Bank of Montreal alleges huge mortgage fraud

By Charles Rusnell,

This house in the Bearspaw district of Calgary was bought for nearly$900,000 and in three years, its value was inflated to $2.3 million, aprofit of $1.4 million for the alleged fraudsters. (CBC) The Bank of Montreal is suing hundreds of people in Alberta, includinglawyers, mortgage brokers and four of its own employees, in what is oneof the largest alleged cases of mortgage fraud in Canadian history.Legal documents obtained exclusively by CBC News allege the bank was thetarget of a sophisticated fraud operated by 14 inter-connected groups.The documents allege the scheme generated at least $140 million, about$70 million of which was for phoney mortgages.The bank has estimated it may lose as much as $30 million.Toronto forensic accountant Al Rosen said he has never seen anythinglike it."This is massive in the sense that it is so broad and so deep," Rosensaid Tuesday. "This is [allegedly] a huge fraud. I can't think of anysituation that has so many people involved and over a period of timelike this one."Problems detected in 2006The bank said it first detected the alleged scam in 2006 when itssecurity department noticed "irregularities" in a number of mortgages inWestern Canada. Officials immediately hired a forensic accounting firm,which spent nearly a year unravelling what the bank calls asophisticated scheme. Legal documents allege millions of dollars have been transferred tosuch countries as Lebanon, India, Saudi Arabia, the United Arab Emiratesand Pakistan. (CBC) The bank's investigators say the scam's ringleaders would identify theworst house in a good neighbourhood. They would buy at an affordable,fair-market value price, but convince the bank it was worth much morebecause of the neighbourhood it was in.The bank, which relies on a software program to determine house pricesby neighbourhood, claims it would end up providing a grossly inflatedmortgage, and the ringleaders would pocket the difference.To carry out the alleged scheme, the bank claims masterminds wouldrecruit what's known in fraud parlance as a "straw buyer." For a paymentof $2,000 to $8,000, these straw buyers, mostly new immigrants, wouldallow their name to be used to obtain the mortgage on the house.According to the court documents, the ringleaders allegedly createdfake, inflated wage and net income documents for the straw buyers tomake them appear richer than they were.Lawyers, who are alleged to have been in on the scheme, would thenproduce the necessary legal documents for the house sale. Seventeenlawyers have been named in the bank's lawsuit.House nets $180,000In one case, a house in the Bearspaw district of Calgary was bought fornearly $900,000 and in three years, its value was inflated to $2.3million, a profit of $1.4 million for the alleged fraudsters. AnEdmonton house is alleged to have netted the scheme nearly $180,000.During its investigation, bank investigators seized records that showedmillions of dollars from the alleged scheme have been transferred tosuch countries as Lebanon, India, Saudi Arabia, the United Arab Emiratesand Pakistan.The Bank of Montreal said it conducted the investigation and filed thelawsuit for two reasons."One was to recover as much as possible of what was taken from the bankfrom the fraud," Ralph Marranca, the bank's spokesman told the CBC onTuesday."And secondly was to send a very strong message to fraudsters and anyonewho might contemplate something like this that the bank will pursue thisvery aggressively and will not tolerate fraud."Other banks don't appear to be as aggressive in their approach, eventhough documents indicate they may have been targeted too. Bank ofMontreal investigators found documents that showed one Calgarymanagement company had 150 suspect mortgages from 16 different financialinstitutions.Rosen said this alleged fraud illustrates how weak and ineffective thecontrols are in our banking system."To me the most exasperating part of our business is we are not doingwhat we are supposed to be doing," he said. "We are kidding ourselvesthat we have good systems, because we don't."