Mclean v. U.S.A
| Decision Date | 18 January 2011 |
| Docket Number | Criminal Case No. 3:02cr156-1,CIVIL CASE NO. 3:07cv331 |
| Court | U.S. District Court — Western District of North Carolina |
| Parties | JAMES E. MCLEAN, JR., Petitioner, v. UNITED STATES OF AMERICA, Respondent. |
THIS MATTER is before the Court on the Petitioner's Motion under 28 U.S.C. §2255 to Vacate, Set Aside, or Correct Sentence by a Person in Federal Custody [Doc. 1] and the Government's Motion for Summary Judgment [Doc. 14].
On September 13, 2002, the Petitioner and six others were charged in a 66-count superseding bill of indictment with participating in a wide-ranging scheme to defraud investors in the secondary mortgage market by creating and selling fictitious mortgage loans. Specifically, the indictment charged that the Petitioner conspired, along with his wife, Macy McLean, and five other co-defendants to defraud the Federal National Mortgage Association ("Fannie Mae") by selling fictitious mortgage notes to it; to defraud the United States by pooling fictitious mortgage notes into securities issued by the Government National Mortgage Association ("Ginnie Mae"); to defraud Branch Banking & Trust ("BB & T") by assigning fictitious mortgage notes to it in exchange for advances under a mortgage loan agreement; and to launder the proceeds of their fraud, all in violation of 18 U.S.C. § 371 (Count One). [Criminal Case No. 3:02cr156, Doc. 45]. Counts Two through Ten charged the Petitioner with using interstate wire transmissions to sell false mortgage notes to Fannie Mae and aiding and abetting those offenses, in violation of 18 U.S.C. §§ 1343 and 2. [Id.]. Counts 11 through 21 charged the Petitioner with using interstate wire transmissions to submit false Housing and Urban Development ("HUD") documents to secure Ginnie Mae mortgage securities and aiding and abetting those offenses, in violation of 18 U.S.C. §§ 1343 and 2. [Id.]. Counts 22 through 32 charged the Petitioner with making false entries on monthly status reports required by HUD and aiding and abetting those offenses in violation of 18 U.S.C. §§ 1006 and 2. [Id]. Counts 33 through 36 charged him with submitting false statements on HUD forms 11705 and 11706 in connection with the Ginnie Mae scheme and aiding and abetting those offenses in violation of 18 U.S.C. §§ 1001 and 2. [Id] Counts 37 through 52 charged the Petitioner with making and passing false mortgage notes to influence HUD and aiding and abetting those offenses in violation of 18 U.S.C. §§ 1010 and 2. [Id.].1 Counts 53 and 54 charged him with bank fraud against BB & T and aiding and abetting in those offenses in violation of 18 U.S.C. §§ 1344 and 2. [Id.]. Counts 55 through 66 charged the Petitioner with money laundering and aiding and abetting in those offenses in violation of 18 U.S.C. §§ 1956(a)(1)(A)(I) and 2. [Id].
On November 12, 2002, the Court commenced a jury trial for the Petitioner, his wife, and his co-defendants, Paul and Debbie Zimmerman. The facts of the case are summarized in the Fourth Circuit's opinion on the Petitioner's direct appeal:
Defendants James and Macy McLean were officers and owners of First Beneficial Mortgage Corp ("FBMC"), a mortgage company based in North Carolina. As a qualified Federal Housing Administration ("FHA") lender with direct endorsement authority, FBMC had the authority to approve mortgage loans for federal FHA insurance. An FHA-insured mortgage loan, in turn, is "readily saleable" on the secondary mortgage market. FBMC was also an approved Fannie Mae lender, meaning FBMC could originate a mortgage loan with the borrower and then Fannie Mae would immediately buy the mortgage on the secondary market without doing its own underwriting evaluation.
FBMC created a subsidiary company, First Beneficial Homes ("FBH"), which was in the business of building modular homes financed by FBMC. Paul and Debbie Zimmerman, both of whom were employed by FBMC, were officers in FBH, as was Macy McLean. In order to obtain funds for FBH to build homes, the McLeans, Zimmermans and a third couple, the Greens, recruited individuals, primarily friends and relatives, to sign mortgage loan notes purporting to secure funds advanced by FBMC for homes that, in fact, did not exist or were owned by someone other than the "borrower" named on the note. The McLeans and Zimmermans induced these individuals to sign the mortgage notes by paying them various amounts to participate in an "investment" opportunity and representing that, by signing, the "investors" did not actually incur any repayment obligation. The McLeans and Zimmermans also signed similar fictitious mortgage notes themselves. None of the individuals signing these documents ever acquired or possessed any ownership interest in the properties listed on the notes.
