U.S. v. Chichy

• Decision Date: 06 August 1993
• Docket Number: Nos. 92-3481,92-3497,s. 92-3481
• Citation: 1 F.3d 1501
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Patricia S. CHICHY (92-3481); Shelton Galloway, Jr. (92-3497), Defendants-Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1501

1 F.3d 1501

UNITED STATES of America, Plaintiff-Appellee, v. Patricia S. CHICHY (92-3481); Shelton Galloway, Jr.

(92-3497), Defendants-Appellants.

Nos. 92-3481, 92-3497.

United States Court of Appeals, Sixth Circuit.

Argued June 21, 1993.

Decided Aug. 6, 1993.

James V. Moroney, Asst. U.S. Atty. (argued and briefed), Cleveland, OH, for plaintiff-appellee.

Richard G. Lillie (argued and briefed), Corso, Lillie & Kelly, Cleveland, OH, for defendant-appellant.

Before: MILBURN and BOGGS, Circuit Judges; and CONTIE, Senior Circuit Judge.

CONTIE, Senior Circuit Judge.

Defendants-appellants, Patricia S. Chichy and Shelton Galloway, appeal their convictions and sentences for conspiracy to commit an offense against the United States in violation of 18 U.S.C. Sec. 371 and for making false, fictitious, or fraudulent statements to an agency of the United States in violation of 18 U.S.C. Secs. 1001 and 2. For the following reasons, we reverse in part and affirm in part.

I.

This case arose from a Federal Bureau of Investigation (FBI) investigation of fraudulent loan applications made by clients of Beachwood Realty in order to obtain FHA insured mortgage loans. Specifically, defendant Galloway was charged with attracting potential home buyers to his employer Beachwood Realty, promising applicants that they could obtain a loan by creating non-existent employment or artificially increasing the salary of existing employments, steering applicants to a co-conspirator loan officer at a mortgage company for loan applications and qualifications, and creating false and fraudulent income and employment documentation.

Specifically, defendant Chichy, a mortgage loan officer at the Centrust Mortgage Corp., was indicted because she knew or should have known of the false and fraudulent income and employment for numerous FHA loan applicants when she accepted loan applications signed by applicants while said forms were blank, failed to question applicants about employment and income during face-to-face loan application interviews in violation of HUD-FHA regulations, failed to verify income and employment documentation received from Beachwood Realty in violation of Centrust's regulations, and ignored truthful and accurate information provided to her by the loan applicants.

The procedure used by the United States Departments of Housing and Urban Development (HUD) and Federal Housing Administration (FHA) in offering a program of mortgage insurance for single-family housing for qualified buyer/applicants is as follows. ¹ A purchaser seeking an FHA-insured mortgage loan selects a residence and executes a binding purchase agreement, specifying FHA financing for that property. Once the purchase agreement is executed, the realtor refers the purchaser to a mortgage company that is qualified as a direct endorser on behalf of HUD-FHA in order that the purchaser may make application for FHA financing. In offering mortgage insurance, HUD-FHA relies upon "direct endorsement" of mortgage loans by qualified mortgage companies, which take loan applications, document and verify those applications, and approve loans for FHA insurance. In so doing, a direct-endorsing company acts as an agent for HUD-FHA.

In the present case, it was alleged that Beachwood Realty, which was owned and operated by co-conspirators Earsie and Olin Walker, would direct its clients wishing to obtain HUD-FHA insured financing to either Centrust or Cornerstone Mortgage Company, which acted as direct endorsers of FHA mortgage loans from 1988 through 1990. Beachwood Realty directed the loan applicant to a specific "loan officer" or "loan originator" at the mortgage company, whose function in the scheme was to take the purchaser's application using fraudulent information that would be acceptable for FHA insurance purposes in assembling a loan package. From 1987 through October 1991, defendant Chichy was employed as a loan officer at Centrust Mortgage Corp. Co-conspirator John Storey was employed as the loan officer at Cornerstone Mortgage Co.

A standardized residential loan application form for an FHA insured loan requires the loan officer to certify that the loan officer took the loan application in a face-to-face interview with the borrower-applicant. HUD-FHA regulations require that the mortgage company obtain from, and verify with, the loan applicant the documents submitted to establish income and employment. Centrust therefore required verification of these documents, such as Forms W-2 and pay stubs, by the loan officer directly with the applicant at the time of the loan application, and also required the applicant to sign the loan application form at the time of the "face-to-face" loan application interview.

