In response to our continuing efforts to determine what Alameda County has done with the money in the Real Estate Fraud Prosecution Trust Fund (Trust Fund), County officials continue to stonewall, lie and obfuscate the truth. Since April 2014 we have made multiple requests and had extensive communication with the Auditor, District Attorney and the Board of Supervisors trying to get a full accounting for the Trust Fund. To date, we have received only a partial accounting of the Trust Fund that was implemented in 1996 and over the years has probably accrued $12 million all told. Because the County cannot account for the monies in the Trust Fund since its inception, it is impossible to know how much money is, or currently should be, in the account.

As a result of our questions about the Trust Fund, for the first time since becoming District Attorney, Nancy O’Malley submitted the annual report to the Alameda County Board of Supervisors (Board) that is required by Government Code section 27388 (27388). The Report by the Alameda County District Attorney on Real Estate Fraud Prosecution Trust Fund July 1, 2013-June 30, 2014 (Report) details the use of the Trust Fund monies as required by  27388. Beginning with her cover letter, and continuing throughout, O’Malley’s Report contains misinformation and paints a false picture of what in reality is a pathetic effort at prosecuting real estate fraud. In spite of the problems that were pointed out in the letter we submitted, the Board accepted the deceptive and flawed Report.

The Report was submitted with a cover letter bringing a different meaning to the word “recent.” O’Malley’s letter states, “[r]ecent amendments to Government Codes section 27388 now require the District Attorney to submit an annual report…” Senate Bill 537 was passed by the State legislature in 1995 codifying Government Code section 27388 and our letter detailed included the language requiring an annual report by the district attorney  in subdivision (d):

The county board of supervisors shall annually review the effectiveness of the district attorney in deterring, investigating, and prosecuting real estate fraud crimes based upon information provided by the district attorney in an annual report submitted to
the board detailing both:
(1) Facts, based upon, but not limited to, (A) the number of real estate fraud cases filed in the prior year; (B) the number of real estate fraud cases investigated in the prior year; (C) the number of victims involved in the cases filed; (D) the number of convictions obtained in the prior year; and (E) the total aggregated monetary loss suffered by victims, including individuals, associations, institutions, corporations, and other relevant public entities,
according to the number of cases filed, investigations, prosecutions, and convictions obtained.
(2) An accounting of funds received and expended in the prior year, which shall include (A) the amount of funds received and expended; (B) the uses to which those funds were put, including payment of salaries and expenses, purchase of equipment and supplies, and other expenditures by type; (C) the number of filed complaints, investigations, prosecutions, and convictions that resulted from the expenditure of funds; and (D) other relevant information provided at the discretion of the district attorney.

While 27388 was amended in 2000, 2003, 2005, 2008, and 2012, the requirement that the district attorney provide an annual report to the board of supervisors has never changed. What did change in 2012, as it had in 2008 was the increase in the fee that could be charged by a county for adding to the Trust Fund. O’Malley and Auditor Patrick O’Connell had no problem submitting a request to the Board of Supervisors on November 20, 2012 asking to increase recording fees collected for the Trust Fund. The 2012 Report states, “[p]ursuant to Government Code section 27388(d), the District Attorney submits annual reports to the Board of Supervisors describing the District Attorney’s efforts investigating and prosecuting real estate fraud which include an accounting of funds received and expended from the Real Estate Trust Fund during the previous year.” Further on the 2012 Report says, “[t]he District Attorney’s office shall administer the funds and submit the necessary reports as required by law.” Unfortunately, the DA’s office has been, at best, negligent in adhering to this requirement.

