Veteran Convicted in Bank of America Scam : Fraud: An ex-West Pointer’s mail fraud cost the bank up to $95 million. But the institution expects to get its money back.
A U.S. District Court jury in Los Angeles convicted a Palos Verdes Estates businessman of mail fraud Friday for masterminding an elaborate mortgage securities scheme that cost Bank of America up to $95 million.
It was apparently the largest swindle ever perpetrated against the bank, but a spokesman said Bank of America has already recovered some of its money and anticipates recovering the rest.
Prosecutors said David A. Feldman, a 50-year-old West Point graduate and Vietnam veteran, for a time conducted his fraudulent business while in prison on a previous mail fraud conviction.
His latest conviction culminates a five-year federal investigation into a $144-million mortgage investment program engineered by Feldman and his now-defunct National Mortgage Equity Corp., said Assistant U.S. Atty. Leslie Swain, the lead prosecutor in the case. Indictments against several others in the scheme have also led to convictions.
Federal prosecutors said Feldman’s mortgage company persuaded a score of lending institutions across the East and Midwest to invest in certificates that represented large pools of high-interest residential mortgages in Southern California and Texas. Investors were told that their money was securely protected by several layers of guarantees, including assurances from allegedly independent underwriters that the borrowers could pay their debts.
“They were all misrepresentations,” Swain said.
The mortgage company had made secret arrangements with bonding companies that left investors helpless when the vast majority of the loans went into default, prosecutors said. In fact, Swain added, one of the bonding firms, which had been failing, was kept afloat with money from the new investments.
Several bonding, lending and real estate companies were tied in the scheme to National Mortgage Equity, according to prosecutors.
Feldman ran the scheme even while serving about a year at Boron Federal Prison Camp in California on a 1982 federal conviction arising from his days as a stockbroker for Merrill Lynch in Chicago, Swain said.
Feldman’s attorney was unavailable for comment Friday.
Bank of America, which acted as escrow agent and trustee for most of the mortgage pools, bore the brunt of the loss when the fraudulent scheme was uncovered. The bank had paid $133 million to repurchase the securities involved from the various savings and loan institutions that originally invested in them.
Since then, the bank has recovered most of its money, some of it by selling the foreclosed properties, said bank spokesman Peter Magnani. Additionally, recoveries have been made through settlement of a negligence suit the bank brought against several of its own employees who handled the loan pools. The bank, which Magnani said expects to recoup all its losses, also has civil litigation pending against several companies and individuals directly involved in the fraud.
Feldman was convicted of three mail fraud counts and acquitted of two others. He faces a possible 15-year prison term. Sentencing is scheduled for Aug. 20.
Borden Ken Rogers, 50, of Huntington Beach, who controlled several of the companies involved in the scheme, and George Charles Ash Jr., 45, of Alta Loma, an officer of several of Rogers’ companies, were named in the same indictment as Feldman more than a year ago. They each pleaded guilty to two counts of mail fraud, Swain said. Ash is scheduled for sentencing later this month. Rogers’ sentencing hearing has not yet been set.
Previous indictments handed up in the course of the FBI investigation resulted in four mail and wire fraud convictions against two real estate brokers, an appraiser and a bonding agent also involved in the scheme.