The FBI investigation of Beachwood Realty uncovered evidence of numerous fraudulent loan applications made by its clients between April 1988 and March 1990. The client-loan applicant would be provided by Beachwood Realty with false documentation of jobs that did not exist, such as false Forms W-2 and pay stubs, or the applicant's salary would be drastically inflated for jobs the applicants actually held. Affordable Alarms, which was owned by defendant Galloway and operated on the premises of Beachwood Realty, was one of the front companies used to create false jobs and incomes which did not exist for the loan applicants. Other companies included Boyd Construction Company, Todd Moving Company and Joe's Place. Clients of Beachwood Realty would be directed to either defendant Chichy at Centrust or co-conspirator John Storey at Cornerstone, who would assist in the preparation of a loan application which contained false employment information or contained income and employment figures not verified or provided by the loan applicant.

The FBI investigation led to the return of a 27-count indictment on October 1, 1991, against Olin and Earsie Walker, Galloway, Storey, and Chichy. Trial was set for December 16, 1991, but on December 7, 1991, Olin Walker died. On December 19, 1991, a superseding indictment was returned against the remaining four defendants. The superseding indictment contained in count 1 a conspiracy charge against Earsie Walker, Galloway, Storey, and Chichy, which encompassed 25 fraudulent mortgage loans. The superseding indictment also included 20 substantive counts of making and causing to be made false statements in connection with FHA and VA loans.

On January 21, 1992, co-conspirators Storey and Earsie Walker pled guilty to two substantive counts pursuant to an agreement that the remaining counts against them would be dismissed at the time of sentencing. Trial then commenced on January 21, 1992 for defendants Galloway and Chichy.

On February 10, 1992, the jury returned verdicts of guilty against defendant Chichy on counts 1 (the conspiracy), 3 (the Jasper loan), 4 (the Brown loan), 5 (the Austin loan), 16 (the Saafir loan), 18 (the Warren loan), and 21 (the Allen loan). On the same day, the jury found Shelton Galloway guilty on counts 1 (the conspiracy), 2 (the Hubbard loan), 9 (his own loan), 11 (the Shahid loan), 19 (the Samuels loan) and 20 (the Summers loan).

At a sentencing hearing conducted for both defendants on May 12, 1992, the United States presented evidence that HUD-FHA had already paid a claim of $57,150 on the Brown loan (count 4), and that the Austin loan (count 5), the Hubbard loan (count 7), as well as the Brooks loan (included in count 1, but not charged as a substantive count) had gone into default, a step immediately prior to foreclosure.

The district court, at the conclusion of the sentencing hearing, enhanced each defendant's base offense level by two levels for role in the offense under U.S.S.G. Sec. 3B1.1(c) and two levels for more than minimal planning under U.S.S.G. Sec. 2F1.1(b)(2). The base offense level for fraud and deceit under U.S.S.G. Sec. 2F1.1 is 6. An enhancement is to be made according to a table based on the amount of loss. In the present case, the total overall adjustment based on the calculation of the loss was a six-level enhancement based on an estimate by the district court that the actual loss incurred by HUD-FHA would be in the range of $70,000-$120,000. ² With a total base offense level of 16 and a Criminal History Category of I, the sentencing range for each defendant was 21-27 months. The district court then sentenced defendant Chichy to 21 months imprisonment and defendant Galloway to 24 months imprisonment with two years' supervised release to follow each sentence.

Both defendants timely filed an appeal.

II.

Defendants' first assignment of error is that there is insufficient evidence to sustain their convictions on each count. ³ The standard for reviewing a claim of insufficient evidence "is whether after viewing the evidence in the light most favorable to the prosecution, any rational trier of fact could have found the essential elements of the crimes beyond a reasonable doubt." United States v. Martin, 897 F.2d 1368, 1373 (6th Cir.1990). United States v. Glasser, 315 U.S. 60, 66, 62 S.Ct. 457, 463, 86 L.Ed. 680 (1942); United States v. Faymore, 736 F.2d 328, 334 (6th Cir.), cert. denied, 469 U.S. 868, 105 S.Ct. 213, 83 L.Ed.2d 143 (1984). This is a very difficult burden to overcome. In the present case, there is substantial evidence on the record from which the jury could have inferred each defendant's guilt.

Numerous witnesses who had been involved in the investigation of the fraudulent loan application scheme testified against defendants Chichy and Galloway at trial. The United States presented in its case-in-chief the testimony of official representatives of HUD-FHA and VA, and of representatives for Centrust and Cornerstone. Lee Federle of BRI, Business Risks International, who had been hired by Centrust Mortgage Corp., testified about his investigation of the Saafir loan, which triggered the FBI investigation. All of the loan applicants for the loans charged in the conspiracy...