Written by
California Watch
By Emily Hartley, California Watch
SAN FRANCISCO -- As home foreclosures hit record levels, a group of California real estate investors engaged in an auction bid-rigging conspiracy that allowed them to boost their profits in subsequent sales, the U.S. Department of Justice announced yesterday.
The Justice Department said eight investors agreed not to bid against one another at a series of real estate foreclosure auctions in Alameda and Contra Costa counties. They designated one person among them to bid on a foreclosed home, buying it at a lower price due to the lack of competition from other bidders.
They then arranged secret auctions, where each investor offered the amount above the public auction price he was willing to pay for the property. The highest bidder won the property, and the investors divided the additional amount paid among themselves, the Justice Department said.
The conspiracy took place at various times between May 2008 and January 2011. All eight investors have agreed to plead guilty to felony antitrust charges.
When a foreclosed home goes up for public auction, proceeds from its sale first go toward paying off the home's mortgage and other debts. Any remaining proceeds are paid to the homeowner, meaning the investors' scheme may have withheld money from property owners already struggling financially.
"While the country faces unprecedented home foreclosure rates, the collusion taking place at these auctions is artificially driving down foreclosed home prices and is lining the pockets of the colluding real estate investors," said Christine Varney, assistant attorney general in charge of the Department of Justice's Antitrust Division. "The Antitrust Division will vigorously pursue these kinds of collusive schemes that eliminate competition from the marketplace."
California had the third-highest foreclosure rate in the country in May, with one in every 259 households - or 51,906 households total - receiving a foreclosure notice. Nevada and Arizona had the highest and second-highest rates, respectively.
The real estate investors - Thomas Franciose of San Francisco, William Freeborn of Alamo, Robert Kramer of Oakland, Thomas Legault of Clayton, David Margen of Berkeley, Brian McKinzie of Hayward, Jaime Wong of Dublin and Jorge Wong of San Leandro - are charged with violating the Sherman Antitrust Act, as well as conspiring to commit mail fraud for using the U.S. Postal Service to pay potential competitors not to bid at the public auctions.
Each violation of the Sherman Act brings a maximum of 10 years in prison and a fine of either $1 million or "twice the gain derived from the crime or twice the loss suffered by the victim" if either amount is greater than $1 million. Mail fraud brings a maximum of 30 years in prison and a $1 million fine.
The Justice Department said the Antitrust Division and the FBI "have identified a pattern of collusive schemes among real estate investors aimed at eliminating competition at real estate foreclosure auctions, and (these) charges are part of the department's ongoing effort to combat this conduct and restore competition to public auctions."
They are asking anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions to contact the Antitrust Division's San Francisco Office at 415-436-6660 or call the FBI tip line at 415-553-7400.
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California Watch