Charles Elliott Fitzgerald, an admitted architect of one of the largest real estate frauds in California history, was sentenced Friday to 14 years in federal prison for his part in bilking mortgage lenders of more than $40 million.
Fitzgerald, 48, pleaded guilty in May to conspiracy, fraud and other charges, acknowledging that he reaped at least $5 million from the scheme, which was based in Beverly Hills and involved high-end house flips.
He is the first of 11 defendants to be sentenced in the case, which foreshadowed the wave of foreclosures now washing over the wreckage of California's real estate market. But U.S. District Judge Dean Pregerson said Fitzgerald's scheme had no direct connection to the current financial crisis.
"This is not a deregulation case," he said. "This is a case about good old-fashioned lying and cheating."
Prosecutors said Fitzgerald and his alleged co-conspirators, including developer Mark Alan Abrams and star real estate agents Joseph Babajian and Kyle Grasso, hatched their scheme during California's burgeoning real estate boom of the late 1990s and early 2000s.
They allegedly bought inexpensive houses in exclusive areas at market value, fabricated records showing them to be worth two or three times as much, and then secured $142 million in loans based on the inflated numbers.
The alleged fraud ring initially kept up payments on the properties, but by August 2003 the mortgages were slipping into default and headed for foreclosure. Money that might have been used to service the loans instead was spent by Abrams and Fitzgerald on lavish items such as private jets and vintage wines, court records in the lenders' civil lawsuits show.
Lehman Bros. Bank, which last month spiraled into bankruptcy amid the nation's deepening financial crisis, and another lender, RBC Mortgage Co., lost about $42 million on the loans, according to prosecutors and the civil suits.
Fitzgerald, who will serve his time at a medium-security federal prison in Colorado, was ordered to pay that amount in restitution. However, the judge noted that Fitzgerald does not have the money.
"I am sorry for everything that happened," Fitzgerald, who wore a white prison jumpsuit and was shackled at the waist, told the judge as his wife and six children sat at the back of the courtroom.
"I apologize to the court, I apologize to the government, I apologize to every victim," he said. "I wish I could take it back and relive those years all over again and change it all, but I can't."
