Huge scam is alleged in Lehman Bros.' suit over mortgage deals.

Lehman Bros. is expected to begin foreclosure proceedings on at least a dozen Westside homes as part of its ongoing $140 million litigation with two real estate investors.

The court-appointed receiver handling the properties, David Pasternak, said he expected the motion to be filed in U.S. District Court, Central District of California, in Los Angeles, this week.

The filing would be the latest in a legal battle that commenced in April when Lehman brought suit against several investors, led by Mark Abrams and Charles Elliott Fitzgerald, alleging that the two were the ringleaders of a scheme to fraudulently obtain $140 million in mortgages to back the purchases of 84 homes throughout California over the last three years.

In addition to the fraud alleged by Lehman, the litigation has ensnared contributors to Mayor James Hahn's election campaign and raised allegations of bigamy.

Lehman's suit details an alleged scam involving Abrams and Fitzgerald, real estate investors who had developed at least a dozen homes in the Beverly Hills/Bel-Air area. Also named were a host of Abrams and Fitzgerald family members and a web of closely held real estate brokerages, escrow companies and management firms.

Abrams is listed in state records as chief executive of Desert Pacific Financial Inc., and in Lehman's suit was said to have held himself out as a principal of Beverly Hills Estates Funding Inc. Both entities, Lehman alleged in its April filing, secured loans from Lehman based on falsified and inflated property appraisals to buy homes, using the excess funds for other developments or personal purposes.

The scam alleged by Lehman, Pasternak said, involved BHEF identifying a home on the market for between $700,000 and $900,000. It would then use a related company to issue an appraisal of the property at $2.5 million. Then, a brokerage company affiliated with either Abrams or Fitzgerald would obtain a mortgage of about $1.5 million from Lehman.

BHEF also arranged for Lehman to buy similarly executed loans from other lenders as well.

"Although the loan application packages appeared legitimate, they in fact contained false appraisals which overvalued the real property security for the loans by as much as 375 percent, doctored credit reports and false verifications of rent," the complaint read.

According to the Los Angeles County Office of the Assessor, recent sales of several homes identified in the suit were recorded at levels substantially higher than comparable properties.

Two homes in Brentwood alleged to be part of the scheme, at 3386 and 3388 Mandeville Canyon Road, were recorded as purchased for $2.4 million each in January and July 2002, respectively. A similarly sized house at 3370 Mandeville Canyon Road sold for $882,000 in October, according to county records.

Last November, the sale of the home at 9811 Portola Drive in Benedict Canyon, also cited in the suit, was recorded at $2.5 million while three other homes on the same block sold for prices ranging from $475,000 to $700,000 between August 2001 and last November, according to county records.

Neither Abrams nor Fitzgerald could he located for comment.

In a June 20 filing seeking a contempt charge against Fitzgerald, attorneys for Pasternak said they had reason to believe Fitzgerald had fled the country and had "flown to a country where there was no extradition to the U.S., possibly in the South Pacific."

Fitzgerald, the filing said, fled with his wife, Meya, and five children.

A declaration filed by one of the lawyers for Pasternak, Michael Wachtell of Buchalter Nemer Fields & Younger PC, said he had spoken on June 26 to Shawna Fitzgerald, who also identified herself as Fitzgerald's wife and the mother of another of his children.

Wachtell said in the declaration that "she first learned of (Fitzgerald's) other wife Meya about 18 months ago and had commenced divorce proceedings ... but had not completed the divorce."

Robert Corbin, a partner at Corbin & Fitzgerald LLP who removed himself as defense counsel for Fitzgerald last month according to court papers, did not return calls seeking comment. Abrams' attorney, Ellyn Garofalo at Liner Yankelevitz Sunshine & Regenstreif LLP, was unavailable for comment.

Loraine Eber, an attorney at Severson & Werson representing Lehman Bros., declined comment.

"Because we are in litigation and there's an open criminal investigation into these activities, it is inappropriate to discuss anything related to the situation," said Kerrie Cohen, spokeswoman for New York-based Lehman Bros.

Thom Mrozek, spokesman for the U.S. Attorney's office in Los Angeles, could not confirm the status of any criminal investigation.

A handful of defendants in Lehman's suit--including Abrams, his wife, Peggy, and father, Herbert--gave a total of $9,000 in $1,000 increments to Hahn's mayoral campaign between December 2000 and September 2001, according to the L.A. City Ethics Commission.

Matt Middlebrook, Hahn's deputy mayor for communications and policy, did not return a call seeking comment.

Expensive lifestyle

The Abrams family, whose assets were frozen and whose Beverly Hills home was seized when Pasternak was appointed as receiver in May, filed a motion in June seeking to receive nearly $27,000 a month in living expenses.

Among the expenses were more than $4,500 in psychotherapy and psychiatry expenses for Abrams, his wife and daughter, and the costs of maintenance for a vacation home in Jackson Wyo.

"All defendants, including Peggy and Mark Abrams, have spent their illegally obtained funds with reckless "abandon ... Mark Abrams, for instance, is believed to be driving a Ferrari and a Mercedes Benz, in addition to the disclosed Lexus in Peggy Abrams' declaration," read Lehman's response to the request.

Also included among the defendants is Joseph Babajian, chairman of the estates division at Beverly Hills-based Prudential California Realty Estate Properties, who sold two of the homes, according to court documents.

Babajian, a prolific residential broker in the Beverly Hills and Westwood area, "acted as the sales agent on at least two of the fraudulent loans: 2281 Gloaming Way, Los Angeles, and 2545 Bowmont Drive, Beverly Hills," read the suit's proposed second amended complaint.

"Babajian knew, or should have known, that the properties were over-valued and that false representations as to their value were being made to potential lenders," the filing read. "Additionally, the defendants' financial records show that Desert Pacific made payments for Babajian's Porsche."

Babajian did not return calls seeking comment. Anthony Glassman, partner at Glassman Browning & Saltsman Inc., who is representing Babajian, wrote in an e-mail that while Babajian, who has sold three homes for Fitzgerald, had no involvement in the Bowmont Drive home.

"Lehman Bros.' allegations with respect to Mr. Babajian are false," he wrote in regard to any knowledge of the homes being overvalued.

As for the Porsche, "Mr. Babajian subleased the car from Desert Pacific at fair market value," he wrote. "He received no financial advantage."

Staff Reporter Amanda Bronstad contributed to this story.