Wachovia (Wells Fargo) FHA Sabat Modification Scam Complaint

8/7/2019 Wachovia (Wells Fargo) FHA Sabat Modification Scam Complaint

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FORPAL}il

Case No. lTATE OF FLORIDA OFFICE OF THE

ATTORNEY GENERAL, DEPARTMENT

OF LEGAL AFFAIRS,

Plaintiff,

VS.

FHA ALL DAY.COM, INC. a Florida Corporation;

SAFETY FINANCIAL SERVICES, INC.,

a Florida Corporation;

HOUSING ASSISTANCE LAW CENTER, PA,

a dissolved Florida Corporation;

HOUSING ASSISTANCE NOW, INC.,

a dissolved Florida Corporation;

JASON VITULANO, individually and as owner,

officer and"/or director of FHA All Day.com, Inc.and as owner, officer andlor director of Safety

Financial Services, Inc.,

Defendants.

ROBERT C. FURR, as Court Appointed

Receiver for FHA ALL DAY.COM, INC.;

SAFETY FINANCIAL SERVICES, INC.;

JASON VITULANO; HOUSING

ASSISTANCE LAW CENTER, PA; ANd

HOUSING ASSISTANCE NOW, INC.,

Plaintiffs,

vs.

WACHOVIA BANK, A DIVISION OF

\ITELLS FARGO BANK, N.A., CIIARLYSABAT; SABAT BROTHERS, INC., a Florida

Corporation, and SABAT BROTHERS III,INC.d/b/a SWIFTY'S MARKET GRILL & DELI,

a Florida Corporation.

Defendants.

m

50 20fl cr 0018, 4xilt t

CASE NO.

^q,U\



Plaintifi Robert C. Furr, as Receiver for FHA All Day, Inc., Safety Financial Serviceg tnc-

Jason Vifulano, Housing Assistance Law Center, PA, and Housing Assistance Now, Inc., sues

Defendants, Wachovia Bank, a Division of Wells Fargo Bank, N.A., Charly Sabat, Sabat Brothers,

Inc. and Sabat Brothers III, lnc. d/b/a Swifty's Market Grill & Deli, and demand a trial by jury on

all issues so triable, and states:

I. NATURE OF THE ACTION

1- This case is about illegal and fraudulent loan modification activities. Jason Vitulano,

through companies he controlled, FHA All Day.com, lnc., Safety Financial Services, Inc., Housing

Assistance Law Center, P.A. and Housing Assistance Now, Inc. (collectively "FHA") engaged in

illegal home loan modifications. As explained more fully, only a law firm is entitled to be paid an

up front fee for loan modification. Unfortunately, notwithstanding the 1aw, scam artists like

Vitulano and FHA used the economic and real estate crisis to their advantage by preying upon

homeowners facing foreclosure. The abuses of these types of companies are well-known, having

been reported by news magazines, newspapers and other media. In fact, an online search of the

"FHA" or "loan modification" leads to many stories of fraud and illegal or at best questionable

activities. Better Business Bureaus throughout the United States have received hundreds of

complaints about FHA and other loan modification companies. Needless to say, anyone dealing

with such a company must be on guard and aware of the risk of fraud and illegal activity.

Unfortunately, Wachovia and Sabat were not just off duty when FHA came, they actively assisted

in the scam.

2. Here is how it worked, FHA would get lists of homeowners facing foreclosgre and

cold call these people (the "Homeowners"), or advertise their services online, claiming that for a fee,



which would run from $2, 0 00 to many thousands of dollars, they could renegufie

loan on much better terms. While this sounds good on its face, in practice it was merely a scam to

obtain the up-front fee, which, as explained, was illegal to do so because these companies were not

law firms.

3. Vitulano carefully chose the names of the companies. For example, FHA All

Day.com, which implies that the company is affiliated with the Federal Housing Authority. The use

of FHA is clever and typical of such scam artists, whereby they attempt to use a well-known and

respected name with a slight variation so as to impart legitimacy to their illegal activity. In addition

to implying some relationship to the Federal Housing Authority, the name also put Wachovia and

Sabat, on notice that FHA was in the home mortgage or home loan business. Similarly, Housing

Assistance Law Center and Housing Assistance Now also implied involvement in home loan

modification or similar types of activities.

