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U. S. FUNDING LAWYER, VICE PRESIDENT PLEAD GUILTY IN SECOND MORTGAGE LOAN SCAM

 U. S. FUNDING LAWYER, VICE PRESIDENT PLEAD
 GUILTY IN SECOND MORTGAGE LOAN SCAM
 BOSTON, Nov. 13 /PRNewswire/ -- U.S. Attorney A. John Pappalardo today announced that a vice president of the now defunct U. S. Funding, Inc. of America, formerly of Weymouth, Massachusetts, as well as a lawyer for the company entered guilty pleas in federal court to an indictment charging them with participation in a fraudulent loan scam.
 Frank Scarpaci, Jr., age 38 of Plymouth, Mass., the brother of U. S. Funding owner Guy J. Scarpaci, and formerly a partner with the law firm of Abelson, Cohen and Scarpaci, entered pleas of guilty before Chief U. S. District Court Judge Joseph L. Tauro to one count of conspiracy to commit mail, wire and bank fraud and to violate the Travel Act, as well as to two substantive counts of bank fraud and seven substantive counts of wire fraud.
 Stephen J. Wilson, 31 of Saugus, Mass., the former vice president of U. S. Funding, entered pleas of guilty to one count of conspiracy to commit mail, wire and bank fraud and to violate the Travel Act, as well as to four substantive counts of bank fraud and five substantive counts of wire fraud.
 At the change of plea hearing a federal prosecutor stated that had the case gone to trial, the government's evidence would have shown that U. S. Funding, a Massachusetts corporation formed in 1985 and in existence through at least the fall of 1989 with offices located at various times in Randolph, Hingham and Weymouth. U. S. Funding was a mortgage company engaged in offering first and second mortgage loans to the public and then either brokering or selling these loans on the secondary market to various investors, some of which were federally insured financial institutions. The president and sole stockholder of U. S. Funding was Guy Scarpaci.
 The prosecutor stated that the evidence would show that between 1985 and the fall of 1989, U. S. Funding and various of its agents, employees and others associated with it, were engaged in a large scale mortgage fraud conspiracy. Primarily, the conspiracy involved an aggressive advertising and promotion effort whereby U.S. Funding was advertised to the public as a mortgage company that could get mortgages for anybody, regardless of financial status, credit history, etc. As a result of this effort, U. S. Funding attracted large numbers of low and moderate income borrowers, individuals with poor credit or who were otherwise in dire financial straights. In order to make such borrowers appear more creditworthy than was actually the case -- so as to be able to broker or sell their loans on the secondary market -- the conspirators falsified and/or artificially inflated various kinds of financial records of the borrowers, including wage stubs, tax returns, verification of employment forms, etc. The conspirators also caused phony appraisals to be prepared and in some cases caused phony title histories to be created so that loans were granted based upon the security of properties which the borrower either did not own or which were subject to senior indebtedness which had not been retired. In addition, in many instances U. S. Funding would represent to both borrowers and secondary market investors that the proceeds of loans would be used in whole or in part to pay off prior indebtedness on the mortgage property, but such proceeds would then be diverted to other uses. As a result of such diversions, U. S. Funding was often in a deficit situation where it had to use the proceeds from later loans sold on the secondary market to pay off indebtedness associated with earlier borrowers. In effect, U. S. Funding operated as a massive Ponzi scheme.
 The evidence would also show that in order to facilitate the sale of fraudulent loans on the secondary market to two particular investors, first Chrysler First Financial, Inc. and, later, Key Financial Services, Inc., the conspirators entered into an arrangement with Edward Lopes, who worked for these companies at successive times, to pay bribes to Lopes in return for his approving the purchase of loans which he knew to be fraudulent.
 The evidence would further show that at times during the conspiracy when U. S. Funding was in danger of running out of money and having its fraudulent activities come to light, it sought to generate additional monies by engaging in at least two check kiting operations, one involving solely its own accounts and another involving one of its own accounts and an account of the law firm of Abelson, Cohen and Scarpaci.
