Wednesday, August 19, 2015

Detroit Feds: California-Based Pair Created Straw Men/Fake Accounts To Run Bid-Rigging Racket Of Online Auction Of Tax-Foreclosed Real Estate That Defrauded Wayne County Of $420K

In Detroit, Michigan, The Detroit News reports:
  • A pair of California investors have been indicted on accusations they defrauded Wayne County of $420,000 by rigging an online auction of tax-foreclosed properties.

    The pair exploited weaknesses in the 2013 auction that allowed them to buy 32 properties for $48,200, when the total price should have been $471,000, according to an indictment unsealed Thursday. They face up to 20 years in prison if convicted of wire fraud charges.

    Prosecutors say the scheme worked like this: One investor made a low opening bid. Then he and his partner used fake accounts to start a bidding war that scared away potential buyers. When time came to pay, the straw men defaulted, allowing the property to go to the investor who made the low opening bid.

    The scam allowed the pair — posing as “Lee Jones” and “Robert Evans” — to buy seven houses in Inkster for $5,300 that attracted bids totaling $99,000, according to the indictment.

    Wayne County Chief Deputy Treasurer David Szymanski said weaknesses in the auction that allowed the scheme were fixed.

    “After each auction, we figure out scams and plug the hole that allowed them, then they try to figure out a new way to beat the system,” Szymanski said. “People are always trying to figure out a way to game the system.”

    The federal indictment charged Mehran Aminzadeh of Santa Clara, Calif., and Ashraf Massih Hosseinian with eight counts of wire fraud and conspiracy to commit wire fraud. The charges stem from bank transfers to pay for the properties.

    The auction’s vulnerabilities were memorably highlighted in 2013 when a Texas doctor bid $6 million for the infamous Packard Plant on the east side. When that sale and another fell through, the sprawling property eventually went to Peru developer Fernando Palazuelo for $405,000.

    Last year, the county stopped using the auction site, realauction.com, and took over the sale of properties that are three or more years behind in taxes. This September, about 30,000 tax-foreclosed properties are up for auction. Since the real estate meltdown in 2008, the county has foreclosed on 108,500 properties because of taxes.

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