rN rm DrsrRrcr couRr oF rmr*r*Hffigil rrAY 2 2 2018 For the Westeru Distria of New York MAY 2017 GRAND JT'RY (Impaneled 5/5/2017) INDICTMENT THE fINTTED STATES OF AMERICA 18CR10Sy' -14J- rIANKGIACOBBE (Counts l, 2-13, 15-25, 27, 3U33, Violatioas: Title 18, United States Code, 36, 3845, 4'.1,49,50,52,5642), Sections 1349, 1343, 1344, and 2 (62 Counts and 2 Forfeiture Allegations) PATRICKOGIOI\IY (Counts l, 12, 51,5942), 5 -17, 20, 27 -32, 34, 35, 3849, KEVINMORGAN (Counts 1, ll, 13, 15-17, 19,20,23-27,30'33, 35, 37 40, 42, 447, 50, 52-55, 59, 61, 62), and TODDMORGAI\I (Counts l, 14-17, 23-27, 3U32, 45,47, 54, 55, 59,61,62) 37 4, 42, 4, INTRODUCTION The Graad Jury Charges That: l. At all times relevant to this Indictmeot: a. Aurora Capital Advisors, LLC, based in BufPalo, New York, was a commercial real estate firm engaged in the business ofbrokering lo.ns for borrowers seeking financing for multi-family properties such as apartmeot complexes. b. Defendant FRANK GIACOBBE owned and operated Aurora Capital Advisors, identiffing himself as the Principal, and employing others to assist him in brokering, and attempting to broker, loans. c. GIACOBBE d. Defendant PATRICI( OGIONY was employed and worked for defeadant as Managing Director at Aurora Capital Advisors. Morgan Management, LLC ("Morgan Management"), based in Pittsford, New York, owned and operated a pordolio of residential and commercial real estate properties. e. Defendant KEVIN MORGAN was employed at Morgan Management, working as a Vice President of the company. f. working Defendant TODD MORGAN was employed as a Project g. at Morgan Management, Manager at the company. The Amherst Gardens Apartments ("Amherst Gardens") was a multi-family residential apartment complex located at 86 East Amherst Street, Buffalo, New York- h. Chesed Properties Buffalo, LLC ("Chesed Properties") was a limited liability company formed to purchase Amherst Gardens. i. The Avon Commons Apartments ("Avon Commons") was a multi-family residential apartment complex located 21 Jtl Qsllins Street, Avon, New York. , j. Morgan Avon Apartments, LLC ("Morgan Avon") was a limited liabilitv company formed to purchase Avon Commons. k. The Eden Square Aparunents ("Eden Square") was a multi-family residential apartment complex located at 9000 Old Station Road, Cranberry Township, Pennsylvania. 2 I. Cranberry Vista Apartments, LLC was a limited liability company formed to purchase Eden Square. m. The Morgan Ellicott Apartnents ("Morgan Ellicott") was a multi-family residential aparunent complex located at 221 alLd 29 William Street, n. Buftlo, New York. Morgirn Ellicott Apafinens, LLC was a limited liability company formed to purchase Morgan Ellicott. o. The Rochester Village Apartrnents at Park Place ("Rochester Village") was a multi-family residential apartment complex located at 10100 Kettlecreek Drive, Cranberry Township, Pennsylvania. p. Part Place Pittsburgh, LLC ('Park Place") was a limited liability company formed to purchase Rochester Village. q. The Rugby Square Aparrnents ("Rugby Square") was a multi-family residentid apartment complex located at 215 Dorchester Avenue, Syracuse, New Yort. r. Rugby fuuare, LLC was a limited liability company formed to purchase Rug$y Square. s. The Reserve at Southpointe ("Southpointe") was a multi-family residential apartment complex located at 1fi)0 Meadow Lane, Canonsburg, Pennsylvania. t. The Reserve at Southpointe, LLC was a limited liability company formed to purchase Southpointe. u. The limited liability companies (LLCs) that purchased each of the properties referenced above at paragraphs G) tlrough (t) were owned by other LLCs controlled or managed by one or more members of the conspiracy. v. The Federal Home Loan Mortgage Corporation, known as "Freddie Mac," and the Federal National Mortgage Association, known as "Fannie Mae," were govemment sponsored enterprises formed by the United States Congress to increase the amount of money available in the mortgage lelding market. w. Fannie Mae and Freddie Mac worked with certain approved financial institutions which issued loans, which loans the financial institutions then sold to Fannie Mae and Freddie Mac, while continuing to service the loans on behalf of Fannie Mae and Freddie Mac. x. Arbor Commercial Mortgage, LLC ("fubor") was a commercial real estate financing compatry based in Uniondale, New York atrd was approved to sell and service loans on behalf of Fannie Mae and Freddie Mac. Entities such as Arbor that sell and service loaas on behatf of Fannie Mae and Freddie Mac are hrown within the commercial and multi-family mortgage industry as "seller-servicers." The seller-servicers iszue the loans, which are then purchased by Fannie Mae and Freddie Mac. The seller-servicers then continue to service the loans after the sales to Fannie Mae and Freddie Mac. y. Bertadia Commercial Modgage, LLC ("Berkadia") was a commercial real estate financing company based in Horsham, Pemsylvania and acted as a seller-servicer oo behalf of Fannie Mae and Freddie Mac. z. UBS Securities LLC C'UBS) was a financial institution based in New York, New York, and was a wholly owned subsidiary of UBS Group AG, a Swiss global financial services company. aa. bb. M&T Bank was a financial institution based in Buffalo, New Evans Baok, Yotk. N.A. was a financial institution based in Hamburg, New Yort. 4 cc. Arbor, Berkadia, M&T Bark and Evans Bank were financial institutions, as that term was defiaed in Title 18, United States Code, Section 20. dd. Colliers tntemational ("Colliers") was a real estate services company that, among other things, appraised multi-farnily properties. ee. CBRE Group, Inc. ("CBRE") was a real estate services company that, among other things, appraised multi-family properties. tr A "rent roll" was a spreadsheet listing, among other thiags: (l) all of the terants in a multi-family property during a specific time frame, (2) the