 Lastly, the evidence would show that in a further effort to generate monies to keep U. S. Funding afloat, the conspirators prepared phony financial statet?s of both U. S. Funding and Guy Scarpaci and used these to obtain loans and lines of credit from various Boston area banks.
 The prosecutor stated that, with respect to Frank Scarpaci, Jr., the evidence would show that his law firm was utilized by U.S. Funding, the secondary market investors or the title insurance company involved in most of the transactions, to perform the legal work and conduct the closings on most of the loans involved in the conspiracy. Frank Scarpaci was aware of the fraudulent nature of the loans which were being granted and sold on the secondary market, and with such knowledge actively assisted the conspiracy by closing such transactions or directing others in his firm to do so. In addition, in certain instances he also himself participated in the creation of phony documents, such as title certifications, which he knew to be inaccurate, or directed others to prepare such documents.
 With respect to the specific substantive counts to which Mr. Scarpaci plead guilty, the evidence would show that, with knowledge either of the specific fraudulent character of the loan in question or of the fact that it was being written in furtherance of the conspiracy, he closed the loan or caused others in his law firm to close the loan.
 One of the counts to which Scarpaci pleaded guilty pertains to one of the checks involved in one of the check kites discussed earlier. The prosecutor stated that the government's evidence as to this count would show that Frank Scarpaci knowingly permitted one of the escrow accounts of AC&S to be used in furtherance of a check kite designed to raise money for AC&S. The kite was carried out by the conspirators' depositing what they knew to be rubber U. S. Funding checks drawn on a U. S. Funding account at a San Francisco bank into the AC&S escrow account and then using the false balance in the account to wire monies back to the San Francisco bank. Through repeated churning in this fashion, U. S. Funding was able to skim monies from the account.
 The prosecutor stated that with respect to Stephen Wilson the government's evidence would show that he worked for U. S. Funding from approximately 1985 through the fall of 1989, with a hiatus of approximately one year from August, 1986 to late 1987. From 1988 through the closing of U. S. Funding, Wilson served as vice president of the company.
 The government's evidence would further show that Wilson was intimately involved in the preparation of false and fraudulent documents in connection with the granting of mortgage loans and the brokering or sale of these loans on the secondary market. The evidence would show that he either prepared or directed others to prepare numerous false wage stubs, tax returns, employment verifications and other documents.
 The government's evidence also would establish that during the fall of 1989, when the conspirators knew that their illegal activities were about to come under law enforcement scrutiny, Wilson assisted Guy Scarpaci and others in the shredding of incriminating documents. The prosecutor stated that Frank Scarpaci was not involved in this shredding of documents.
 Both defendants face maximum penalties of five years imprisonment and a $250,000.00 on each of the conspiracy, mail and wire fraud counts, and each bank fraud count involving a loan closed prior to August 9, 1989. As to each bank fraud count involving a loan closed after that date, the maximum penalty is twenty years imprisonment and a $1 million fine.
 Scarpaci and Wilson are the fifth and sixth defendants to enter guilty pleas in this case codefendants Edward Lopes, Eleana Charnitsky, Robert Brinkmann and Richard Goodwin having previously pleaded guilty to various counts of the indictment.
 The investigation leading to this prosecution was conducted jointly by the Federal Bureau of Investigation, the Massachusetts State Police, the U. S. Postal Inspection Service and the Office of the Massachusetts State Auditor, and is being jointly prosecuted by the United States Attorneys Office and the Office of Norfolk County District Attorney William D. Delahunt. Assistant U. S. Attorney Robert J. Lynn and Norfolk Assistant District Attorney and Special Assistant U. S. Attorney Dennis C. Mahoney are assigned to the case.
 -0- 11/13/92
 /CONTACT: Press Officer, U.S. Attorney's Office, 617-223-9445/ CO: ST: Massachusetts IN: SU:


CH -- NE014 -- 0886 11/13/92 16:54 EST
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Publication:PR Newswire
Date:Nov 13, 1992
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