Saturday, March 10, 2012

Fraud: 33 years for Money Laundering Conspiracy, Money Laundering, and Mail Fraud

U.S. Attorney’s Office
District of Colorado

GRAND JUNCTION, CO—This morning U.S. District Court Judge Philip A. Brimmer sentenced Philip Lochmiller, Sr., age 64, to serve 405 months (over 33 years) in federal prison for conspiracy, money laundering conspiracy, money laundering, and mail fraud, U.S. Attorney John Walsh, FBI Special Agent in Charge James Yacone, and IRS-Criminal Investigation Special Agent in Charge Sean P. Sowards announced. Following his prison sentence, Lochmiller, Sr. was ordered to serve three years on supervised release. He was also ordered to pay restitution totaling $18,649,999.40 to the victims of his crime. The restitution is to be paid joint and several with his two co-defendants. Following the sentencing hearing, which was held in the Mesa County Criminal Justice Center in Grand Junction, Judge Brimmer ordered that Lochmiller be immediately taken into custody by U.S. Marshals to begin serving his sentence. Over 30 victims attended today’s sentencing hearing.

Philip Lochmiller, Sr., Philip Lochmiller, Jr., and Shawnee Carver were indicted by a federal grand jury in Denver on December 15, 2009. A superseding indictment was returned on October 18, 2010. Lochmiller, Jr. pled guilty on November 16, 2010. Carver pled guilty on December 9, 2010. Both testified during the Lochmiller, Sr. trial. Lochmiller was convicted following a 10-day jury trial on July 21, 2011. The jury deliberated for three hours before returning their verdicts. Philip Lochmiller, Jr. and Shawnee Carver had earlier pled guilty and were sentenced. Lochmiller, Jr. was sentenced to serve 96 months (eight years) in prison, followed by three years of supervised release. He was also ordered to pay restitution totaling $18,649,999.40 to the crime victims. Carver was sentenced to serve 24 months (two years) in prison followed by three years of supervised release. She was ordered to pay restitution totaling $2,500,000 to the victims of the crime. Both were sentenced by Judge Brimmer.

According to evidence presented at trial, the superseding indictment, and other documents from the prosecution, Valley Mortgage, Inc. was incorporated in Colorado in September 1994 by Philip Lochmiller, Sr. The company originally engaged in the business of originating or brokering home mortgages. Lochmiller, Sr. owed 100 percent of Valley Mortgage’s stock and was principal, officer, and director. Lochmiller, Sr.’s stepson, Philip Lochmiller, Jr., joined Valley Mortgage in 1999 as a mortgage officer. Lochmiller, Sr. later added the name Valley Investments as a d/b/a for Valley Mortgage. Lochmiller, Jr. eventually worked his way to become responsible for day-to-day operations of the company. Beginning in 2000, Valley Mortgage entered into the “affordable housing” real estate market by buying vacant land or existing mobile home parks, entitling the land so residential subdivisions could be built, and then selling lots with either a mobile home or a manufactured home on them.

Valley Investments purchased land with financing provided by the sellers in a “owner-carry” arrangement. Valley Investments then began to advertise in local newspapers and solicit investment funds from the public. The company promised returns from 10 to 16 percent, and in some instances, as high as 18 percent. In exchange, investors were promised a promissory note and a recorded first “Deed of Trust” on individual lots. The advertisements and verbal representations by both of the Lochmillers characterized the investment as a “solid security” secured and recorded by a deed of trust in the investor’s name. Both of the Lochmillers represented to investors that Valley Investments used investor funds exclusively to acquire property and finance the development of the subdivisions Valley Investments owned. Both the Lochmillers further represented that Valley Investments generated large profits by selling manufactured homes together with lots within the subdivisions. Investors were not told that Lochmiller Sr. had a prior felony conviction and a bankruptcy.

Between 2000 and 2005, Valley Investments acquired five properties purportedly to develop “affordable housing” subdivisions. Between 2000 and 2009, Valley Investments received over $30,000,000 from approximately 400 investor contracts. The government’s expert forensic accountants shows that this influx of investor funds kept Valley Investments operating, particularly in its later years, and without investor funding, Valley Investments would have failed. The government accounting analysis also determined that investor funds were used by both of the Lochmillers for purposes other than what investors were told. Further, incoming investor funds were used to make interest and principal payments to existing investors. Once investor money started coming into Valley Investments, the funds went to personal expenses, family expenses, and other non-business expenditures. Both Lochmillers then engaged in monetary transactions involving more than $10,000 of the proceeds of the fraud.

Valley Investments did not own sufficient property or assets to secure the investments as represented. Unbeknownst to investors, the amount of investment funds, which were supposed to be secured by real property, far exceeded the value of the encumbered property and the business assets. Valley Investments failed to file all of the trust deeds on behalf of investors as promised, and many of the filed trust deeds were not the first encumbrances on the properties named and were thus worthless. Despite these facts, the Lochmillers and Valley Investment employee Shawnee Carver continued to misrepresent to investors that the business was thriving, and never disclosed to new investors how their money was being used.

“Make no mistake: today’s sentence, which amounts to a life sentence, demonstrates that those who rob with the pen and the computer cannot evade the painful consequences of their crimes,” said U.S. Attorney John Walsh. “Although this sentence can’t by itself undo the damage suffered by the many victims of this fraudulent scheme, justice was done.”

“Today’s sentencing provides 403 citizens victimized by Philip Lochmiller, Sr some justice for the devastating financial losses he caused with deceit and misrepresentations,” said FBI Special Agent in Charge James Yacone. “On behalf of the FBI, I’d like to express my sincere gratitude to the U.S. Attorney’s Office and agents from the IRS-CI and FBI who worked countless hours to bring Lochmiller and his co-conspirators to justice.”

“Defrauding innocent investors by peddling sham investment schemes is a serious and far too common offense,” said Sean Sowards, special agent in charge, IRS Criminal Investigation, Denver Field Office. “IRS Criminal Investigation will work with our law enforcement partners to vigorously pursue and hold accountable those who perpetrate these schemes to get rich quick at the expense of honest Americans.”

This case was investigated by the Federal Bureau of Investigation and the IRS Criminal Investigation and prosecuted by Assistant U.S. Attorneys Michelle Heldmyer, Pegeen Rhyne, and Tim Neff.

This prosecution is part of President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.