In neither report to the Board did O’Malley mention that in 2012, when the legislature passed SB 1342, it added the additional requirement in 27388 subdivision (e) that “[a] county shall not expend funds held in that county’s Real Estate Fraud Prosecution Trust Fund until the county’s auditor-controller verifies that the county’s district attorney has submitted an annual report for the county’s most recent full fiscal year pursuant to the requirements of subdivision (d).” Because O’Malley never submitted a report in 2013, it was impossible for the Auditor to verify that a report was submitted; therefore Alameda County could not expend the $953,482 in Trust Fund monies in fiscal year 2013-14 that the Report details. As the video (from 25:25 to 31:39) of the September 9, 2014 Board meeting clearly shows, O’Malley’s representative does not understand this part of the law and contends the DA’s office did not have to report to the Board last year. The 2012 amendments to 27388 made it mandatory for a report to be submitted to the Board by O’Malley if Alameda County wanted to utilize Trust Fund monies. Because the County did not follow the law the money must be replaced.

Page 1 of the Report states, “[t]his report also serves as a reapplication for funds from the Real Estate Fraud Prosecution Trust Fund for FY 2014-15 pursuant to Government Code §27388(c)(4).” Unfortunately that subdivision of 27388 does not apply to the district attorney of a county, only to a law enforcement agency, and the law clearly distinguishes between the two. Further on the Report mentions “predatory practices” without the caveat that, as we explained in an earlier post,  O’Malley’s office, along with other law enforcement agencies, has a policy to not prosecute predatory lending.

The facts behind the cases cited in the Report show how little O’Malley is doing about real estate fraud. The first case mentioned in the Report is that of William Hogarty. O’Malley’s office first received a fraud complaint against Hogarty in July 2010, but did not bring charges until after he was charged with “assault with a deadly weapon and threatening to kill someone.” Not mentioned in the Report is that on August 6, 2014 O’Malley’s office reached a settlement with Hogarty where the 16 felonies he was charge with were reduced to a single misdemeanor in return for a “no contest” plea.

The second case mentioned in the Report, that of Damon Williams, leaves out some key facts. I have spoken with Williams, and according to him, the person who convinced him to sign the allegedly fraudulent documents was given a non-prosecution agreement by O’Malley’s office in return for testifying against Williams. Also not mentioned is there has been a plea bargain offered that would reduce the charges.

Johnson Su, the third case mentioned in the Report is a complex matter that has involved ongoing civil litigation between himself and the complainant Cindy Chen since the 1990’s. If this is a case worth highlighting in the Report then how insignificant and meaningless are the cases that are not reported. The final case mentioned is another of the “Your Black Muslim Bakery” cases and is not a new case but in fact a rehashing of an old case that has taken some  time to be charged. The total damages involved in this case is $76,649, far less financial loss that would be involved in a single case of predatory lending. Overall the Report cites a total of 252 victims in charged cases over the last years with a total losses of $4,930,133. This works out to less than $20,000 per victim, which in real estate fraud is the small fish. As we have reported previously O’Malley has a well documented history of not prosecuting locals and going after out of town hucksters. Since federal prosecutors will not handle cases worth less that $1 million, and O’Malley’s office rarely if ever charges locals, any local fraudster that can take someone for less than $1 million has nothing to fear from the Alameda County DA. The facts support our contention that the Alameda County District Attorney’s office does not go after significant cases of real estate fraud, they go after the easy cases that do not involve members of the community who look like the District Attorney.

Alameda County has spent Trust Fund monies in violation of the law and is unable to account for the monies in the Trust Fund. O’Malley’s most recent Report confirms once again the misuse and non-use of the Trust Fund. If O’Malley’s figures are correct, and given the history we cannot assume they are correct, Alameda County has over $4 million in the Trust Fund, and if spent at the rate it was in Fiscal Year 2013-14 there will be over $5.7 million in the account at the end of the 2014-15 fiscal year. Given the impact of predatory lending and mortgage fraud on the economy of Alameda County and the country, not using these funds for their intended purpose is an abuse of prosecutorial resources.

As we reported previously, Alameda County District Attorney Nancy O’Malley has proclaimed that her office will aggressively pursue cases of mortgage fraud. The previous post noted that in 2011 when the video below was recorded, O’Malley held a press conference and said, “we will aggressively prosecute those individuals who commit loan fraud, who commit real estate fraud.”