FBMC would then sell these "instruments" to Fannie Mae on the secondary market, representing by the terms of the note that the borrower signing the note had an ownership interest in the listed property, that FBMC had a security interest in the property, and that the property was of sufficient value to protect the lender-or any secondary purchaser of the loan such as Fannie Mae-in the event of default. As an approved Fannie Mae lender, FBMC had the authority to transfer its loans to Fannie Mae without having to submit the loans to any underwriting review process by Fannie Mae. Essentially, FBMC was empowered to make underwriting decisions on behalf of Fannie Mae.
Eventually, Fannie Mae detected irregularities in FBMC's underwriting practices and conducted an audit of the loans it had purchased. A physical inspection of the properties for which FBMC had purportedly financed the purchase of a completed home revealed that the many [sic] of the lots were either vacant or contained a partially completed house. Additionally, some of the lots that ostensibly secured mortgage loans already purchased by Fannie Mae were being offered for sale. James McLean claimed that he incorrectly assumed that Fannie Maewould purchase construction loans, which disburse funds in piecemeal fashion as each new phase of construction begins. Fannie Mae, however, does not purchase construction loans, which FBMC was not authorized to sell. And, FBMC had not sold the loans as construction loans to Fannie Mae in any event. In November 1998, when FBMC could not account for all of the irregularities, Fannie Mae suspended FBMC as an approved lender.
Faced with the collapse of the Fannie Mae scheme, James McLean agreed to repurchase the loans FBMC sold to Fannie Mae. Although he told Fannie Mae that he had secured investors willing to fund the repurchase of these loans, he refused to divulge the identity of the investors. In fact, FBMC secured funds to repurchase the loans by simply continuing the Fannie Mae "investor" scheme with Ginnie Mae. Ginnie Mae, which is owned by HUD, sells mortgage-backed securities which are created from "pools" of mortgage loans. A qualified mortgage lender originates several FHA-insured mortgages, "pools" them together, and sells them-without any review-to Ginnie Mae. Ginnie Mae, in turn, sells an interest in the mortgage pool to investors. FBMC was qualified as a Ginnie Mae lender and issuer, meaning that not only did Ginnie Mae implicitly approve of any mortgage loan extended by FBMC, but FBMC could actually issue Ginnie Mae securities.
The McLeans and Zimmermans used the same lots and "investor scheme" with Ginnie Mae that they had used for Fannie Mae, and the overall process was essentially the same. James McLean paid a commission to the Zimmermans for each "investor" they recruited. The Zimmermans brought their investors to Macy McLean. Macy then gave her assistant these names, along with an address and a purported loan amount, which the assistant inserted into a mortgage note. Ginnie Mae would not accept mortgage loans that were not federally insured, so one of FBMC's loan officers was directed to "supply" an FHA number for the note. The mortgage notes were then signed by the "investors, " and, as required by Ginnie Mae, delivered to FBMC's Ginnie Mae document custodian, BB & T bank, for initial certification. James and Macy McLean also had to file certain information electronically. FBMC then issued securities which were sold to Ginnie Mae investors. The purchase price was wired to FBMC's account at BB & T.
FBMC also obtained a line of credit at BB & T to fund loans to its customers. As collateral to secure the line of credit, FBMC supplied BB & T with fictitious mortgage notes signed by "investors" who had no ownership interest in the property purportedly secured by the note. Although the line of credit was to be used by FBMC strictly for funding mortgage loans to FBMC clients, FBMC used line of credit money to pay down the fictitious loans sold to Ginnie Mae as well as to repurchase loans from Fannie Mae.
The government's evidence showed that only seven percent of the proceeds from the sale of the fictitious notes to Ginnie Mae went to fund legitimate expenses such as construction and land for FBH's business. One million dollars was allocated to the growing monthly payments on the increasing number of false mortgage notes, and approximately $340,000 was paid out to the Zimmermans and the Greens for commissions. The Zimmermans used structured transactions to deposit half of this into their personal accounts. And $7.5 million of the Ginnie Mae funds were simply transferred to Fannie Mae to repurchase the false notes.
United States v. McLean, 131 Fed.Appx. 34, 36-38 (4th Cir. 2005) (McLean I).
On November 22, 2002, the jury returned a special verdict, convicting the Petitioner on all 66 counts. [Criminal Case No. 3:02 cr156, Doc. 145]. Based on a total offense level of 37 and a criminal history category of II, the Petitioner's sentencing guidelines range was 235 to 293 months' imprisonment. United States v. McLean, 192 Fed.Appx. 234, 235 (4th Cir. 2006) (McLean II). The Court sent...
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