THE FEDERAL BUREAU OF INVESTIGATION
FINANCIAL INSTITUTION FRAUD AND FAILURE REPORT

For Fiscal Year (FY) 2005
Ending September 30, 2005

The Federal Bureau of Investigation's (FBI) mission in the area of Financial Institution Fraud (FIF) is to identify, target, disrupt, and dismantle criminal organizations and individual operations engaged in fraud schemes which target our nation’s financial institutions. Additionally, the FBI seeks to identify, undertake, and promote prevention measures, where available, to reduce the opportunity for fraud to take place within the financial institution arena. Within white-collar crimes, FIF investigations are among the most demanding, difficult, and time-consuming cases undertaken by law enforcement. Efforts by the FBI and the Department of Justice have attained extraordinary results since the enactment of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989.

Areas of primary investigative interest relative to FIF include financial institution failures, insider fraud, check fraud, counterfeit negotiable instruments, check kiting, and mortgage and loan fraud. FIF investigations related to emerging technologies and computer-related banking are taking on added significance among the nation’s financial institutions.

Since the 1992 peak of the savings and loan crisis, the FBI has been able to refocus its investigative efforts from failed financial institution cases to other high-priority FIF matters. At the close of FY 2005, the total number of pending FIF investigations for the FBI was 5,041. Of this total, 62 failure cases, or less than 1 percent, involved criminal activity related to a failed financial institution. This statistic reflects a 92 percent reduction in failure investigations since the July 1992 peak of 758 cases.

However, as the number of failure investigations has declined, the number of major FIF investigations has remained substantial. As of FY 2005, the FBI was investigating 4,135 major cases, or 82.0 percent of all pending FIF cases.¹ This is significant in view of the fact that convictions related to major case investigations have remained constant since FY 1995, surpassing total convictions for major cases during the 1992 peak.

During the late 1980s and early 1990s, approximately 60 percent of the fraud reported by financial institutions related to bank insider abuse. Since then, external fraud schemes have replaced bank insider abuse as the dominant FIF problem confronting financial institutions. The pervasiveness of check fraud and counterfeit negotiable instrument schemes, technological advances, as well as the availability of personal information through information networks, has fueled the growth in external fraud. In many instances, the international aspects associated with many of these schemes have increased the complexity
and severity in the fraud being committed.

For the period of April 1, 1996, through September 30, 2005, the FBI received 436,522 Suspicious Activity Reports (SARs) for criminal activity related to check fraud, check kiting, counterfeit checks, and counterfeit negotiable instruments. These fraudulent activities accounted for 46.3 percent of the 941,993 SARs filed by U.S. financial institutions (excluding Bank Secrecy Act violations), and equaled more than $10.7 billion in losses.²

The FBI continues to concentrate its efforts on organized criminal groups involved in these activities. These organized groups are often involved in the sale and distribution of stolen and counterfeit corporate checks, money orders, payroll checks, credit and debit cards, U.S. Treasury checks, and currency. Furthermore, the organized groups involved in check fraud and loan fraud schemes are often involved in illegal money-laundering activities in an effort to conceal the proceeds from their crimes.

Criminal activity has become more complex and loan frauds are expanding to multitransactional frauds involving groups of people from top management to industry professionals who assist in the loan application process. These professionals include loan brokers, appraisers, accountants, and real estate attorneys. Such transactions are sometimes hidden against a backdrop of genuine transactions which give them an appearance of legitimacy. Due to the complexity of these crimes, more FIF investigations are being initiated than ever before. These cases target large-scale fraud operations, often involving hundreds of subjects in multiple jurisdictions.

Other fraud matters affecting the nation's financial institutions are being classified and worked by the FBI as Corporate Fraud, Cyber Fraud, and Terrorist Financing. The results of these cases are not included in this report.

The lines between traditional banking services and other financial services now offered by these institutions are fading. As financial institutions become less regulated and provide more financial services to the public through the sale of insurance, securities, investment products, and on-line banking, the nature of FIF will change in terms of the potential impact to the nation's financial institutions.

