expenses, including holding and sales expenses, of $113, FIRST CAUSE OF ACTION False Claims Act, 31 U.S.C. 3729(a)(1) (Submission, or Causing the Submission, of False Claims) 24

25 Case 2:01-x JAC Document 28 Filed 01/25/2007 Page 25 of The United States repeats and realleges each allegation set forth above in paragraphs 1 through 118 as if set forth fully herein By virtue of the acts described above, and in violation of 31 U.S.C , the Defendant WWF knowingly presented, or caused others to present, to an officer, employee or agent of the United States, false or fraudulent claims to obtain payment or approval in violation of the False Claims Act The United States paid the false or fraudulent claims because of the acts of the Defendant and, as a result, the United States has incurred actual damages of $1,444,893 exclusive of interest and costs. Pursuant to the False Claims Act, 31 U.S.C. 3729(a)(1), as amended, the Defendant WWF is liable to the United States under the treble damage provision of the False Claims Act for (3) times the amount of damages which the United States has sustained because of Defendant s actions ($4,334,679) less amounts recovered by the government on ultimate disposition of the properties ($892,870) for a total of $3,441, Pursuant to the False Claims Act, 31 U.S.C. 3729(a)(1), as amended, Defendant WWF is liable to the United States under the civil penalty provision of the False Claims Act for a civil penalty of not less than $5,500 and not more than $11,000 for each of the ten false or fraudulent claims alleged herein, for a maximum penalty of $110,000. SECOND CAUSE OF ACTION False Claims Act, 31 U.S.C. 3729(a)(1) (Submission, or Causing the Submission, of False Claims) 25

26 Case 2:01-x JAC Document 28 Filed 01/25/2007 Page 26 of The United States repeats and realleges each allegation set forth above in paragraphs 1 through 118 as if set forth fully herein By virtue of the acts described above, and in violation of 31 U.S.C , the Defendant Wolfe knowingly presented, or caused others to present, to an officer, employee or agent of the United States, false or fraudulent claims to obtain payment or approval in violation of the False Claims Act The United States paid the false or fraudulent claims because of the acts of the Defendant and, as a result, the United States has incurred actual damages of $1,444,893 exclusive of interest and costs. Pursuant to the False Claims Act, 31 U.S.C. 3729(a)(1), as amended, Defendant Wolfe is liable to the United States under the treble damage provision of the False Claims Act for (3) times the amount of damages which the United States has sustained because of the Defendant s actions ($4,334,679) less amounts recovered by the government on ultimate disposition of the properties ($892,870) for a total of $3,441, Pursuant to the False Claims Act, 31 U.S.C. 3729(a)(1), as amended, Defendant Wolfe is liable to the United States under the civil penalty provision of the False Claims Act for a civil penalty of not less than $5,500 and not more than $11,000 for each of the ten false or fraudulent claims alleged herein, for a maximum penalty of $110,000. THIRD CAUSE OF ACTION False Claims Act, 31 U.S.C. 3729(a)(2) (Using a False Record or Statement to Get a False Claim Paid) 26

27 Case 2:01-x JAC Document 28 Filed 01/25/2007 Page 27 of The United States repeats and realleges each allegation set forth above in paragraphs 1 through 118 as if set forth fully herein By virtue of the acts described above, and in violation of 31 U.S.C , the Defendant WWF knowingly made, used, or caused to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the United States The United States paid the false or fraudulent claims because of the acts of the Defendant WWF and, as a result, the United States has incurred actual damages of $1,444,893 exclusive of interest and costs. Pursuant to the False Claims Act, 31 U.S.C. 3729(a)(2), as amended, Defendant WWF is liable to the United States under the treble damage provision of the False Claims Act for (3) times the amount of damages which the United States has sustained because of the Defendant s actions ($4,334,679) less amounts recovered by the government on ultimate disposition of the properties ($892,870) for a total of $3,441, Pursuant to the False Claims Act, 31 U.S.C. 3729(a)(2), as amended, Defendant WWF is liable to the United States under the civil penalty provision of the False Claims Act for a civil penalty of not less than $5,500 and not more than $11,000 for each of the ten false or fraudulent claims alleged herein, for a maximum penalty of $110,000. FOURTH CAUSE OF ACTION False Claims Act, 31 U.S.C. 3729(a)(2) (Using a False Record or Statement to Get a False Claim Paid) 27

28 Case 2:01-x JAC Document 28 Filed 01/25/2007 Page 28 of The United States repeats and realleges each allegation set forth above in paragraphs 1 through 118 as if set forth fully herein By virtue of the acts described above, and in violation of 31 U.S.C , the Defendant Wolfe knowingly made, used, or caused to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the United States The United States paid the false or fraudulent claims because of the acts of Defendant Wolfe and, as a result, the United States has incurred actual damages of $1,444,893 exclusive of interest and costs. Pursuant to the False Claims Act, 31 U.S.C. 3729(a)(2), as amended, Defendant Wolfe is liable to the United States under the treble damage provision of the False Claims Act for (3) times the amount of damages which the United States has sustained because of the Defendants actions ($4,334,679) less amounts recovered by the government on ultimate disposition of the properties ($892,870) for a total of $3,441, Pursuant to the False Claims Act, 31 U.S.C. 3729(a)(2), as amended, Defendant Wolfe is liable to the United States under the civil penalty provision of the False Claims Act for a civil penalty of not less than $5,500 and not more than $11,000 for each of the ten false or fraudulent claims alleged herein, for a maximum penalty of $110,000. Claim For Relief 28

29 Case 2:01-x JAC Document 28 Filed 01/25/2007 Page 29 of 30 WHEREFORE, the United States demands judgment against the Defendants as follows: a) on Count I (Submission, or Causing the Submission, of False Claims), judgment against Defendant WWF for treble the government s single damages less the government s recoupment on the sale of the properties, totaling $3,441,809; plus penalties of $11,000 for each of the ten false claims totaling $110,000; b) on Count II (Submission, or Causing the Submission, of False Claims), judgment against Defendant Wolfe for treble the government s single damages less the government s recoupment on the sale of the properties, totaling $3,441,809; plus penalties of $11,000 for each of the ten false claims totaling $110,000; c) on Count III (Using a False Record or Statement to Get a False Claim Paid), judgment against Defendant WWF for treble the government s single damages less the government s recoupment on the sale of the properties totaling $3,441,809; plus penalties of $11,000 for each of the ten false claims totaling $110,000; d) on Count IV (Using a False Record or Statement to Get a False Claim Paid), judgment against Defendant Wolfe for treble the government s single damages less the government s recoupment on the sale of the properties totaling $3,441,809; plus penalties of $11,000 for each of the ten false claims totaling $110,000; (e) that the costs of this action be taxed against the Defendants; and (f) that the United States be granted such other and further relief as the Court shall deem just and proper. 29

30 Case 2:01-x JAC Document 28 Filed 01/25/2007 Page 30 of 30 Respectfully submitted, PETER D. KEISLER Assistant Attorney General STEPHEN J. MURPHY United States Attorney By: s/ Leslie Wizner LESLIE MATUJA WIZNER Assistant United States Attorney 211 W. FORT ST., STE 2001 Detroit, MI (313) P# Dated: January 25, 2007 By: w/ consent David J. Leviss MICHAEL F. HERTZ DODGE WELLS DAVID J. LEVISS Attorneys U.S. Department of Justice Commercial Litigation Branch Civil Division P.O. Box 261 Ben Franklin Station Washington, D.C Tel: (202) Of Counsel: KENNETH MASSMAN, ESQUIRE Office of General Counsel United States Department of Housing and Urban Development 30