What O’Malley failed to mention is that under her “leadership” the Alameda County District Attorney’s office had cut funding for real estate fraud prosecution by 85 percent.

Passed in 1995, SB 537, codified California Government Code section 27388 (27388) which allows each county the option of assessing a fee on recorded real estate documents to fund a Real Estate Fraud Prosecution Trust Fund (Trust Fund). According to the 2010 report from the Legislative Analyst’s Office (LAO), as many as 27 counties in California might be participating, but in a 2012 report, the LAO was only able to document the participation of 22 counties. The original version of the law allowed up to two dollars per recorded document to be collected. SB 1396, passed in 2008 increased the fee limit to three dollars, and in 2012, SB 1342 amended the law again allowing up to a ten dollar fee per recorded real estate document. The 2009 increase was intended to be a cost of living increase, while the 2012 increase was expected to increase the amount of funding for the program by three to four times the previous amount. Alameda County passed a resolution assessing the two dollar fee on December 5, 1995 and increased the fee to three dollars on January 13, 2009. On November 20, 2012, at the request of O’Malley and County Auditor Patrick O’Connell, the Alameda County Board of Supervisors passed a resolution increasing the fee to ten dollars.

Our first public records request on this issues went to the Alameda County Board of Supervisors asking for information on, and an accounting for, the Trust Fund. 27388 subdivision (d) requires that “the county board of supervisors shall annually review the effectiveness of he district attorney in deterring, investigating, and prosecuting real estate fraud crimes based upon information provided by the district attorney in an annual report. The district attorney shall submit the annual report to the board on or before September 1 of each year.” We requested all of the annual reports, which we expected to include accounting for the Trust Fund. The only annual report to the Board of Supervisors that we received was dated April 4, 1999. We also received an undated 2004 report, but we cannot verify that it was ever presented to the Board.

27388 subdivision (e) says “[a] county shall not expend funds held in that county’s Real Estate Fraud Prosecution Trust Fund until the county’s auditor-controller verifies that the county’s district attorney has submitted an annual report for the county’s most recent full fiscal year pursuant to the requirements of subdivision (d).” Our second records request was submitted to the Auditor, Patrick O’Connell, “for copies of reports showing the county’s auditor-controller verified that the District Attorney ‘has submitted an annual report for the county’s most recent full fiscal year.'” The request to the Auditor also said, we “would expect this would also include the most recent accounting for the Trust Fund.” O’Connell’s office immediately sent the request to District Attorney O’Malley’s office. O’Malley’s office then replied several day later with some records, but no annual reports to the Board of Supervisors.

The response from O’Malley’s office included a table of expenses for the Real Estate Fraud Program for the fiscal years 2006/2007 through 2011/2012.  For the years 2006/2007 through 2008/2009 the Alameda County DA’s office spent $4,802,343 on mortgage fraud prosecutions. O’Malley was appointed District Attorney in September 2009, just after the start of the fiscal year, and for the first three years she ran the office, (2009/2010 through 2011/2012) the office spent $724,649 on mortgage fraud prosecutions, a decline of 85 percent from the previous three years. The question is whether O’Malley was responsible, or was this a result of the 2008 agreement amongst prosecutors to not prosecute predatory lending. Either way, O’Malley’s statements made in 2011 are directly contradicted by the numbers provided by her office.

27388 restricts the use of Trust Fund monies “for the exclusive purpose of deterring, investigating, and prosecuting real estate fraud crimes.” The response from O’Malley’s office shows that in fiscal year 2007/2008 the District Attorney’s office spent $103,622 of Trust Fund monies for a Rehab Counselor II and $77,372 for a Mental Health Specialist III. The following fiscal year, 2008/2009, the District Attorney’s office again spent Trust Fund monies on a Mental Health Specialist III in the amount of $84,036. All of this information confirms that in Alameda County Trust Fund monies are being expended without the county’s auditor verifying “that the county’s district attorney has submitted an annual report for the county’s most recent full fiscal year” and they are being spent for purposes other than “deterring, investigating, and prosecuting real estate fraud crimes.”

