Nancy O’Malley Spent Trust Fund Monies In Violation of State Law

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.

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