Multimillion-Dollar Scheme : 3 May Surrender in Massive Loan Fraud

Three men are expected to surrender to authorities here next week on charges of participating in a multimillion-dollar loan fraud scheme, authorities said Thursday.

Mark Steven Knapp, 31, of Pomona, Robert Potter, 51, of Laguna Hills and Steven William Hughes, 34, of Laguna Niguel were named in a criminal complaint issued Thursday by the Ventura County district attorney’s office.

Arrest warrants have been issued for the three, and their attorneys said they would surrender next week, said Michael Bradbury, Ventura County district attorney. Arraignment is scheduled for Tuesday.

Robert D. Meyers, head of the district attorney’s Major Fraud Unit, said five institutions were defrauded of $1.8 million--which he said was only a portion of the fraudulent loan transactions discovered during a three-year investigation.

The complaint alleged that the defendants operating as mortgage loan brokers received loans from the institutions by using “straw buyers.”

The so-called “straw buyers” were people recruited by the defendants who never intended to actually purchase the property or honor loan commitments, Meyers said. They were paid as much as $10,000 for use of names and credit histories.

The suspects allegedly deposited substantial down payments in escrow which were later returned by the seller of property through escrow disbursements.

The complaint also alleges that the suspects submitted false applications to obtain the loans.

Santa Clara Savings & Loan of Ventura County, Security Savings & Loan of Danville, State Savings & Loan of Stockton, Gateway Savings & Loan of Oakland and Home Discounting Services of Modesto were victims of the scheme, authorities said.

Meyers said the lending associations had no knowledge that the loans were fraudulent, and they relied solely on the applications filed by the straw buyers.

The scheme was discovered when loans went into default and institutions would end up “holding the bag” because property had been inflated in price by substantial sums, Meyers said.

The three men were operating under Saddleback Valley Escrow and Pacific Financial Group, both of South Orange County.