The FBI has responded to these trends by providing proactive deterrents to assist the nation's banking infrastructure in combating FIF. The FBI and the Office of the Comptroller of the Currency published Check Fraud: A Guide to Avoiding Losses, (revised in 1999 by the FBI) to assist financial institutions in identifying check fraud-related schemes. Another publication produced in 2001 by the FBI entitled: "How Financial Institutions Can Help the FBI"; can assist financial institutions in preventing and reporting financial crimes as well as bank robberies.

__________________________________

1 A major case is defined as an investigation pertaining to a failed financial institution, or where the loss or loss exposure to the financial institution exceeds $100,000
2 These statistics are derived from the Suspicious Activity Report database, which is owned by the five Federal banking regulatory agencies, and is maintained by the U.S. Treasury Department's Financial Crimes Enforcement Network.

I. FINANCIAL INSTITUTION FAILURE INVESTIGATIONS
AND PERCENT OF INCREASE (DECREASE) FROM PRIOR YEAR

Since February 1986, the FBI has tracked the number of financial institution failure investigations. From a peak of 758 cases in July 1992, failure investigations have steadily declined. Since the 1992 peak, failure investigations have decreased 92 percent. The matrix below illustrates the number of failure investigations and corresponding percentage change by fiscal year.

The chart and graphs which follow exhibits:

(a) Financial Institution Failure Investigations by Field Office and Category, during FY 2005;
(b) Financial Institution Failure Investigations for 2000 - 2005;
(c) Number of FDIC-Insured “Problem” Institutions for 2000 - 2005; and,
(d) Assets of FDIC-Insured “Problem” Institutions for 2000 - 2005.

FINANCIAL INSTITUTION FAILURE INVESTIGATION
BY FIELD OFFICE AND CATEGORY
FISCAL YEAR 2005

   FINANCIAL INSTITUTION FAILURE INVESTIGATIONS

2000 - 2005

FDIC - INSURED “PROBLEM INSTITUTIONS” 2000 - 2005

'Problem Institutions” –those with financial, operational, or managerial weaknesses that threaten their continued viability.

Source: FDIC Quarterly Banking Profile through Third Quarter 2005

“Problem Institutions” – those with financial, operational or managerial weaknesses that threaten their continued viability.

Source: FDIC Quarterly Banking Profile through Third Quarter 2005

II. FINANCIAL INSTITUTION FRAUD AND MAJOR CASES
UNDER INVESTIGATION BY THE FBI BY FISCAL YEAR

Following the 1982 deregulation of the savings and loan industry, and in conjunction with more speculative lending practices, the FBI initiated criminal investigations of hundreds of failed financial institutions throughout the United States. Since the July 1992 peak, the number of failure investigations has steadily declined. However, total FIF and major case investigations have leveled off to pre-1992 figures. At the close of FY 2005, the total number of pending FIF and major case investigations continue to exceed levels at the beginning of the savings and loan crisis. The following matrix reflects total pending FIF and major case investigations reported during FY 2000 through FY 2005.

The chart and graphs which follow exhibits:

(a) Pending Cases by Institution Type and Major Cases for FY 2005;
(b) Pending and Major Cases for FYs 2000 - 2005; and
(c) Pending Caseload by Institution Type and Dollar Loss for FY 2005.

FINANCIAL INSTITUTION FRAUD CASES
BY INSTITUTION TYPE AND MAJOR CASE
(PENDING AS A SEPTEMBER 30, 2005)

PENDING AND MAJOR CASES

2000 - 2005

PENDING CASELOAD BY INSTITUTION TYPE AND DOLLAR LOSS FISCAL YEAR 2005

FAST TRACK = 315

< $25K IN LOSSES = 163

TOTAL CASES = 5,041*

* Includes Mortgage Fraud Non-Financial Institution and Mortgage Fraud Government Programs Cases not reflected in the chart.

III. STATISTICAL ACCOMPLISHMENTS FROM FBI INVESTIGATIONS
IN FINANCIAL INSTITUTION FRAUD AND FAILURE MATTERS

A. CONVICTIONS/PRETRIAL DIVERSIONS

Total FIF convictions, excluding local convictions, continued to decrease. However, the percentage of convictions in major cases continued to increase. The matrix below is illustrative of this trend.

* - includes PreTrial Diversions and excludes local convictions.