amouat of rent paid by each tenant; and (3) the total rental income for the property dudng the time frame. The reot roll often also included the date the tenant began occupying the apartmeot listed on the rent roll. gE. A "trailing twelve statement," commonly referred to as a "Tl2 statement" set forth the income for a property each month for the preceding twelve motrths. hh. The "debt service coverage ratio" ("DSCR") for a property was a ratio ofa prcpefiy's income to its debt obligations, and was an indicator of whether a property could sustain its debt based on its income. A lender relied upon the DSCR in detemining whether it would iszue a loan, and thereafter continued to rely upon it in assessing a borrower's ability to meet its obligations going forward. If a loan failed to meet a certain DSCR after closing, the loaa could be considered in default, ptoviding the lender with options to ptotect itself. 5 THE MT'L'II-FAIMLY PROPERTY MORTGAGE LENDING PROCESS 2. An entity could acquire a multi-family goperty by way of new construction or by purchasing atr exisring multi-family property. New consmrction could be funded with a short-term construction loan intended to finance the property during the period of construction and until its occupancy was considered "stabilized." Whether a new or existing Foperty was considered "stabilized" varied across different markets and time-frames, but generally required occupancy in excess of ninety percent. 3. Ooce a property was stabilized, property owners could seek permanent finaacing of the property. Financial institutions issuing permanent financing for multifamily properties would generally loan only approximately eighty percent of the value of the properties. 4. Before a financial institution determined whether it would issue a loan on a multi-family property, it typically evaluated various factors, indudiag determining the property's value by using the property's income. In conducting its evduation, a lender relied on representations made by a potential borrower conceming a property's income. COI,'NT 1 (Coffpiracy to Commit Wire Frand 6{ f,enlr f141fl) The Grand Jury Furtter Charges That: 1. The allegations contained in the Introduction of this Indictrnent are re-alleged and incorporated by reference as if fully set forth herein. b TEE CONSPIRACY 2. Beginning in or before March 2011, the exact date behg unlmown to the Grand Jury, and continuing to in or about June 2017, n the Westem District of New York, and elsewhere, the defendants, FRANK GIACOBBE, PATRICK OGIONY, KEVIN MORGAN, aad TODD MORGAN, did knowingly, willfirlly and unlawfrrlly combine, conspire and agree together and with others, known and unknown to the Grand Jury, to: a. devise a scheme and artifice to defraud financiaf institutions and govemment sponsored enterprises and for obtaining money and property from fimncial institutions and govemment sponsored enterprises by means of matedally false and fraudulent pretenses, representatioDs and promises, and for the pwpose of executing the scheme and artifice, to transmit, and cause to be transmitted, by means of wire communication in interstate aod f6lsign commerce, writings, signs, signals, pictures and sounds, and the scheme and artifice affected financial institutions, in violation of Title 18, United States Code, Section 1343; and b. knowingly execute a scheme and artifice to defraud financial institutions and to obtain moneys, funds, credits, assets, securities, and other property owned by, and under the custody and control of financial institutions by means ofmaterially false and fraudulent pretenses, representations, and promises, in violation of Title 18, United States Code, Section 13t14. 7 3. It was an object of the conspirary to induce financial institutions to iszue morgage loans based on false represeltations, which loans the instinrtions would not have iszued, or would have iszued on different terms, had the reptesentations been truthfirl. 4. It was a further offect of the conspiracy to provide the institutions servicing the mortgage loans with false information to conceal the misrepresenations that had iaduced the lenders to issue the loans, and to conceal the acrual financial statuses of the properties so the lenders would continue to provide additional loans 5. It was a further object of the conspiracy to carry out and to execute the above- listed objects for the personal g:i., benefit, profit, advantage, and accommodation of defendans FRANK GIACOBBE, PATRICK OGIOI.IY, KEVIN MORGAN, and TODD MORGAN. MEANS BY WEICII TEE OBJECIS OF TEE CONSPIRACY WERE ACCOMPLISEED: 6. The objects of the conspiracy were accomplished through the following means, among others: a. Defendant FRANK GIACOBBE worked as a mortgage broker on behalf of Morgan Managemert, LLC, defendants KEVIN MORGAN and TODD MORGAN, and other co+onspirators known and unknown to the Grand Jury, to obtain loans for multifamily properties. b. Defeadants FRANK GIACOBBE, PATRICK OGIONY, KEVIN MORGAN, and TODD MORGAN, and other co-conspirators, known and unknown to the Grand Jury, provided false information to financial institutions and govemment sponsored I enterprises that oveEtated incomes of properties and thereby induced financial institutions to iszue loans: (l) for greater values than the financial institutions would have authorized had they been provided udth truthful information; and (2) that the financial institutions would not have issued at the time of issuance had they been provided with truthfirl information. c. Defendants FRANK GIACOBBE, PATRICK OGIONY, KEVIN MORGAN, and TODD MORGAN, and other co-conspirators, known and unknown to the Grand Jury, employed various mechanisms to mislead inspectors, appraisen, financial institutions and govemmetrt sponsored enterprises with respect to the occupancy of properties. d. Defendants FRANK GIACOBBE, PATRICK OGIOl.ry, KEVIN MORGAN, TODD MORGAN, and other co