Posting for

Wednesday, May 3, 2000

by: Bert Rush

brush@firstam.com

UNLAWFUL REBATES/KICKBACKS/RESPA/EXTORTION

A federal grand jury in Pittsburgh has handed down a criminal Indictment naming three employees of a California mortgage firm, charging them with extortion and solicitation of unlawful rebates in violation of the Real Estate Settlement Procedures Act of 1974 ("RESPA"). The three were arrested by FBI agents here in California Monday, triggering resignation of the mortgage firm's founder and CEO.

The case involves DiTech.com, headquartered in Costa Mesa, California. DiTech is an internet-based lender founded in 1995, that enjoyed quick success and rapid growth. According to an article in the L.A. Times, DiTech funded about $4.3 billion in loans in 1999, and it employs 1,450 people nationwide.

According to the Indictment, DiTech employees Jay David Marx, Gregory Kenneth DeLong and Vincent John Pozzuoli made unlawful threats and solicitations to ATM Corporation of America, located in Pittsburgh, Pennsylvania. ATM is identified as a provider of "mortgage services" to DiTech, including "equity reports, title insurance and notary closings." It's alleged the DiTech account "represented approximately 20% of ATM's total monthly sales."

Between December 1, 1999 and April 20, 2000, it's alleged the named DiTech employees had a series of meetings with an employee of ATM, in which they asked that kickbacks be paid in return for DiTech business. These kickbacks were to be paid to one John S. Anderson, who is the father-in-law of defendant Jay Marx. The alleged request was that Anderson would be shown as an employee on the ATM payroll, but would not perform any work for ATM. This request is said to have been made "under the threat that if the kickbacks were not agreed to and paid, that DiTech would stop using ATM's mortgage services." The request was also made with assurances that if kickbacks were paid, ATM would get "substantially more" business from DiTech.

On April 20, 2000, it's alleged that defendant Jay Marx met with an ATM employee and accepted a check payable to John S. Anderson in the amount of $11,451.20.

According to articles in the Times and the Orange County Register, the FBI investigation was triggered by a tip from DiTech's parent company, GMAC Mortgage Corp. DiTech is not named in the Indictment, and the company remains open under a management team brought in by GMAC.

Following the arrests Monday, DiTech founder and CEO J. Paul Reddam resigned. Reddam is not named in the Indictment.

To view the Indictment, click on the URL below.

http://ul.firstam.com/landsakes/Ditech.pdf

Comment: Some see nothing wrong with requests for payment in return for referrals of business, but this Indictment brings home the potentially devastating consequences for those who may be involved.

It's also a reminder that conduct which might go unnoticed in one jurisdiction may become a "federal case" in another. One never knows.

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Following our posting for Wednesday, 5/3/00, the media has reported that the three employees of DiTech Funding who are named in the federal indictment in Pittsburgh have been terminated by DiTech. Through their defense counsel, the three maintain their innocence. DiTech continues to do business, and none of its present employees are involved in the criminal proceedings.

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    Following up on our posting for 5/3/00, on October 9, 2001a federal judge in Pittsburgh sentenced three former employees of DiTech.com in connection with solicitations of kickbacks from ATM Corporation of America.  Located in Pittsburgh, PA, ATM is a provider of real estate equity reports, title insurance and escrow/closing services to DiTech.

 

     The former employees and their sentences are:  Jay David Marx to serve four months in jail, followed by three years' supervised release, and pay a fine of $10,000; Gregory Kenneth DeLong to serve two months in jail, followed by three years' supervised release, and pay a fine of $1,000; Vincent John Pozzuoli to serve three years' probation, and pay a fine of $5,000.

 

     The federal charges were brought under 18 U.S.C. section 371 (conspiracy to commit a federal crime), 18 U.S.C. section 1951 (commercial extortion), and 12 U.S.C. section 2607(a) (RESPA's prohibition against payment of kickbacks and unearned fees).

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     Following up on our posting for 5/3/00, and the sentencing update, Jim Weston (Warrenville/Chicagoland) writes:

 

     Disappointing but not unexpected.  A veritible slap on the wrist.  But then they need the prison space for "real" (i.e., "violent") criminals. Must they at least also pay back what they stole?

 

     Reply by Bert Rush:  They pretty much did pay it back.  According to the criminal Indictment in the case, there was one payment made in the amount of $11,451.20.

 

     Also note these three are FORMER employees of DiTech, who got the boot as soon as the Indictment was handed down.