4. How were Wachovia and Sabat involved? FHA was receiving literally thousands of

deposit checks from the Homeowners that they needed to cash. Here is where Wachovia, Swiftys

and Sabat come in. Instead of maintaining bank accounts and depositing the checks into those

accounts, as any legitimate business would, FHA cashed the checks at a check cashing store,

Swiftys. Charly Sabat was the principal of Swifty's. The name Swiftys appropriately described its

business. The word swifty is defined as slang for "a trick, ruse, or deception." This is very

significant and telling. What legitimate business, let alone one involving home loans or mortgages,

would use a check cashing store, especially one who's name is slang for a con, and not a bank?

5. After the checks were cashed at Swiftys, Swifty's would endorse the checks and

deposit the Homeowners' checks in its accounts at Wachovia. In other words, tens of thousands, if



not millions of dollars. in third partl .-hecX,s me,.re ::i - -: : -- Fl-:- : : :=---:: ::: -:r;.jjnri:s ;,,:rrr ri&$irke;r

at a check cashing store and then deposited in bulk in wachor.ia accounrs.

6. Wachovia, with knowledge of this obvious fraud and improper activity, accepted

checks from a check cashing store, made out to a company, FHA, which checks on their face alerted

Wachovia that loan modification or other activity was occuring and that the checks were from third

parties, some of whom were account holders themselves at Wachovia. Wachovia, ignoring this

obvious fraud and with knowledge of this obvious fraud and improper activity went ahead and

cashed the checks, provided operating capital and otherwise assisted Swiftys and FHA to perpetuate

their fraud and breaches of fiduciary duty upon the Homeowners. But for Wachovia's assistance.

the scam would have ended.

7 . As explained below, this is not an isolated incidence of one or two corporation checks

not endorsed into a corporate account. Rather, hundreds if not thousands of checks each made

payable to a company, were cashed at a check cashing store and then provided to a bank. In addition

to the fact that any reasonable person, let alone a bank with obligations under Federal and other law

and regulations to be on the look out for fraud and illegal activity, would not let this happen, in fact,

Wachovia was in a better position to know what was going on and to stop it. Wachovia is one of

the largest lenders in the country. Wachovia is in the business of making real estate loan mortgages.

Wachovia regularly works with FHA and govemmental agencies with respect to loan modifications.

And, as stated, some of the Homeowners were Wachovia customers and some the checks were

Wachovia checks.

8. Moreover, Wachovia knows the law that only attorneys can receive an up front fee

for home loan modification. Notwithstanding this knowledge, Wachovia ignored the facts and



allowed FHA and Swiflys to peryehah in_ fr-d_

As a result of these activities, as set forth further belo% ptahtitrbdngs*ftffiwachovia' Sabat and Swiftys for aiding and abetting breach of fiduciary duty, aiding and abetting

fraud and/orconspiracy to commit fraud.

10' This is an action for damages in excess of $15,000, exclusive of fbes and costs forfraud' conspiracy, aiding and abetting breach of fiduciary duty and aiding and abetting fraud.

I l ' Plaintiff, Robert c' Furr, is the court appointed Receiver for FHA All Day, Inc.,Safety Financial Services, Inc., Jason vitulano, Housing Assistance Law center, pA, and Housing

Assistance Now, Inc. ("plaintiff ,)

12' Plaintiff has been authorized by court orders to bring supplemental proceedings

including "any action to pursue claims and/or causes of action on behalf of the Defendants and/orany creditors of Defendants . . . ." (order Appointing Receiver dated August 7,2009,Exhibit ,,A,,),

and specifically to retain special counsel and to file a supplemental proceeding against third parties

including wachoviaBank and SabatBrothers, Inc., by court orderAppointing Receiver, Receiver,s

Motion to Approve: (l) Retainer of Special counsel, (2) proposed Fee Agreement, and (3) Filingof Supplemental Proceeding dated September 22,2010. plaintiff has standing to bring this actionand this complaint is filed pursuant to those orders, Exhibit ,,B.,,

l3' Plaintiff brings this action on behalf of creditors of FHA , which creditors are formercustomers of FHA, the Homeowners.