After our inquiry we still do not know how much money is in the Alameda County Trust Fund to fight real estate fraud. With the increase in the fees on recording of real estate documents in 2013, Alameda County is probably collecting more than $2 million per year for prosecuting this fraud.  The even bigger question will be if the Trust Fund was not used legally for the last almost 15 years, does Alameda County owe the Trust Fund for all the money that was spent without the required approvals? If so the Real Estate Fraud Prosecution Trust Fund should be able to fund a robust program to prosecute predatory lending and other real estate frauds.

Nancy O’Malley has been the Alameda County District Attorney for just over four years and has a track record of being soft on white-collar crime. Local, in-county white collar criminals are even less likely to be prosecuted that those from out of town. The record speaks for itself, and to add to her legacy is the accepting of a campaign contribution from a local nonprofit her office was asked to investigate. It is illegal for nonprofits to contribute to politicians’ campaigns. More than two years later she has not returned the contribution. A local developer with ties to mortgage fraud and an FBI investigation has also made significant  contributions to her re-election campaign and so far there are no signs of O’Malley investigating the case.

Nancy O’Malley has made the Alameda County District Attorney’s office her career, having started as a Deputy District Attorney in 1984. In 2009 O’Malley was appointed to fill the seat of her predecessor Tom Orloff, who resigned less than a year before the June 2010 election. O’Malley was Orloff’s chosen replacement and the Board of Supervisors appointed her to the position. She then ran unopposed for re-election.

As with all the other prosecutors we have discussed in previous posts, O’Malley has claimed that she will prosecute all crimes, not just select ones. Prior to being appointed by the Board of Supervisors she said, “I feel very strongly about living my life as an ethical woman who is honest and straightforward. What you see is what you get with me.”

In the video below, O’Malley declares that “In Alameda County victims of crime will be treated with dignity, with respect, and with fairness because your voice matters.”

Shortly after her appointment O’Malley began the proclamations of how tough she would be on mortgage fraud. She produced press releases espousing how important it is for her office to pursue these cases. In 2011 when the video below was recorded, she held a press conference and said, “we will aggressively prosecute those individuals who commit loan fraud, who commit real estate fraud.”

The problem: just like Eric Holder nationally, and Kamala Harris in California, there is almost nothing in the record to support O’Malley’s claims of aggressively pursuing mortgage fraud prosecutions. I can find only one case where O’Malley was remotely involved in prosecuting a case for defrauding a borrower during mortgage origination. In that case, the original action was brought by a State agency, and O’Malley’s office merely piled on. The case was settled without anyone going to jail.

O’Malley’s July 2010 newsletter talks about Deputy DA David Lim’s article titled Local Prosecution of Real-Estate Fraud as a Means to Achieving Social and Economic Justice for Low-Income Victims and Communities: A Case Study.” Lim’s article points out that federal prosecutors have an unwritten policy of not prosecuting cases where the damages are less than $1 million and  that local prosecutors were in a position to act quickly. In the article Lim said:

“While the Federal Bureau of Investigation (FBI) does not formally acknowledge that it has a “minimum-loss” threshold, the threshold is well known in the law enforcement community. The FBI Miami field office is the only office known to have acknowledged that such a threshold exists (see Glenn Theobald, Attacking Mortgage Fraud in Florida, Community Policing Dispatch (Office of Community Oriented Policing Services, U.S. Department of Justice), June 2009, http://bit.ly/cops_usdoj_enews).”

