Feds indict 10 in $14 million mortgage scheme allegedly headed by McCloskey

McCloskey and Matta, who was picked up by federal agents in Juncos, were among 10 people indicted by a federal grand jury on 33 conspiracy, mortgage fraud and money laundering counts in connection with the scheme centered on luxury residences in the exclusive Palmas del Mar area of Humacao.

Authorities had taken custody of nine suspects by Tuesday morning and McCloskey flew in from South Florida and turned himself in, according to the U.S. Attorney's Office.

The alleged scheme involved fraudulently inflating the value of homes during the appraisal process through a conspiracy between the buyers and seller McCloskey. They would then split the inflated portion of the appraised value between each other.

“Matta was one of the buyers in this scheme,” FBI spokesman Harry Rodriguez said.

The singer bought three properties for $4.2 million during a six-month period and got a $600,000 kickback from the developer, federal authorities allege.

Among the other suspects is Nahir Dominicci, the sister of TV reporter Carmen Dominicci, who allegedly served as a buyer and recruited other buyers in the scheme.

Federal authorities said the mastermind was McCloskey, the developer of the 12 luxury homes involved in the scheme in The Castles and Sunrise II developments at Palmas del Mar.

McCloskey, a prominent Puerto Rico developer and president of Swiss Chalet Inc., recently built the massive Gallery Plaza complex in the Condado with millions of dollars in Law 212 tax incentives from the local government. He also owns the neighboring DoubleTree Hotel.

The other suspects were identified as Angel Millán, Esteban Llanos, Jesús Suárez, Harold Mestey, Lorny Seda, Sarahid Gómez and Yhanira Alberti.

“These people were dedicated to a fraud scheme that took place between 2004 and 2006 where they stole $14 million,” FBI Special Agent in Charge Luis Fraticelli said.

U.S. Attorney Rosa Emilia Rodríguez said the scheme was built on McCloskey inflating the prices of the homes and then kicking back cash to the buyers who had taken bank loans to buy the homes.

The buyers allegedly submitted falsified documents, including bogus tax returns, to qualify for bank loans from R-G Mortgage, Santander Mortgage, Doral Bank and FirstBank. No bank officials or appraisers were charged in the scheme. However, Rodríguez said the investigation remains open and did not discard the possibility of additional arrests in the case.

The inflated prices for The Castles homes ranged from $2.8 million to $3.2 million, while the bogus prices in Sunrise II went from $685,000 to $900,000.

"Now the banks are stuck with these houses" that are not worth as much as the mortgages, FBI spokesman Harry Rodriguez said.

“This type of scheme is what is affecting the mortgage industry at the moment in the United States and Puerto Rico and we are going to keep fighting it,” U.S. Attorney Rodríguez said.

Federal authorities have focused on mortgage fraud cases in Puerto Rico and Fraticelli anticipated more busts in the future.

“We are investigating people within the mortgage industry. Puerto Rico should stay tuned for more arrests,” he said.

The indictments in the latest case were handed up Oct 30 and the arrests were carried out by FBI and IRS agents Tuesday morning in Bayamón, Carolina, Caguas, Juncos and the state of Florida.

The accused face up to 30 years in prison and fines as high as $1 million. The accusation also calls for the confiscation of properties valued at $14 million.

U.S. Magistrate Marcos López set bail at $100,000 for McCloskey, who is being represented by attorney Osvaldo Carlo. Matta, who is being represented by attorney Ernesto Hernández, entered a not guilty plea and was freed on $40,000 bail. Dominicci’s bail was set at $45,000.

In June, Justice Secretary Antonio Sagardía told CARIBBEAN BUSINESS that there are “more than 100” mortgage fraud cases underway involving “powerful people with a lot of economic resources.”

Fraticelli, citing department policy, has declined to comment on specific investigations but acknowledged federal authorities are concerned about the problem of mortgage fraud. “We are very active in mortgage fraud investigations,” he said. “Our focus mainly is on mortgage companies that have people inside participating in the fraud.”

Former New York Mortgage Bankers founder Nancy Hernández was sentenced to six years in prison on local charges stemming from a $1.75 million fraud case, and federal authorities are undertaking their own investigation.

Federal authorities also raided the offices of Beneficial Mortgage earlier this year.