14. Defendant, Wachovia Bank, a Division of Wells Fargo, N.A. (,,Wachovia,,) is afederally chartered bank, authorized to do business in the State of Frorida, with offices in parm

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Beach Cotmty, Florida- Srdmia" nilrr*.rilfrra

of Florida. Wachovia also committed the torts described here in Pah Bd Cdy- Fhilr-

15' Defendant, Sabat Brothers, Inc., is a Florida Corporation with its principal place of

business in Palm Beach County. Sabat committed the torts described here in palm Beach County,

Florida.

16. Defendant, Sabat Brothers III, Inc., is a Florida Corporation with its principal place

of business in Palm Beach County. Sabat III committed the torts described here in palm Beach

County, Florida.

17. Defendant, Sabat Brothers, Inc. and Sabat

at all relevant times operated a convenience store/deli in

name of Swifty's Market Grill & Deli.

Brothers III, Inc, (collectively "Swifty's")

Boca Raton, Florida under the fictitious

18. Defendant Charly Sabat ("Sabat") is on information and belief a resident of palm

Beach County, Florida. At all relevant times, Sabat was an agent and principal of Swifty's and

controlled the actions of Swifty's and was the person at Swifty's with whom FFIA dealt.

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.At all relevant

times, FHA marketed loan modification and foreclosure-related rescue

services to Homeowners under various trade names, such as "Financial Housing Assistance."

20. Plaintiff is the Court appointed Receiver for FHA and has authority and standing to

bring this action.

2l- This Court has personal jurisdiction over Defendants in that each Defendant is a

resident of and/or conducts substantial business in the State of Florida and Palm Beach County.

Moteover, each Defendant committed the torts complained of within Palm Beach County, Florida.

22. Venue is proper in this Circuit in that the torts alleged here were committed in palm



Beach County, Florida. Swifty's has its principal place of business in Palm Beach Coung', Florida.

Additionally, Defendant Wachovia operates in n Palm Beach County Florida and throughout the

State of Florida.

23. Finally, venue is proper in Palm Beach County, Florida because no other forum is

a convenient for the parties and witnesses, and substantial records relating to the claims pled here

are located in Palm Beach County, Florida.

ilI. FHA'S SCHEME TO FRAUDULENTLY MISAPPROPRIATE THEHOMEOWNERS' MONEY AND BREACH ITS FIDUCIARY DUTIES TOTHE HOMEOWNERS

24. At all pertinent times, FHA marketed loan/modifications and foreclosure related

services to Homeowners in Florida and throughout the United States via telemarketing and internet

advertising.

25. FHA undertook to induce people to purchase loan modification and foreclosure

related selices via a series of false and fraudulent representations.

26. FHA was essentially a boiler room operation that obtained lists of people whose

homes were in foreclosure or facing foreclosure. Salesman from FHA would then "cold call" the

Homeowners and aggressively market FHA as being able to renegotiate the Homeowner's loans and

save them substantial amounts of money - for an up front fee. Once an unsuspecting Homeowner

was lured into this scheme, he or she would be required to send a check, typically for thousands of

dollars, to FHA for FHA's services in advance.

27 - FHA made blatant misrepresentations to Homeowners to obtain the up-front fee, by

claiming they could definitely reduce their principal balance, they could definitely lower their

interest rate, and claiming they could accomplish loan modification services for the consumer within

30-60 days.



2g' The actions by FHA, in particurar its actions in collecting theimproper, fraudurent and breached fiduciary duties to the Homeowners andlorFlorida law, F.S. $ 501.1377.

up front fees, were

were illegal under

were29' In addition' FHA's actions constituted the illegal practice of law and./orotherwise improper under Florida law.

30. Under section 501.1377, companies

operated by a licensed attorney. This is because only

up front fee for loan modification services. Neither

party of FHA was a licensed attorney.

