Real Estate Broker Charged In Fraud Case

On February 20, 2009, the California Attorney General’s Office filed 73 criminal counts against real estate broker Thomas Hastert in the Nevada County Superior Court for embezzlement, securities fraud, conspiracy, and filing false documents. A criminal complaint contains merely charges and a defendant is presumed innocent until proven guilty.

Hastert brokered over 270 hard-money loans in Nevada, Sacramento, Sutter, Butte, Placer, and Yolo Counties between September 2004 and September 2007 for real estate development projects. Hard-money loans typically provide high returns for private investors and are secured through collateral such as real estate. In this case, Hastert secured $20 million from several investors, using the funds to broker hard-money loans to borrowers seeking to develop homes on real estate.

In the criminal complaint, Hastert is alleged to have:

■ Misled investors. Hastert told investors that borrowers had excellent credit scores and were capable of repaying the loans. This proved to be untrue. Many borrowers had poor credit scores, did not make regular payments on the loans, and held properties that were in foreclosure.
■ The loans that Hastert brokered were required by law to be placed into a special trust account overseen by a third-party escrow firm. The firm had to verify whether funds being withdrawn by borrowers were being used for construction projects. Despite telling investors he had established such a trust account, Hastert never did, and the money was regularly withdrawn and misused by borrowers with no oversight.

■ Hastert told investors he would personally oversee the development of the land. In one instance, he was asked by investors to drive them to a particular property that was supposedly under development. Hastert could not locate the property.

■ Set up fake investors, known as “straw men,” to keep concerned investors at bay. Hastert filed documents with a county recorder’s office saying that his secretary owned a majority interest in the investment, despite the fact that she had never invested a single dollar. If a legitimate investor tried to initiate foreclosure proceedings, Hastert would contend that the supposed majority owner opposed the action.

■ Embezzled fees. Hastert was entitled to collect a 3% fee on loans he brokered. However, he took all his fees up-front as if the loan were fully funded. The complaint alleges some loans never fully funded, and others took more than a year to fully fund.

If convicted, he could face up to 11 years and 4 months in prison apart from the collateral consequence of losing his real estate broker license. Bail was set at $540,000. To review the complaint and arrest warrant declaration:http://ag.ca.gov/cms_attachments/press/pdfs/n1683_aw_dec;aration_filed.pdf
http://ag.ca.gov/cms_attachments/press/pdfs/n1683_complaint_filed.pdf

Attorney Comments: There will be a large increase in the number of criminal cases filed against real estate professionals in the next few years both by the U.S. Attorneys' Offices, State Attorney General's Office and District Attorneys' Offices. These cases take years to investigate and prosecute and any individuals who are targets of investigation should seek counsel early in order to do their best to seek to avoid criminal filings. In cases where there are viable defenses and the losses were due to economic reasons or bad business decisions and not fraud, strategic decisions need to be made on whether to approach the investigating authorities.

Any questions or comments should be directed to: tgreen@greenassoc.com. Tracy Green is a principal at Green and Associates. They focus their practice on the representation of licensed professionals and businesses in civil, business, administrative and criminal proceedings, with a specialty in health care providers.