Corelogic reported that in the US there was an estimated $10billion in mortgage fraud losses in 2011. According to the FBI, there were 1,089 mortgage fraud convictions in 2011.
Securities Fraud is not the same as mortgage fraud, but the same culprits are often committing both crimes if investors are involved in real estate mortgage investments. Investopedia.com defines securities fraud as: "A type of serious white-collar crime in which a person or company, such as a stockbroker, brokerage firm, corporation or investment bank, misrepresents information that investors use to make decisions. The types of misrepresentation involved in this crime include providing false information, withholding key information, offering bad advice, and offering or acting on inside information."
Greed often causes real estate and financial sector managers to forget about fraud accusations. False information, withheld information, and acting on inside information is sometimes quite prevalent in certain geographical areas. Not acting on inside information may seem irresponsible to some financial managers who are responsible for accomplishing investor returns, but ethics is supposed to trump such decisions.
There are 3 typical fraudulent moves made by mortgage and securities fraud criminals:
1. Submission of False Information
2. Non-Disclosure of Material Information
3. Breach of Confidence
The Trilateral Capital managers have been involved in the due diligence and underwriting process of many real estate ventures over the past 20 years. A lot of the projects in the real estate sector that do not get off the ground are managed by fraudulent individuals. Real estate managers got used to bank relationships in the 90's where signature loans could be accomplished with a hand shake, but such funding options no longer exist. Frustrated real estate managers and investors have either adapted or have continued a frustrating search for new sources of easy cash. This group of potential client is no longer sought by Trilateral due to the high frequency of fraudulent behavior.
MORTGAGE FRAUD
Most mortgage fraud is committed when an individual lies on an application or does not disclose material information. "Material Information" is a somewhat nebulous term, but is ultimately determined by the lender or investor. If a lender later finds out they should not have loaned funds due to information that was not disclosed during the application process, they consider the applicant guilty of withholding material information, thus having committed mortgage fraud.
SECURITIES FRAUD
Securities fraud is typically committed when someone convinces an investor to invest through false information or without disclosing important information. SEC regulations continue to strengthen as a move toward higher government protection of investors. After massive losses in 2006-2008, investors have put pressure on the government to increase their regulation of securities and protection of investors. The most used fraud tactic used on unknowing investors is the projection of unreasonable returns.
There are many online scams offering a 100% return in one week. Sometimes they are legitimate advertisements for a binary option trading platform, while others are a complete scam. The only way to know for sure is based on their disclosures. As long as the advertiser is conducting themselves in a compliant fashion, then they may be a legitimate company using creative advertising. If the advertiser is not making statements such as the degree of risk involved with their venture or investment, then they are not compliant. If the advertiser makes a statement that the risk is high and that the investor will probably lose all of their cash, then they are most likely compliant.
If anyone says they can accomplish returns for an investor that is outside of market averages, then they should be able to provide information that will support that statement. If it is a private venture, then historical performance is the key proof. If a business has been losing money historically, but the business owner is projecting to investors that it will profit after their investment then an investor should typically catch that through their due diligence process. Unfortunately, many investors do not catch such misrepresentations and inflation of projections. Greed often causes an investor to believe the scam instead of having skepticism. The laws continue to evolve with a focus on protecting the investor and banks from fraudulent individuals.
Trilateral managers continue to have a focus on protecting investors even before they are involved. Any potential investment that involves the reporting or management of Trilateral is required to complete a due diligence and underwriting process that is quire extensive. If fraud is involved or intended, Trilateral will catch it before an investor gets involved. Some investors require the involvement of a broker/dealer as a form of protection and efficient management of funds. A broker/dealer expects a group like Trilateral to prepare ventures before the involvement of their investors. Preparation is often expensive and timely, but required to protect the potential investor's funds.