31' FHA'semployees claimed that there was a lawyer on staff, who was able to provide

legal services on the Homeowner's loan modification, when in reality there was no in house counserthat did any legal work on the files contracted for services by FHA.

32' As a result' FHA charged and received payment from Homeowners fbr foreclosure-related rescue services and in return from these payments from the Homeowners, FHA farselyrepresented to the Homeowners that it would interact or otherwise work with the renders to reducethe Homeowners' indebtedness and/or prevent foreclosure of the

Homeowners,houses.33' FHA required hundreds if not more Homeowners to pay substantial up front feeseach' while FHA falsely assured them that efforts were being made to obtain loan modification orother foreclosure-rerated rescue services for the Homeowners, benefit.

34' once FHA had convinced a Homeowner to pay it an up front fee, FHA would amangefor FedEx' UPS or a similar company to pick up the check for immediate delivery to FHA.

35' Unfortunately for the Homeowners, FHA never had any intention of renegotiating

the customer's loans or performing any services for the Homeowner. All FHA was interested in wasobtaining as many up front payments for as much as possible as soon as possible.

such as FHA are required to be owned and

licensed attorneys are permitted to obtain an

Vitulano, nor any other owner or controlling



36. FHA owed a fiduciary duty to the Homeo\\ners b1 r imre oi its acdon,< ; o::n:n;

the up front fees, its statements and representations that an attorney would assist and be involved

in the loan modifications and otherwise by virtue of its actions as described here.

37. On information and belief, many of these checks were made payable to FHA and

included notations on the note line or otherwise, that made it clear that the pulpose of the payrnent

to FHA was solely for services related to loan modification.

IV. SABAT AND SWIFTY'S ASSISTS IN THE SCHEME TO FRAUDULENTLYMISAPPROPRIATE THE HOMEOWNERS' MONEY AI{D BREACH ITSFIDUCIARY DUTIES TO THE HOMEOWNERS

38. FHA did not deposit many of the Homeowner checks or wires into escrow, operating

or other standard types of bank accounts. Thus, instead of depositing the unsuspecting Homeowners'

checks or wires into escrow or operating, or in fact other accounts titled in FHA's or any other

company's name corresponding to the payee listed on the check, as a legitimate business would be

expected to operate, FHA used a check cashing store to cash Homeowner checks and, thereby,

improperly obtain the Homeowners' hard-eamed money.

39. In order to get away with cashing such a large number of corporate checks, as

opposed to depositing the checks into a named corporate account, FHA needed a willing accomplice,

which it found in Sabat and Swifty's.

40. Sabat operates Swifty's, a check cashing business, where for a fee, it cashes checks.

41. Swifty's is a deli/convenience store located on Boca Raton Boulevard near FAU's

campus. No one would mistake Swifty's for a bank or financial institution.

42. Typically, someone would bring a check to Swifty's and Swifty's would accept the

check, cash the check, and give the customer the proceeds from the check, less Swifty's fee of 5o%,

or whatever the fee would be. Swiftys would then endorse the check and deposit the check into an

account Sabat and/or Swifty's controlled at Wachovia.

43. Instead of depositing the checks into an account in the name of FHA, as any



legitimate business would be expected to do, fi*til

Swifty's on a regular basis to cash Homeowner checks and thus fraudulently obtain fte Homeowners

money.

44. As noted, FHA would have the Homeowner check picked up by FedEx, UPS or a

similar company for delivery to FHA. This is typical for such scam artists. It serves at least twopurposes. One, it gets the money to FHA as soon as possible before the Homeowner can change its

mind. Two, check cashing business, as opposed to Banks, often ask how the person came to be in

possession of the check. By having the check ovemighted, FHA could if necessary show the

delivery envelope. While on first blush this might add legitimacy, because it is a conrmon practice

of scam artists like FHA, it actually is a red flag alert of potential illegal or improper activity.

45. Swifty's, charged a fee for cashing each FFIA Homeowners' check, which fees

amounted to tens of not hundreds of thousands of dollars in profit and ill-gotten gains for Sabat and

Swifty's.

