Swindling Case Illustrates Ease of Fraud in Southland

Once again, Michael D. “Mickey” Henschel landed on his feet.

At his recent sentencing for wire fraud, the Van Nuys real estate whiz preserved his record of never going to prison despite his role in numerous swindles. A federal judge here ordered him to perform community service and pay restitution to his victims instead.

That Henschel was charged in Arizona for a scheme that took place largely in California was testament to a truth known to law enforcement experts and crooks alike: One of the safest places to engage in fraud is Southern California.

Federal affidavits had identified Henschel, 54, as head of an “equity-skimming” ring that used fraudulent bankruptcies to cheat homeowners and mortgage lenders. All of the bankruptcies were filed in Los Angeles or Woodland Hills, and a vast majority of the homes were in Southern California, but the case was prosecuted in Phoenix because the U.S. attorney’s office in Los Angeles declined to bring charges.

Federal agents were “disgusted” and “disheartened” when the case was spiked in Los Angeles, said Mel Bernard, a supervisor of one of the agents during the two-year investigation. Determined to salvage the case, they shopped it to the U.S. attorney in Phoenix, where some of the real estate transactions had taken place.

A court document filed by the U.S. attorney in Phoenix said Los Angeles prosecutors had rejected the case because of “serious evidentiary deficiencies.” Whatever these were -- the prosecutor who made the decision declined to discuss it -- they did not keep authorities in Phoenix from going forward.

“We got a good result, given the circumstances,” Howard D. Sukenic, an assistant U.S. attorney in Phoenix, said after Henschel’s sentencing Dec. 16.

Southern California has been long regarded as an incubator of white-collar crime, a place where scam artists sometimes operate with near impunity. Legal observers say crooks are drawn by the area’s wealth and climate -- and by the fact that the sheer volume of fraud offers protective camouflage. And with authorities preoccupied by violent crime, financial misdeeds that would be aggressively pursued in other jurisdictions sometimes languish in Southern California.

“They don’t have enough people to prosecute everything that is, in fact, a federal violation, so they have to pick and choose,” said Bernard, who recently retired from the Department of Housing and Urban Development’s Office of Inspector General. “I think the whole system is just overloaded, really.”

There is a “tremendous amount of fraud” in Southern California, said Jeffrey Doocy, a former senior investigator with the California Department of Corporations. “It’s easy to do, and people handicap their chances of getting away with it as fairly high -- and I’m not sure I can disagree with that.”

Not that the nimble, streetwise Henschel has gotten away scot-free. He has been charged at least eight times in Los Angeles County with felonies or misdemeanors, court records show, and has been convicted five times. He was convicted in one case for swindling an elderly man out of an apartment building and in another for posing as a law firm representative and taking money from a young woman facing traffic charges.

But Henschel pleaded to reduced charges and was never sent to prison. Instead, in each case he was ordered to pay fines or restitution or perform community service.

“The fact that this guy has skated for so long is just a shame,” said Mitchell Block, a Los Angeles Superior Court commissioner and former deputy district attorney who once prosecuted Henschel. Block described Henschel as “a prime candidate for long prison sentences,” because he committed “what were essentially violent acts ... using nonviolent means.”

In four of the L.A. County cases, Henschel returned to court years later to get his convictions expunged -- a shrewd move that, because of federal sentencing guidelines, helped save him from prison in the Phoenix case.

Schmooze Artist

William D. Pangburn, a Ventura lawyer who has represented several of the more than 40 alleged victims who have sued Henschel over the years, described him in a court declaration as having “an amazing ability” to bend others to his will and as “utterly lacking in any sense of moral responsibility.”

Henschel has been accused of deceiving for sport as well as profit, on occasion masquerading as a lawyer or doctor in carrying out his schemes. While at UCLA in the 1970s, he was seen on campus with a lab coat and stethoscope and once passed himself off as a doctor for a team of female athletes. Not long after, Henschel pleaded guilty to diverting $20,000 from a UCLA student publications account.

The San Fernando Valley native, who was president of the chess club at Grant High School in Van Nuys, has been described as a man of remarkable composure, able to smile and schmooze his way through adversity. According to a former business associate, if Henschel “saw you on his way into the gas chamber, he’d say, ‘Hey, what’s the good word? How are the kids?’ ”

He has a long history in U.S. Bankruptcy Court in Southern California, filing petitions to promote his ventures and shield assets from legal judgments. Bankruptcy Judge Geraldine Mund once fined Henschel $9,300 for refusing to say whether he had forged a lawyer’s name on a bankruptcy petition. When Henschel didn’t pay, Mund had him seized by federal marshals and held for several hours until his wife showed up with the money.

His bankruptcy escapades triggered a criminal investigation in the mid-1990s. At the time, court orders authorized the FBI and the U.S. attorney to remove papers from his bankruptcy files to check for “fingerprints, handwriting or alterations” that might be “of relevance to the criminal investigation.” No charges were filed.

