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Top 5 White Collar Villains: Aaron Hand Found Complicit in $100 Million Mortgage Fraud

By Chris Parker in Lists, fraud
Friday, August 6, 2010 at 9:00 am
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Maybe your skill set isn't suited for legitimate business enterprise so much as constructing a vast criminal conspiracy. What are you going to do? In the case of this week's Top 5 White Collar Villains leading man, Aaron Hand, he'll be doing up to 25 years for felony corruption...

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5. Chandler Bigelow and Donald Grenesko

Sometimes to make things happen, you just have to lie. It's simply The Art of the Deal. Or was it Machiavelli? In any case, sometimes it's necessary to convince people the square peg's round in order get it into place.

For Tribune Company treasurer Chandler Bigelow and Senior Vice President of Finance Donald Grenesko, that meant telling banks nervous about Sam Zell's ill-fated purchase of the now-bankrupt Tribune Company that Morgan Stanley suggested they would be able to refinance the debt in 2014.

This demonstrably false assurance led Valuation Research Corp. to declare the Tribune solvent, which now seems as plausible as casting Betty White to play a Dallas Cowboy cheerleader. When Morgan Stanley -- a firm that in September '08 JP Morgan Chase wouldn't take on for free -- has troubles with your balance sheet, you know you've got trouble.

Two weeks later, Bigelow and Grenesko went even further, telling the potential financiers of the deal that Morgan Stanley had concurred with VCR's solvency opinion. (Ever notice how once started, lies multiply like rabbits?)

Indeed, according to the recently released report investigating their bankruptcy, the Tribune had trouble finding any firm to declare them solvent. One firm, investment bank Houlihan Lokey, declined the work, with one employee suggesting in an email to a colleague that their opinion could kill the deal, and that they wouldn't "want to be involved in that mess." (Lindsay Lohan gets that a lot too.)

Both figures benefited from the $8.2 billion 2007 sale, whose huge debt load appears to have greatly accelerated the media company's demise. Bigelow and Grenesko received $400,000 bonuses for consummating the deal, while Gresnesko made another $4.4 million for the sales of his shares, before retiring a year later.

Bigelow remains with the company, because he's either unable to read his own spreadsheets or isn't sure he can leverage being CFO at a bankrupt company. In an email by Zell associate Nils Larsen referred to Bigelow as one of three Tribune insiders who could be trusted to "drink the Kool-Aid." Always nice to be linked to a phrase referencing Jim Jones' suicidally blind followers.

There's no indication either man will be charged, but the information will further draw-out bankruptcy proceedings that have gone on for more than 20 months, and will almost inevitably result in creditors, who are owed in excess of $10 billion, taking control of the company.

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4. Lawrence Salander

Celebrity art dealer Lawrence Salander is used to dreaming big, but he's going to have to get used to living small after being sentenced for 6-18 years in state prison for a $120 million art fraud scheme.

Salander oversold shares of paintings to investors, at one point selling 50% stake in two paintings by abstract expressionist Arshile Gorky to John McEnroe, who subsequently heard one of the paintings was hanging in another dealer's home. To mollify McEnroe, Salander granted him full ownership of one of the two paintings. After his indictment another Salander customer came forward to lay claim to the same painting. And you thought McEnroe got mad at tennis umpires.

Salander, 61, sold paintings he hadn't been given permission to liquidate, hiding the sales and/or proceeds from the owners, and sometimes making sales to satisfy other outstanding debts, like the Bernie Madoff of high art. In one case he sold off a collection of paintings immediately after a client's death without informing (or obviously paying) his distraught heirs.

The money went to finance a ridiculously opulent lifestyle, and ambitious dreams, such as cornering the market on Renaissance masters. He operated out of a Italian mansion on Manhattan's Upper East Side, paying $154,000/month in rent, while living in a townhouse 11 blocks north and on a 66-acre Millwood estate. He traveled to Europe and about the U.S. frequently, in private jets, and threw $60,000 parties for his second wife, who has since divorced him. (She knows which side of the cracker the caviar's spread on.)

Salander will be feasting on green beans and hash, while learning to appreciate his cellmate's toilet bowl masterpieces for the foreseeable future.

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3. Ernest Storr

In its ongoing attempts to challenge Chicago for the corruption crown, Atlantic City put another notch in its belt with a conviction of political lackey, Ernest Storr. Storr is the second man to plead guilty in a case against Atlantic City Councilman Marty Small and 12 other campaign operatives during his recent run for Mayor.

Small not only was trounced by the incumbent Lorenzo Langford in June's Democratic primary, but finished behind longshot former police officer David Tayoun. Evidently even in these tough economic times, good help is hard to find.