46. Butfor Sabatand Swifty'sknowingassistance andparticipation, FHAwouldnothave

been able to successfully misappropriate Homeowner frrnds, commit fraud and breach their fiduciary

duties to the Homeowners.

V. WACHOVIA PROVIDES SUBSTANTIAL ASSISTANCE TO SABAT ANDSWI4TY:SAND FHA S9HIME TO FRAUDULTITE HOMEOIVNERS' MONEY AND BREACH FHA'S FIDUCIARY DT]-[IESTO THE HOMEOWNERS

47. Swifty's and Sabat's assistance was not all the help FHA received or needed to

perpetuate the scheme. Unless Sabat had access to large sums of cash to give to FHA after it cashed

the checks, and unless Swiftys and Sabat could deposit and receive payment on the Homeowner

checks that were being cashed for FHA, Sabat and Swifty's would not and could not continue to cash

the Homeowners'checks for FHA.

48. Swifty's, Sabat, and FHA required legitimate, or at least the seemingly legitimate,

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banking services in order to perpetrate the scheme described here.

49. Specihcally, Swifty's and Sabat required access to bank accounts and readr and

substantial amounts of cash from a financial institution that would not scrutinize the activities in

Swifty's and Sabat, and thereby, FHA.

50. Sabat and Swifty's needed a willing bank that would look the other way and provide

the necessary no questions asked policy so that Sabat and Swifty's could deposit and receive

payment on the tremendous number of Homeowners' checks and, thus, to keep the scheme

operating.

51. Wachovia provided the necessary "no questions asked" banking services despite its

knowledge that Sabat and Swifty's were aiding FHA's scheme and were actively committing the

illegal and improper actions and torts and breaches of fiduciary duties to the Homeowners here.

52. Check cashing businesses are considered high-risk in the banking industry.

Accordingly, Wachovia was obligated to be extra vigilant in its review and monitoring of Swifty's

and Sabat's banking with Wachovia. Under governing law, rules and regulations, such as those

concetning bank secrecy, money laundering and others, businesses such as Swifty's, which are

engaged in check cashing, should be subjected to additional scrutiny by banks such as Wachovia.

Wachovia, however, failed to exercise the necessary review and scrutiny of Swifty's andSabat and,

thus, knowingly assisted Swifty's, Sabat, and, thereby, FHA in its scheme.

53. In fact, banks such as Wachovia are required to vigilantly be on guard for just this

type of suspicious activity. Moreovet, Wachovia was required to report such suspicious activity

and to be on guard against such activity even if it occurs at a location other than the bank. This is

exactly what happened here, much of the suspicious activity - FHA's use of Swiftys - was occurring

at another physical location, Swiftys, but being conducted through Wachovia. Nevertheless,

Wachovia was obligated to report this suspicious activity so that law enforcement or other

authorities could detect and put a stop to it. Wachovia's failure to report this undeniably suspicious

l1



activity is further evidence of its knowing assistance to Suifh's and FFL{ an"i Sa:a:

54. Swifty's and/or Sabat maintained one or more accounts at Wachovia. Once Suifo.s

had cashed the Homeowners' checks for FHA, it would deposit the checks into Wachovia.

Wachovia would then in tum clear and/or cash the checks and provide fundsto Sabat and.lor

Swifty's, thus aiding and perpetuating the scheme.

55. Swifty's cashed potentially millions of dollars of Homeowners' checks for FHA.

Thus, in order to assist FHA in its theft and breaches ol fiduciary duty to its customers - the

Homeowners, Sabat needed a ready supply of cash available at Swifty's to cash the multitude of

Homeowners' checks. Without cash on hand, Swifty's could not cash the Homeowner's checks.

Wachovia was only too willing to assist. Wachovia delivered and/or made available to Sabat and

Swifty's thousands of dollars, and potentially millions, in cash. Without this knowing and

intentional supply of cash from Wachovia, the scheme could not have occurred and many, if not

most, of the Homeowners would not have lost their up front payments and suffered the other

damages that they ultimately suffered.

