Two high-profile Beverly Hills real estate agents and two licensed appraisers were indicted Thursday on charges of joining in a sophisticated scheme that lenders said cost them more than $40 million in fraudulent loans for homes in some of Southern California's most expensive neighborhoods.
Joseph Babajian and Kyle Grasso, agents with Prudential California Realty, along with appraisers Lila Rizk of Trabuco Canyon and Scott Robinson of Dana Point, were each indicted on multiple counts of conspiracy, bank fraud and loan fraud. They face several years in prison if convicted, said Assistant . U.S. Atty. Jeremy Matz. Babajian and Grasso are also charged with money laundering.
Babajian and Grasso are considered part of the Westside realty royalty because they routinely close millions of dollars in sales annually and tout some of the biggest names in Hollywood as their clients. Their deals often appear in The Times' Hot Property column.
Babajian claims on his website to have sold $182 million in real estate in 2006 alone. More recently, he and Grasso were the listing agents on a $22-million Beverly Hills estate purchased by soccer star David Beckham this spring.
The indictments stem from a federal investigation that has led to guilty pleas from four other people on similar charges, including Mark Alan Abrams, a real estate financier with a history of fraud judgments against him. Abrams made headlines two years ago, when he was fined $270,000 by the Los Angeles Ethics Commission for laundering political donations to James K. Hahn's mayoral campaign. The four are awaiting sentencing.
Matz said the scheme highlighted how fraud was perpetrated on the high end of the once-booming housing market. That contrasts with recent publicity about "liar loans" obtained by sub-prime borrowers with weak credit status and no money for a down payment.
"This case targeted the opposite end of the market: high-end homes on the Westside involving loan products geared toward wealthy individuals with good credit," he said.
None of the latest defendants was taken into custody, Matz said, but they have denied wrongdoing.
"Joe and Kyle are innocent of these charges," said Palo Alto-based attorney Mark Flanagan, who is representing Babajian. "They have always conducted their business lawfully. They look forward to vindicating themselves in court."
Los Angeles attorney Jan Handzlik, who is representing Rizk, said his client denied the charges.
"She looks forward to her day in court and expects to be found not guilty," Handzlik said.
Efforts to reach Robinson or his attorney were unsuccessful.
The only defendant with a trial date so far is real estate developer and former fugitive Charles Elliott Fitzgerald of Newbury Park. His trial is scheduled to begin Nov. 13 in U.S. District Court in Los Angeles. Fitzgerald had fled the United States in 2003 after he was sued by one of the mortgage lenders, but he was captured in Samoa in December.
From 2000 to 2003, Fitzgerald, Abrams and the others allegedly doctored paperwork, including preparing bogus real estate purchase contracts and appraisals, to trick banks into funding mortgage loans that were hundreds of thousands of dollars higher than the homes actually cost, according to court documents.
The defendants played different roles, with some allegedly acting as "straw" buyers and others allegedly using their professional licenses to obtain title insurance and other documents necessary for property transactions.
They sometimes allegedly "flipped" properties: buying at one price and reselling to a straw buyer at a significantly higher price. In the process, they inflated comparable sales data for neighborhoods in Beverly Hills, Holmby Hills and Malibu, prosecutors said. That helped them continue the alleged scheme because they used the "false" data to persuade banks to fund subsequent purchases, court documents show.
One transaction detailed in the indictment was the 2000 purchase of a Beverly Hills home by Fitzgerald and Abrams for $2 million, which they told the bank was purchased for $4.395 million after receiving allegedly inflated appraisals from Rizk and Robinson, prosecutors said.
Babajian and Grasso had the listing on the home and allegedly manipulated the Multiple Listing Service database to falsely report to the sales agent community that it was listed and sold at $4.495 million.
A phony loan application was allegedly devised in the name of a straw borrower and sent to Lehman Bros. Bank. It unwittingly funded a loan of more than $2.8 million -- about $800,000 more than the true $2-million purchase price, prosecutors said, and the defendants split the proceeds from the fraud.
Thursday's indictment alleges that Babajian and Grasso profited by collecting hundreds of thousands of dollars in commissions and concealed payments. Rizk and Robinson allegedly profited by collecting fees from inflated appraisals.
Some Westside agents have said that during the recent housing boom they were often approached by prospective buyers who sought to exploit rising real estate prices by getting sellers and their agents to agree to inflated home prices.
Some of the schemes involved listing hundreds of thousands of dollars in nonrecurring closing costs as part of the loan amount.
If Babajian and Grasso are convicted, they also could be subject to disciplinary action by the California Department of Real Estate, including the revocation of their real estate licenses, according to state law.
The real estate department usually opens an investigation after it receives a complaint, gets information from media coverage or receives a referral from law-enforcement agencies, a department spokesman said.