The charts and graphs which follow exhibits:

(a) Convictions and PreTrial Diversions for FYs 2000 - 2005;
(b) Types of Subjects Convicted During FY 2005;
(c) Total Convictions, “Outsiders vs Insiders" for FYs 2000 - 2005; and
(d) Convictions and PreTrial Diversions by Institution Type and Amount for FY 2005.

FINANCIAL INSTITUTION FRAUD CONVICTIONS AND PRETRIAL DIVERSIONS
(DOES NOT INCLUDE LOCAL CONVICTIONS)

TYPES OF SUBJECTS CONVICTED IN
FINANCIAL INSTITUTION FRAUD CASES
FISCAL YEAR 2005*

* Does not include PreTrial Diversions or local convictions

 CONVICTIONS “OUTSIDERS VS INSIDERS”
2000– 2005

(no pretrial diversions or local convictions)

CONVICTIONS & PRE-TRIAL DIVERSIONS
BY INSTITUTION TYPE & AMOUNT
FISCAL YEAR 2005
(No State or Local Statistics)

FAST TRACK = 121

* <$25K IN LOSSES = 25

(*NOT TRACKED BY INSTITUTION TYPE)

B. INDICTMENTS AND INFORMATIONS

For FY 2005 the total number of defendants charged by indictment or information decreased 15.31 percent from FY 2004. The following matrix illustrates this trend.

The chart and graphs which follow exhibits:

(a) Total FIF Indictments and Informations for FYs 2000 - 2005; and
(b) Indictments and Informations by Institution Type and Dollar Loss for FY 2005.

FINANCIAL INSTITUTION FRAUD INDICTMENT/INFORMATIONS
(DOES NOT INCLUDE LOCAL INFORMATION/INDICTMENTS)

INDICTMENTS AND INFORMATIONS
BY INSTITUTION TYPE & AMOUNT
FISCAL YEAR 2005

(No State or Local Statistics)

FAST TRACK = 88

* <$25K IN LOSSES = 21

(*NOT TRACKED BY INSTITUTION TYPE)

C. RECOVERIES, RESTITUTIONS, AND FINES

For FY 2005, statistical accomplishments for recoveries, restitutions, and fines continue to demonstrate the FBI's investigative efforts in addressing FIF. The matrix which follows illustrates actual dollar amounts recovered for FYs 2000 - 2005.

The charts and graphs which follow exhibits:

(a) Recoveries by Office for FYs 2000 - 2005;
(b) Recoveries for FY 2005;
(c) Recoveries for FYs 2000 - 2005;
(d) Restitutions by Office for FYs 2000 - 2005;
(e) Restitutions for FY 2005;
(f) Restitutions for FYs 2000 - 2005;
(g) Fines by Office for FYs 2000 - 2005;
(h) Fines for FY 2005; and
(i) Fines for FYs 2000 - 2005.

FINANCIAL INSTITUTION FRAUD RECOVERIES
FISCAL YEARS 2000 - 2005

(DOES NOT INCLUDE FAST TRACK AND BELOW $25,000)

RECOVERIES

2000 - 2005

FINANCIAL INSTITUTION FRAUD RESTITUTIONS
FISCAL YEARS 2000 - 2005

RESTITUTIONS FOR FISCAL YEAR 2005

(DOES NOT INCLUDE FAST TRACK AND BELOW $25,000)

RESTITUTIONS

2000 - 2005

FINANCIAL INSTITUTION FRAUD FINES
FISCAL YEARS 2000 - 2005

FINES FOR FISCAL YEAR 2005

(DOES NOT INCLUDE FAST TRACK AND CASES BELOW $25,000)

    FINES 2000 - 2005

D. SEIZURES AND FORFEITURES

Forfeiture provisions were added to the ten banking-related violations in FY 1989. This investigative tool has aided immensely in the effort to address FIF. The matrix which
follows demonstrates accomplishments in these areas for FYs 2002 - 2005 and represents actual dollar amounts recovered.

(a) Seizures and Forfeitures by Office for FYs 2002 - 2005;
(b) Seizures for FYs 2002 - 2005; and
(c) Forfeitures for FYs 2002 - 2005.

