2010, THE ASSOCIATED PRESS
The scheme was originally uncovered in a Tampa Tribune investigative story in 2006.
Prestigious Tampa law firm Holland & Knight drafted a key document used in a $6.9 million mortgage fraud scheme, and at least two support-staff employees participated, according to court records and interviews.
Karen McBride, spokeswoman for the firm, said she was not aware of the document in question, and she couldn't confirm whether a lawyer from Holland & Knight drafted the document.
"We are constrained from discussing our clients and our legal services to them," McBride said. "We've never been informed that any services we've performed were implicated in this matter."
Holland & Knight has not been named in any criminal complaint related to the mortgage fraud scheme.
Chris Malcom and Chad Evans, who ran Clearwater companies, Shorefront Ventures LLC and Tye Funding LLC, pleaded guilty last year to federal mortgage fraud charges. The pair worked with real estate professionals to lure straw buyers to participate in 50 fraudulent mortgage transactions, according to the court documents.
A straw buyer is someone who buys something on another's behalf. In this case, straw buyers also broke federal laws by lying to federally backed financial institutions, according to the government.
The scheme was originally uncovered in a Tampa Tribune investigative story in 2006. Malcom was set to be sentenced last week, but the hearing was postponed. But in preparing for the sentencing, Malcom's lawyer, David Weisbrod, filed a memorandum in federal court asking for a lenient sentence. The charges carry a maximum sentence of 30 years imprisonment and a fine of $27,496.
Weisbrod said Malcom thought his business plan would be a success in part because he sought legal advice from the Holland & Knight.
"The Property Management Agreement sets forth the relationship between the straw purchasers and Shorefront Ventures and, further, includes examples of how the profits would be divided between Shorefront Ventures and the investor," Weisbrod said in the memorandum.
"While this Property Management Agreement ended up being a prime exhibit in laying out the subject fraud, it further demonstrates that at the time in question, Mr. Malcom believed (perhaps naively) that his real estate investment venture… would be a substantial success."
In addition to the document, two Holland & Knight employees bought properties that the government used as evidence against Malcom and Evans.
Two properties purchased by Todd Stewart were named in court documents. In both cases, Malcom and Evans' companies provided the down payments Stewart used to purchase the homes, and Stewart received money in the transactions, the government said.
Another employee, Debra Markham, purchased several St. Petersburg homes in 2006 from one of Malcom and Evans' companies, public records show.
McBride said the two employees are no longer employed by the firm. McBride would not disclose the employees' titles.
The core of the scheme, according to the government, involved inflating home prices and diverting the "equity" back to Malcom and Evan's companies. The companies provided straw buyers with down payments and located homes to purchase. They used proceeds from inflated sales to fund down payments.
The companies used two methods to make money, according to the plea agreement.
In one example, Shorefront and Tye would purchase a property for an inflated price, instantly bumping up the equity. Straw buyers would then refinance with federally insured financial institutions, kicking money back to Evans and Malcom.
In exchange, the buyers would get back some money to keep and some to make payments associated with the mortgage, including mortgage payments, taxes, insurance and improvements to the property, court records say.
The second method, court documents say, involved the buyers purchasing directly from sellers and applying for mortgage loans. Two separate sales contracts would be prepared. One, containing payoff language to either Shorefront or Tye, would be provided to the title agency, most often Ocean Title in Tampa, the plea agreement says.
Another contract, without the payoff language, was given to the lender. The lender would be under the impression the seller received the full sales price listed on the contract. The settlement document didn't disclose that the down payment was not provided by the buyer, court document said.
Holland & Knight spokeswoman McBride said the firm "has not been contacted by authorities" about the property management agreement.
Weisbrod told the Tribune that the firm drafted and reviewed only the property management agreement, which did not mention the inflated prices. He said he doesn't know how much of the scheme Malcom shared with the firm's lawyer.
Darryl Wilson, a professor at Stetson University College of Law, said the Holland & Knight lawyer may have done nothing improper, but may have missed an opportunity to uncover this fraud scheme and warn the client.
There's nothing wrong with the property management agreement by itself, he said. However, language within the document should have raised a red flag he said, pointing to a clause that says the company may have advanced money for closing costs.
"You would expect that clause wouldn't be there unless the lawyer asked questions," Wilson said. "We just don't know for sure that they asked enough questions or that they got truthful answers."