56. In addition to providing massive amounts of ready cash so as to perpetuate the torls

(and crimes) described here, Wachovia provided other knowing assistance to Swifty's, Sabat and

FHA. This intentional, knowing and substantial assistance is evidenced by Wachovia's complete

failure to object or even question the obviously illegal and improper activity taking place through

Swifty's.

57 . Wachovia reviewed and approved thousands of checks, many of which indicated that

the funds were solely for loan modification and/or the benefit of the makers of the checks - the

Homeowners. Despite this obvious evidence of fraud, breach of fiduciary duty and/or other

improper or illegal activity, Wachovia never questioned the checks or did anything to alerl the

Homeowners or the authorities to the scheme.

58. Wachovia never refused to make payment on any Homeowners' check or refuse to

I2



provide cash to Swifty's or Sabat. These and other acts of knox-ing assistance ro Sab.e:- i;r,;a-, s mnrr:!

FHA were crucial and necessary to the scheme and without this assistance the scheme could not

have continued and the Homeownerst money could not have been misappropriated and the

Homeowners would not have suffered damages, in whole or part.

59. Swifty's/Sabat were some of the largest account holders at Wachovia's branch and,

thus, their business generated considerable fees and profits for Wachovia. Additionally, the deposits

represented additional monies to fund Wachovia's lending activities.

60. At all relevant times, Swifty's and Sabat maintained various separate accounts at

Wachovia.

6I. Consequently, Wachovia had an intimate knowledge of Swifty's and Sabat's and

thereby, FHA's financial activities and scheme.

62. Moreover, Wachovia provides home loans itself as well as a wide range of financial

services to its depositors and is familiar with standard practices in the financial and investment

services industries. More so than the average depositor or investor, Wachovia is capable of

identiffing suspicious financial activity, and is in fact required by law to identifu and reporl

suspicious activity to federai authorities.

63. Wachovia and FHA in the routine course of their business or more appropriately

termed, scheme, received money belonging to the Homeowners. Wachovia was aware that Swifty's

and Sabat were cashing corporate checks of FHA, which checks had been made by Homeowners

for the express pu{pose of assisting or benefitting the Homeowners.

64. Wachovia also ignored several key "red flags" which, had they been investigated by

Wachovia, would have caused the scheme to come to halt and could have saved the Homeowners'

substantial damages.Wachovia's disregard of these red flags is evidence of its knowledge of the

scheme and its knowing assistance.

65. For example, Swifty's need for enorrnous amounts of cash. Although Swifty's was

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in the check cashingbusiness, Swiffy'sherttrfifii

scheme started, a key red flag that was and should not have been ignored. In othervrords,

a significant increase in the amount of cash and deposits thus alerting Wachovia.

66. Another red flag ignored by Wachovia was the massive amounts of corporate checks

that Swifty's cashed and then deposited with Wachovia. To anyone, let alone a competent banker,

such activity was a major red flag in the banking industry, which, at minimum, Wachovia should

have investigated.

67 . In addition, on information and belief, many of the checks were cashier's checks,

made payable to FHA and clearly indicating that the remitter was an individual; all of which was

a red flag that suspicious activity was occurring.

68. In addition to the sheer number of checks, the fact that the checks came from

individuals and were made payable to FHA, an entity that was not Swifty's, was a red flag. As was

the fact that the checks indicated on their face that the payments were for services.

69. Thus, the unusual financial nexus and transactions occurring between FHA and

Swifty's, which would seem to have no legitimate business connection, was a red flag.

70. The transactions between FHA and Swifty's were not commensurate with Swiftys'

stated business and were thus another red flag.

7l. Another red flag was the unusual and complex nature ofthe transactions, which went

from an individual, to FHA, to Swiftys, to Wachovia, exhibited the hallmarks of "layering" activity

by which one attempts to hide illegal or improper activity.

72. The mere fact that Swiftys was operating with bulk cash and conducting monetary

instrument transactions with and for FFIA was a red flag.

73. Swiftys deposited into Wachovia an unusual mixed deposits of money orders,

cashier's checks into its account, which was a red flag.