SEIZURES AND FORFEITURES
FISCAL YEARS 2002 - 2005

SEIZURES FOR FISCAL YEAR 2005

(DOES NOT INCLUDE FAST TRACK AND BELOW $25,000)

(DOES NOT INCLUDE FAST TRACK AND CASES BELOW $25,000)

E. DISRUPTIONS AND DISMANTLEMENTS

As previously stated, part of the FBI's mission in combating FIF is to disrupt and dismantle criminal organizations engaged in FIF. The matrix which follows demonstrates accomplishments in these areas for FYs 2002 - FY 2005.

F. FINANCIAL INSTITUTION FRAUD CASE SUMMARIES

Mortgage Fraud is one of the fastest growing white collar crimes in the United States. Mortgage Fraud is defined as a material misstatement, misrepresentation, or omission relied upon by an underwriter or lender to fund, purchase, or insure a loan. There are two types of Mortgage Fraud: fraud for property and fraud for profit. Fraud for Property, also known as Fraud for Housing, usually involves the borrower as the perpetrator on a single loan. The borrower makes a few misrepresentations, usually regarding income, personal debt, and property value, or there are down payment problems. The borrower wants the property and intends to repay the loan. Sometimes industry professionals are involved in coaching the borrower so that they qualify. Fraud for Property/Housing accounts for 20 percent of all mortgage-related fraudulent activities.

Fraud for Profit involves industry professionals. There are generally multiple loan transactions with several financial institutions involved. These frauds include numerous gross misrepresentations including: income, assets or collateral is overstated, the length of employment is overstated or fictitious employment is reported, and employment is backstopped by co-conspirators. The borrower's debts are not fully disclosed, nor is the borrower's credit history, which is often altered. Often, the borrower assumes the identity of another person (straw buyer). The borrower states he intends to use the property for occupancy when he/she intends to use the property for rental income, or is purchasing the property for another party (nominee). Appraisals almost always list the property as owner-occupied. Down payments do not exist or are borrowed and disguised with a fraudulent gift letter. The property value is inflated (faulty appraisal) to increase the sales value to make up for no down payment and to generate cash proceeds in fraud for profit.

Federal law enforcement is working with state and local law enforcement, regulators, and the financial institution industry to combat the problem. The Office of Federal Housing Enterprise Oversight (OFHEO) has passed a regulation requiring Freddie Mac and Fannie Mae to report suspicious mortgage fraud activity on a Mortgage Incident Notice (MFIN). FBI, OFHEO, and Financial Crimes Enforcement Network (FinCEN) are working to establish a reporting device similar to the banking industry's Suspicious Activity Report (SAR). This is in progress, but will likely take some time as regulations and possibly legislation will have to be passed. The FBI, HUD-OIG, USPS, and IRS conduct criminal investigations into Mortgage Fraud Activity with a goal of disrupting and dismantling mortgage fraud rings. We strongly support joint investigations to effectively utilize all of our limited resources while strengthening investigations by tapping into everyone's expertise.

For fiscal year 2005, the following stats are:

• 21,994 Mortgage Fraud SARs were filed (up from 17,127 Mortgage Fraud SARs filed
  during Fiscal Year 2004).
• 721 pending FBI Mortgage Fraud cases (up from 534 in Fiscal Year 2004).
• 1,020 pending HUD-OIG Mortgage Fraud cases (up from 920 in Fiscal Year 2004).
• 206 FBI indictments/informations (down from 241 in Fiscal Year 2004).
• 170 FBI convictions (consistent with 172 convictions in Fiscal Year 2004) -
• $1,014,000,000 (FBI) reported loss (up from $429,000,000 in Fiscal Year 2004).

The hot spots for Mortgage Fraud activity in 2004 (per capita) were: California, Nevada, Utah, Arizona, Colorado, Missouri, Illinois, Maryland, Georgia, and Florida.

On December 14, 2005, the Federal Bureau of Investigation (FBI) along with the Housing and Urban Development Office of Inspector General (HUD), Internal Revenue Service (IRS), the U.S. Postal Inspection Service (USPS) and the Department of Justice (DOJ) announced action against individuals in the takedown of the largest nationwide enforcement operation in FBI history directed at organized groups and individuals engaged in mortgage fraud.

“Operation Quick Flip” was designed to show that federal law enforcement recognizes the mortgage fraud threat. The FBI, HUD, USPS, IRS, and DOJ participated in this case round-up to provide information to the public regarding the federal government's efforts to combat mortgage fraud. The federal agencies involved are targeting mortgage fraud groups in order to disrupt and dismantle them permanently.