Storr admitted he instructed a member of the Small campaign on how to file false absentee ballots, something he'd done himself while working on then-incumbent Mayor Scott Evans' 2008 campaign. The campaigns would obtain voters' signatures on ballot forms and then send in the votes themselves. Campaign workers were paid by how many ballots they could collect. Under his plea agreement, Storr, who is, oddly, a registered Republican, was given probation.

Meanwhile, Atlantic City citizens breathed a sigh of relief. Corruption they're used to, but they simply can't stand any more Democratic incompetence.

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2. Sam & Charles Wyly

Is there some point where you have enough money that you don't need to lie or cheat to get more? Just how many Rolls Royce Corniches and island estates can you own before you're satisfied?

The answer is apparently approaching infinity for Sam & Charles Wyly, billionaire brothers and contestants in the untelevised Amazing Race to sit atop the largest pile of money.

The seventy-something Texas entrepreneurs initially made their money in computers. They used it to finance a variety of purchases such as Bonanza Steakhouse, the arts and crafts chain Michaels, and Sterling Software (later sold to in a $3.3 billion stock swap Computer Associates), among others, which they sold years later at a significant profit.

The SEC alleges that they amplified their take on some of these deals, and the sales of other companies whose boards they sat on, by using "an elaborate sham system of [offshore] trusts and subsidiary companies" to misrepresent their ownership and disguise insider trading. The scheme also involved making misleading statements (are those anything like lies?) to brokerage firm intermediaries.

The Wylys are not newcomers to trouble. They settled with the SEC in a 1979 case over a bond deal without admitting or denying the allegations. Then in 2005 they were involved in an IRS investigation into Bank of America's attempts to hide wealthy clients fortunes from tax collectors. (There's good money to be made in catering to billionaires.)

The Wylys are well-connected politically, having donated with their wives almost $2.5 million to over 200 Republican candidates and committees at the federal level over the last two decades. Perhaps that's the additional tax one pays on wealth -- donations to politicians so that you can maintain it.

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1. Aaron Hand

Sometimes you're in the right place, at the right time, with the right scam. As President of AFG Financially Group, the 38-year old Hand hatched a criminal enterprise that would've given Tony Soprano a woody. The banks didn't look too closely at the fraudulent mortgages because they were just going to package them up as a security and sell them to someone else. Without any real accountability, this is one of those hustles that stuck taxpayers like you and me with the bill, in this case over $100 million.

The beauty of the 4-year scheme was in the vertical integration. Everyone was in on it. New York-based AFG paid people like Jerry Strklja and Maria Albertina to find properties, generally owned by people in financial distress. Recruiters brought in "straw buyers" -- people with good credit, but no money -- who were told the deal would help distressed buyers and earn them a healthy return on their investment. They were also told they could get out of the deal at some point. (c.f., "If it sounds too good to be true...")

In reality both would end up hosed, as the buyers received nothing more than an up-front payment to entice them, then soon stopped making payments when they failed to receive the promised return. This sent the mortgage into default, ruining their credit rating, and putting the sellers home's into foreclosure. (So much for no harm, no foul.)

When straw buyers were recruited, forgeries and false records (faked W-2s and bank statements mostly) were used to jack up the buyer's loan worthiness and secure larger mortgages. Corrupt property appraisers like Stephen Martini were used to jack up property values, and paid off bank employees such as Jennifer Schiff verified the fake bank statements.

Corrupt employees of lenders such as Countrywide Home Loans and New Century Mortgage Corp (Jeffrey Phelan and Patrick Kuhl) made sure the loans were processed quickly and without proper diligence or scrutiny. Lawyers were paid to play the role of legal counsel for buyers, sellers and banks, pretending to guard their clients' interests when in actuality ensuring closings happened smoothly without any unwanted questions or suspicion. Escrow money was placed directly into the accounts of AFG's principals.

Clearly there was no shortage of ethically-challenged people in the mortgage business with their hands out.

On at least one occasion, the represented two-family home was in fact a vacant lot with counterfeit paperwork. The 13 people indicted are charged with 19 transactions netting them over $12 million in lending proceeds, though the filing suggests that the banks were defrauded of well in excess of $100 million. Hand, the aforementioned operatives, and other company officers, such as Eugene Culbreath, Eric Shields and Frank Miale are all charged with Enterprise Corruption, a class B felony punishable by 8-25 years in prison, as well as several other less punitive felonies.

This was some seriously organized crime, and Hand can be thankful he came out of it better than Joe Pesci's character in Goodfellas. Maybe when he gets out he can get a job with Michael Milken or Ivan Boesky. He has the pedigree.

Read last Friday's Top 5 White Collar Crimes: Armor Manufacturers David Brooks and Sandra Hatfield Accused of Defrauding US Military.

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