BALTIMORE, MD—The old saying of ‘if it’s too good to be true, it usually isn’t’ didn’t mean much to a group of investors who shoveled their money into the pockets of a group of con-men all for the promise of ultra-high returns on their “investment”.
Now the final sentencing is in the works with one Maryland lawyer being send to the slammer for a mere three years.
U.S. District Judge J. Frederick Motz sentenced Kevin Sniffen, age 53, of Phoenix, Maryland, an attorney licensed in Maryland, today to three years in prison, followed by three years of supervised release, for conspiring to commit wire fraud arising from an investment fraud scheme. Judge Motz also ordered Sniffen to pay restitution of $15.85 million.
Judge Motz also sentenced Sean Krondak, age 44, of Irvine California, today to six months of home detention as part of three years’ probation for obstructing justice.
The sentences were announced by United States Attorney for the District of Maryland Rod J. Rosenstein; Special Agent in Charge Stephen E. Vogt of the Federal Bureau of Investigation; and Special Agent in Charge Thomas J. Kelly of the Internal Revenue Service—Criminal Investigation, Washington, D.C. Field Office.
According to their plea agreements and court documents, Sniffen and Krondak were part of a fraudulent scheme carried out by Patrick Belzner and Brian McCloskey. McCloskey owned a real estate development business known as the McCloskey Group, LLC. Belzner, a home builder, began working with McCloskey in late 2008 or early 2009. Krondak was employed as the Vice President – Loan Officer & Underwriting at IAG Underwriters, LLC, (IAGU) run by Mervyn Phelan. IAGU, which maintained an office in Newport Beach, California, was in the business of underwriting loan applications submitted by real estate developers and then locating project financing from banks and other financial entities. Gregory Grantham, an attorney, held the position of IAGU’s general counsel on a part-time basis as a contract employee. IAGU began working with the McCloskey Group trying to locate sources of financing for its projects in about 2009.
Beginning in 2009 and continuing through June 2011, Belzner and McCloskey persuaded a number of private lenders to loan funds to the McCloskey Group to establish that it had cash reserves or “liquidity” in connection with its efforts to secure funding for real estate development projects through IAGU. Belzner and McCloskey falsely represented that the funds would be maintained in an escrow account under the control of Kevin Sniffen, a licensed attorney and escrow agent in Baltimore County; that the funds would not be used for any other purpose; and that the money would be returned to the lender, either upon the funding of the loan or after a specified period of time. In return for this temporary use of the lender’s funds, Belzner and McCloskey promised to pay substantial rates of interest.
Beginning in about the late summer of 2010, Phelan and Grantham cooperated with Belzner and McCloskey in their scheme to defraud by (1) making false representations to help persuade lenders to make loans to the McCloskey Group in order to establish “liquidity”; (2) telling the lenders that the funds had to be placed in an escrow account controlled by Kevin Sniffen; and by (3) making false representations to dissuade previous escrow account lenders from demanding the return of their funds when the original time period established for the loan expired without the McCloskey Group obtaining financing for the project in question. In particular, Phelan and Grantham repeatedly advised escrow account lenders that funding for a particular project was imminent when they knew this was not the case, and in one case falsely represented that they were holding millions of dollars in escrow funds tendered by one group of lenders. Krondak knowingly participated in the scheme by sending e-mails and other communications that he knew contained false information to victim lenders directly, or to Belzner, McCloskey and Sniffen for them to use in their contacts with the victim lenders.
Once the lenders transferred their funds into the escrow accounts, Belzner directed McCloskey, Sniffen, and other conspirators to remove those funds from the escrow accounts without the knowledge of the lenders. Belzner and McCloskey then used the stolen funds to repay earlier loans to the McCloskey Group and to Belzner personally; to meet ongoing business expenses of the McCloskey Group; and to support Belzner’s life-style. The total losses resulting from the scheme were approximately $20 million.
After the scheme was exposed, Krondak assisted Phelan and Grantham in withholding and destroying relevant e-mails in response to federal grand jury subpoenas issued to IAGU and to Phelan and Grantham personally.
Patrick J. Belzner, a/k/a “Patrick McCloskey,” age 45, of Selbyville, Delaware, was sentenced to 15 years in prison for wire fraud conspiracy, wire fraud and tax evasion, and was ordered to pay $19.805 million in restitution. Brian McCloskey, age 42, of Baltimore, and Mervyn A. Phelan, Sr., age 74, of Newport Beach, California, each pleaded guilty to his role in the conspiracy and are both scheduled to be sentenced on December 23, 2014. Gregory E. Grantham, age 57, of Oceanside, California, was sentenced to five years in prison and ordered to forfeit and pay restitution of $17.4 million.
This law enforcement action is part of the Fraud Enforcement Task Force which was formed to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.
United States Attorney Rod J. Rosenstein thanked the FBI and IRS – Criminal Investigation for their work in the investigation. Mr. Rosenstein praised Assistant U.S. Attorneys Jefferson M. Gray and Kathleen Gavin, who prosecuted the case.