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Mortgage Fraud Is Not Money Laundering, Or, Why Not To Buy A House With A Drug Dealer

It’s money laundering week here at the Federal Criminal Appeals Blog. Yesterday, I wrote about Walter Blair, the lawyer who was convicted for performing extra-legal services.

Today, the Third Circuit issued a happier decision (though not for the government) in United States v. Richardson.

The Dream of Home Ownership

Asya Richardson was the fiancé of Alton Coles, a known drug dealer in Philadelphia. Mr. Coles was also something of a renaissance man, promoting a series of nightclub events and running a record label, Take Down Records. The nightclub generated revenue and broke even. Take Down Records was not financially successful.

Ms. Richardson and Mr. Coles wanted to realize the American dream of home ownership. This presented a problem. Ms. Richardson only made $22,800 a year as a customer service representative at Bank of America. Mr. Coles asserted that he made $100,000 a year as the CEO of Take Down Records. Unfortunately, Mr. Coles, like many entrepreneurs, had bad credit.

The solution? Mortgage fraud. The couple decided to put the house in Ms. Richardson’s name, and they said in their paperwork that she made more than $110,000 per year.

This allowed the couple to purchase the house together, but place it in Ms. Richardson’s name.

Closing Costs

They still needed money for the down payment though. Here’s how the court of appeals describes how they funded part of the money they brought to settlement.

The day of settlement was marked by a flurry of banking activity. At 12:08 p.m., a $9,800 cash deposit was made into Coles’ and Richardson’s joint checking account at PNC Bank. This deposit took place at a PNC branch located in Philadelphia. At 1:12 p.m., Coles made a $9,140 cash deposit into Take Down Records’ business account. The funds were later transferred to Coles’ personal checking account and used towards the down payment. Half an hour later, at the same bank branch, Coles deposited $9,200 in cash directly into his personal checking account. At 3:33 p.m., Richardson made a $9,200 cash deposit into the couple’s joint checking account. This deposit was made at a PNC branch located in Stratford, New Jersey, which was near the location of the settlement. Finally, at 4:00 p.m., Coles made a $6,160 cash deposit into a Wachovia checking account belonging to his son. This deposit, too, occurred at a branch located in Stratford.

The settlement went smoothly and the couple became happy homeowners.

Trouble Brews

Sadly,

shortly after the couple had moved into the new home, a federal grand jury returned an indictment charging Coles with a single count of possession of a firearm by a convicted felon. Three superseding indictments followed charging Coles and others with various drug trafficking and firearms crimes. On March 22, 2006, a fourth superseding indictment was filed charging Coles and Richardson with money laundering, 18 U.S.C. § 1956(a)(1)(B)(i), conspiracy to commit money laundering, 18 U.S.C. § 1956(h), and wire fraud, 18 U.S.C. § 1343.

The couple went to trial, along with others. Mr. Coles was convicted of the drug distribution charges, as well as the money laundering. Ms. Richardson was convicted of money laundering. Both were acquitted of wire fraud.

Ms. Richardson was sentenced to twenty-four months in prison.

The Appeal

On appeal, Ms. Richardson argued that there was not enough evidence to support her conviction for money laundering.

As the Third Circuit explained, to find someone guilty of money laundering, the government has to prove:

  1. an actual or attempted financial transaction;
  2. involving the proceeds of a specified unlawful activity;
  3. knowledge that the transaction involves the proceeds of some unlawful activity; and
  4. knowledge that the transaction was designed in whole or in part to conceal the nature, location, source, ownership, or control of the proceeds of a specified unlawful activity.(internal textual modifications omitted)

Ms. Richardson argued that there was not enough evidence that she knew that the transaction was being used to launder drug money to convict.*

The government countered that the intricate set of deposits on the day of settlement strongly indicated that something was afoot. All the deposits were under $10,000, giving a strong argument that they were made to defeat the reporting requirement that is triggered by a $10,000 deposit.

This, by the way, is itself a crime, prohibited by 31 U.S.C. § 5324, and known as smurfing.**

However, as the court noted, there was precious little showing that Ms. Richardson herself was aware of the pattern of deposits.

The government argued that not having Mr. Coles name on the loan was suspicious. And, the government pointed out, that Ms. Coles lied about her income to get the loan – surely that’s suspicious.

In a passage sure to warm the hearts of mortgage brokers everywhere, the court noted,

These circumstances show that Richardson lied about her income and had the property titled in her name, not to hide Coles’ involvement (which by then was perfectly obvious), but to get around Coles’ bad credit and purchase the house as planned. No jury could have reasonably reached a different conclusion.

(internal citation omitted)

This wasn’t money laundering – it was mortgage fraud. With a little more than a year left on her sentence, Ms. Coles conviction was vacated.

 

* She also argued, based on United States v. Santos, that the money laundering statute only applies to profits from drug dealing, not gross receipts, and that the money here involved gross receipts. The court of appeals rejected that argument.

** And, yes, that’s my second Smurf reference in a money laundering post this week. Here’s an odd article on how “smurf” is used that doesn’t include this NSFW varation.