From July 5, 2005, until October 27, 2005, the FBI, HUD-OIG, USPS, IRS, in coordination with the DOJ, indicted 156 mortgage fraud subjects. A total of 81 arrests were made. A total of 89 convictions were obtained, and 60 subjects were sentenced during this time frame. The combined loss to the industry by the above-subjects is $606,830,604.

OPERATION FALLING STAR

JACK ABRAMOFF

On 1/04/2006, Jack Abramoff entered a guilty plea in U.S. District Court, Miami, FL to one count of bank fraud and conspiracy. Abramoff and a co-conspirator, Adam Kidnan, submitted false documentation to a finance company to purchase SunCruz cruise line. The transaction resulted in a loss of $150,000. On 3/03/2006, Jack Abramoff was sentenced to 70 months confinement.

DWAN BROWN

In May of 2005, Dwan Brown was sentenced in U.S. District Court to five years incarceration and ordered to pay $1.9 million in restitution. Brown previously entered a guilty plea for his participation in a mortgage fraud scheme whereby duplex properties were purchased and then resold on the same day for double the amount of the initial sale in two non "arms length" transactions. The "flip sales" involved a variety of fraud and misrepresentations. The case was investigated by the FBI Memphis Field Office.

ROBERT JENKINS

In 04/2005, Robert Jenkins plead guilty to wire fraud, mail fraud, and bank fraud, in the U.S. District Court, Northern District of Georgia for his involvement in a mortgage fraud scheme. Jenkins fraudulently eliminated the mortgages on over $1.3 million in properties. These mortgages were fraudulently erased and recorded as such at the county courthouse.

CHALANA MCFARLAND; ET AL

On 08/24/2005, Chalana McFarland was sentenced by U.S. District Court, Northern District of Virginia to 30 years in prison. McFarland and others engaged in a mortgage fraud scheme that resulted in $20 million in losses. Eleven co-conspirators plead guilty in 11/2004-11/29/2004. On 4/27/2004, McFarland and 12 additional subjects were indicted on 158 counts of mortgage fraud related offenses. This was a joint investigation between the FBI and the U.S. Housing and Urban Development-Office of the Inspector General.

FRANK PETERS ET AL
BIGHORN CORP LIMITED (BHC)

On 10/22/2003, a grand jury indicted Frank Peters, Gregory Samer and Mark Hoffman on eighteen counts of forfeiture, money laundering, bank fraud, mail fraud, and wire fraud. Peters, Samer, and Hoffman misrepresented the value of collateral used to secure a $11 million loan. It was alleged that for at least three years, the amount of collateral reported to the bank was substantially inflated. Samer plead guilty to conspiracy charges on 2/4/2005.

ROSE M. ERWIN
VERNON J. ERWIN

From December 1998 until May 2004, Rose Erwin embezzled approximately $2 million from her employers personal bank account. Erwin, who had power of attorney over her employer's bank account, wrote numerous checks from the account to her husband Vernon Erwin. In 09/2004, Rose and Vernon Erwin were indicted on chargers of mail and wire fraud. On 06/29/2005, Rose and Vernon Erwin were sentenced to 78 months in prison.

RUMULO MORALES
REMY AGBAYANI

Remy and Cynthia Abayani (husband and wife) falsified the sale of their $1.7 million residence to Romulo Morales. As part of the scheme Remy and Cynthia allegedly submitted a false mortgage loan application on behalf of Morales, who did not have the means to purchase the property. Morales did not reside in the property after the sale. Remy, Cynthia, and Romulo were indicted in the District Court of Hawaii.

MOHAMED YOUSSEF

Mohamed Youssef orchestrated a loan fraud scheme that resulted in approximately $2 million in losses. Youssef used an inside contact at a financial institution to approve fraudulent loan applications for business credit lines. The credit lines were in the names of other co-conspirators. Once the credit lines were approved, fraudulent checks were deposited into the bank accounts causing phony inflated balances which allowed amounts in excess of the credit line to be withdrawn from the accounts. Youssef and his conspirators were arrested and have plead guilty to the bank fraud.