Our case includes a clear forgery of the loan application that we had no knowledge of until Bank of America provided us a copy in 2011. We did not even know the forged loan application existed prior to June 2011. I have written three letters to Nancy O’Malley’s office in the last year trying to get  action on our case. Each inquiry to O’Malley’s office has received a different response. The first came from Inspector Pat Johnson who stated the office would take action if we could identify the forger. No explanation as to why investigators in O’Malley’s office could not do the investigating. He acknowledge that a crime had occurred but the office would do nothing unless we did the investigation. We know the probable date and location of the forgery, and it would not take much of an investigation to determine who was guilty, but Inspector Johnson suggested it’s self service justice or nothing. The second letter was brushed off, and the third received the incredible response, documented in our last post, where Deputy DA David Lim revealed that in 2008 prosecutors agreed to not prosecute mortgage origination fraud, and for that reason the Alameda County DA’s office would not pursue a prosecution in our case. No matter how egregious a case of mortgage origination fraud might be, O’Malley’s office will not prosecute because of the agreement made in 2008. And since the case is worth less than $1 million the feds will not prosecute and Kamala Harris no record of prosecuting such cases.

The mortgage fraud cases O’Malley has prosecuted seem to share common themes: they involve businesses and individuals from outside the county, they are relatively small time players in the industry who are a bit sketchy to begin with, and they are often minorities. I cannot find a single case of O’Malley’s office prosecuting a local mortgage broker for defrauding borrowers during mortgage origination. The only case we can find involving prosecution of a local suspect was the bringing of a case against William Hogarty who was charged with attempted murder before being prosecuted for mortgage modification scams. Again is was not a case of mortgage origination or predatory lending, but it was the prosecution of a resident of Alameda County, a true rarity.

O’Malley has her own biases as to which crimes are most important to prosecute. Her biases are shown in her July 22, 2013 presentation to the Alameda Planning Board. She is very afraid of the crime that might overflow into her hometown of Alameda. Steven Tavares’ report in the East Bay Citizen includes the video proof of O’Malley’s concerns that certain elements from Oakland might come into her city. In the video she clearly states her fears and concerns about crime in Oakland. Unfortunately, as Matt Artz of the Oakland Tribune reported, O’Malley “dramatically overstated the robbery crisis gripping Oakland.”

One of the biggest donors to O’Malley’s re-election campaign is Discovery Builders, a company owned by the Seeno family. This is that same company that has been implicated in mortgage fraud and has apparently been investigated by the FBI.

Discovery Builders has made two contributions to O’Malley’s 2014 re-election campaign: $2,500 on August 23, 2012 and $1,000 on August 25, 2011. There is no word of O’Malley’s office investigating Seeno or Discovery even though there are allegations of wrongdoing in Alameda County.

The January 31, 2012 filing by O’Malley’s 2014 re-election committee shows that on August 22, 2011 she received a $1,000 contribution from the 501(c)(3) nonprofit Tri-Valley Community Foundation (TVCF). IRS regulations prohibit nonprofits from donating to political candidates. More troubling is that, as was reported, the TVCF Board asked the Alameda County DA’s office to investigate when the President of TVCF had been found to have made questionable expenditures of Foundation monies. TVCF also donated to one of O’Malley’s pet projects, the Alameda County District Attorney’s Justice Academy, before the alleged wrongdoing by the former President was discovered.

In October 2013, the Oakland Tribune reported: “In a phone interview, Teresa Drenick, spokeswoman for O’Malley, pointed to a host of initiatives coming from the DA’s office, including the “at school” program focusing on keeping children in school and out of the criminal justice system, getting unprocessed rape kits tested, and fighting against real estate and mortgage fraud.” O’Malley’s campaign website never mentions mortgage fraud or addresses white collar crime in any significant way.

From Nancy O’Malley’s campaign website: “I have been committed to continually fight crime on behalf of citizens and victims for over 25 years. As the District Attorney, it is my role as chief law enforcement officer in the county to be ethical, honest, and above reproach in my decision making. I have a history of being fair and impartial and am committed to serving the people of this county for many years to come.” Too bad she fails to mention she does not prosecute white collar criminals who live in Alameda County that might make contributions to her campaign or vote for her.

Nancy: when will you prosecute the people that look like you and were the real cause of the mortgage and financial disasters? The people who hold licenses to operate and should be put out of business for their wrongdoing. The same people you hope will give you campaign contributions and vote to keep you in office. It is time for Nancy O’Malley to be ethical, honest and straightforward with the people of Alameda County.