Exploiting Debtors

Sham bankruptcies were at the heart of the latest case.

Search warrant affidavits filed by federal investigators in Los Angeles and Phoenix describe a classic equity-skimming scheme, in which delinquent borrowers were induced to pay rent to Henschel and his minions, based on the false promise that they could avert foreclosure.

The affidavits said Henschel, operating as the head of Proserve, a real estate business in Van Nuys, directed a network of finders, or “field representatives,” who monitored foreclosure notices and contacted people who were about to lose their homes.

Claiming to be an expert in renegotiating loans, the finder would make an enticing offer: In return for a fee or monthly rent, the borrower could stay put while loan repayment terms were being worked out with the bank. To set things in motion, the borrower was instructed to deed the property to the finder or to a bogus trust whose name the finder supplied.

According to the affidavits, Henschel then arranged for bankruptcy petitions to be filed in the names of the individuals and trusts to which the properties had just been deeded. The petitions put an automatic hold on foreclosure proceedings, sometimes for as long as several months.

Eventually, the residents were evicted. But in the meantime, while lenders slogged through bankruptcy red tape, Henschel and his associates collected rent, the affidavits said. Because some of the lenders were insured against loss under mortgage programs run by HUD and the Department of Veterans Affairs, taxpayers lost money too.

Ventura resident Carolyn Voegele was among those taken in. In a written complaint to the FBI, Voegele told of being contacted by a Proserve representative in April 1998, when she was behind in her mortgage payments and facing foreclosure. According to an affidavit, the Proserve rep told Voegele he could stop the foreclosure and help her get new financing. On his instructions, she signed trust deeds and over the next several months paid $4,100 to Proserve, the affidavit said.

Then Voegele learned that her property was tied up in two bankruptcies, one filed in her name and the other in the names of two individuals and four trusts. Her home went to foreclosure sale in January 1999, the affidavit said. Voegele could not be reached for comment.

There were many more like Voegele. Affidavits filed in Los Angeles and Phoenix listed 745 home addresses and 28 bankruptcy filings allegedly connected with the equity scheme. (One of the affidavits mentioned nine dates in 1998 and 1999 when agents went “dumpster diving” to retrieve incriminating records from the trash behind Proserve’s Van Nuys office.)

At first, federal prosecutors in Los Angeles “were pretty enthused” about the Henschel case, Bernard said. But the case was repeatedly reassigned, one time when an assistant U.S. attorney became a Superior Court judge and another when a prosecutor left for private practice. It eventually landed on the desk of Assistant U.S. Atty. Sandra R. Klein, who rejected it.

Klein, who is considered a bankruptcy expert, turned down a request for an interview, saying, “It’s the office policy that we just can’t speak about an investigation ... even one that has been concluded.”

Notwithstanding what occurred in the Henschel case, the U.S. attorney’s office in Los Angeles has been aggressive in pursuing bankruptcy abuse. In the last three years it has prosecuted at least 45 people on charges of bankruptcy fraud, according to press releases from the office. Many of the cases seemed small potatoes compared with Henschel’s -- including allegations of using false Social Security numbers and failing to make disclosures in bankruptcy petitions.

From the Ashes

The Henschel case survived because of the persistence of James B. Carrieres, a special agent with HUD, said Bernard, who was Carrieres’ supervisor. Carrieres knew that a Henschel field representative named William E. Fallon had set up shop in Phoenix. Prosecutors there couldn’t bring bankruptcy fraud charges, given that all the petitions were filed in Southern California, but they persuaded a grand jury to indict Henschel and Fallon a year ago on charges of wire fraud.

Fallon pleaded guilty and was placed on probation. Henschel also pleaded guilty to a wire fraud count.

Federal sentencing guidelines assign penalty points according to the severity of the offense, financial losses and the offender’s criminal history. The expunging of four of Henschel’s convictions in Los Angeles held down his penalty points.

The U.S. Probation Office, which prepares background reports on federal offenders, recommended that U.S. District Judge Paul G. Rosenblatt depart from the guidelines and send Henschel to prison for 16 months. The case prosecuted in Arizona was yet “another scheme” by Henschel “to obtain funds by manipulating ‘the system,’ ” the report said.

Rosenblatt seemed to agree.

“You ought to be locked up for 16 months,” the judge told Henschel. “You’re not some guiding light in the community, sir.”

But Rosenblatt placed Henschel on five years’ probation and ordered him to do 240 hours of community service and to pay restitution of $21,789.50 -- the estimated losses to the government and lenders in the Arizona phase of the scheme.

“Try and get this one expunged,” Rosenblatt told Henschel. “It ain’t going to happen.”

Speaking before his sentence was pronounced, Henschel told the judge he was “truly sorry for the events that took place at Proserve.”

He left the court without comment and did not return phone calls.