SFO secures win in NZ$13m mortgage fraud case against ex-Barfoot & Thompson agents

SFO secures win in NZ$13m mortgage fraud case against ex-Barfoot & Thompson agents

Read the SFO's statement below:

Raghu Srinivas Aryasomayajula, was today found guilty in the District Court at Auckland of two charges of Obtaining by Deception.

The charges which were brought by the Serious Fraud Office (SFO) concerned a series of mortgage frauds with a value of approximately $13M. Aryasomayajula’s co-defendant, Phillip Julian Cavanagh, had previously plead guilty to the same charges in October 2009 and was sentenced to 2 years and 5 months imprisonment.

Both Cavanagh and Aryasomayajula were former real estate agents of Barfoot and Thompson.

SFO Chief Executive, Adam Feeley, said the case demonstrated the range of major frauds currently under investigation by the SFO.

“While we have put considerable energy into financial market frauds in recent times, this case is an example of the many different types of other frauds that continue to be perpetrated and need speedy investigations.”

Mr Feeley added that concluding the matter maintained SFO’s trend of reducing time taken to conclude both investigations and prosecutions.

“The average age of SFO investigations has reduced by almost 70% in the past 15 months, and a number of our recent prosecutions, such as National Finance and Five Star Finance have secured early guilty pleas from some defendants.”

Mr Feeley said that the SFO continued to have 22 cases under investigation and a further 31 under prosecution. Aryasomayajula has been remanded in custody and is scheduled to be sentenced on 3rd February 2011.

Property development activities

This case relates to the property development activities of Mr Aryasomayajula and Mr Cavanagh in 2005 and 2006. The two endeavoured to acquire several properties with sub-division potential with a view to developing second dwellings on sites and selling the developed property for a profit.

Neither man had sufficient personal wealth to finance, or obtain finance for, several property developments simultaneously so embarked upon a system of engaging “trustees” to purchase properties on their behalf.

Mr Aryasomayajula and Mr Cavanagh then used the trustees’ names and personal circumstances in applications for finance, a fact the trustees were aware of and for which they were paid a fee.  All costs of the finance, including mortgage payments during the development, were to be met by Mr Aryasomayajula and Mr Cavanagh through one of their companies.

Mr Aryasomayajula prepared and submitted loan applications to various lenders, particularly Westpac Bank and the Bank of New Zealand, in the names of the trustees. However, without the knowledge of the trustees he altered their personal financial situation in order to make their position more acceptable to the lenders. In addition to false income, asset and liability information, forged valuations were also created. 

Mr Aryasomayajula also neglected to inform lenders of the arrangement with the trustees, giving the impression that the trustees were in fact genuine purchasers intending to service the debt themselves.

As a consequence of numerous false representations and omissions made by Mr Aryasomayajula lenders were induced to part with approximately $13 million. The greater part of that amount has been recovered through mortgagee sales, but the total loss incurred by all lenders is approximately $3.8 million.

(Update adds further detail from the SFO).

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These are just the ones who were caught.

"Barfoot and Thompson real estate agents allegedly inflated the sale price of properties to raise development money from unwitting banks, without having to use their own cash."

....

they were raising money to cut up sections into smaller parcels. The sort of activity that has turned Queenstown into the armpit it is. These are the sort of migrants we need.

According to the existing records, there is a significant increase of cases involving mortgage fraud within the past few years. Maybe that's why this thing is really of hot issue nowadays. As a matter of fact, the Federal Bureau of Investigation is currently warning customers and businesses alike about the growing home loan fraud epidemic in the nation. The greatest threat is from fraudulent mortgage applications. The Federal bureau of investigation is especially cautioning troubled homeowners, who are the most vulnerable to investment, modification and foreclosure prevention schemes. Article resource: FBI states cases of mortgage scams skyrocketing. The good news was most of the cases end with smiles in the victims' faces for their investments to be given back as the accused is found to be guilty. It is good that the FBI have already warned the public about this matter but what lies ahead is still in our own hands.