74. The deposits also appeared designed to avoid currency transaction reporting

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requirements (i.e. trmsactims less than

75. Despite the fact FHA had custody of Homeowners'funds and checks, Wadrovia

never investigated, inquired, or importantly, required FHA to explain why they were cashing

cooperate checks at Swifty's, or even ask Sabat why he was doing so.

76. Certain ofthe deposits at Wachovia made by check clearly revealed that funds were

being deposited in Swifty's accounts for the benefit of third parties, and were intended for deposit

into FHA accounts.

77 . By way of example, Swifty's/Sabat routinely deposited checks into its accounts from

Homeowners that carried memo designations such as "for loan modification" or similar types of

notations made by the Homeowners. However, Wachovia ignored this obvious knowledge of illegal

or improper activity and continued to knowingly assist in the scheme.

78. Wachovia provided other knowing assistance to Swifty's, Sabat, and FFIA, by for

example, waiving it's own policies and procedures and providing access to cleared funds early and

waiving certain fees and charges.

79. Wachovia reaped substantial financial benefit from its participation in the scheme

to steal, defraud and breach the fiduciary duty to the Homeowners.

80. FHA cashed millions of dollars of Homeowners'checks at Swifty's, which checks

were ultimately cleared and then cashed by Wachovia, which used the money for its own illicit gain.

81. The proceeds of this illicit scheme were the hard-eamed savings of Homeowners

desperate to keep their homes. Because of FHA's crimes, malfeasance and breaches of fiduciary

duty, many of these Homeowners lost their homes to foreclosure, are in foreclosure or were

otherwise severely prejudiced and harmed.

82. Notwithstanding the fact that the checks were made out to FHA, and not an

individual, and clearly indicated that the checks were on behalf of consumers for services to be

rendered by FHA, as opposed to personal checks to FHA to do with as it wished. Wachovia

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.. :BT

83. The Homeowners placed great tnrst in FIIA td:ffi

possession of FIIA were carefully used and managed to protect their homes.

84. The repose of this trust was no small thing in that the Homeowners were vulnerable

and facing, in many cases, the loss of their family home. Moreover, the funds paid by the

Homeowners constituted the bulk of their available savings atdlor income and were crucially

necessary to protect their family homes or other properties.

85. Certain Homeowners had to borrow the up front fee from others, use credit cards, use

tax refunds or otherwise put themselves fuither at financial risk and hardship to pay the fees.

86. Moreover, many of the Homeowners had managed over the course of their lives to

purchase and maintain and improve their homes. When the financial crisis hit them directly, through

job loss, investment losses and the like, they were left in dire financial straits and became unable to

pay their mortgage. They saw FIIA as their last hope to save the home they had worked so hard for.

87. The Homeowners'trust was sorely misplaced.

88. But for Wachovia's knowing assistance and participation, FHA would not have been

able to successfully commit fraud, misappropriate the Homeowners'fi.rnds and breach its fiduciary

duties to the Homeowners.

89. Additionally, Wachovia's actions, or more accurately inaction, as described here,

violated its own policies and procedures and governing rules and regulations for banks and financial

institutions.

VI. WACHOVIA'S ENIIANCED DUE DILIGENCE OBLIGATIONS

90. Businesses such as Swifty's are classified generally as Non Bank Financial

Institutions ("NBFIs").

91. Swifty's and/or Sabat engaged in singular transactions whereby checks over $1000

were cashed for FHA and/or others.

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customer in a single trdnsactioq fteywrre

("MSB ") with the U. S. Department of Treasury, Financial Crimes Enforcernent

93. As a MSB, Swifty's and,/or Sabat were subject to heightened reporting and other

requirements under federal law. Specifically, Swifty's and/or Sabat were obligated to comply with

the Bank Secrecy Act ("BSA") anti-money laundering requirements.

94. As an MSB, Swifty's andlor Sabat was required to install and implement an Anti-

Money Laundering ("AML") progmm to assure that they are aware of who they are doing business

with. In sum, they were obligated to know their customers and have proper policies and procedures

in place to effectuate the BSA and comply with federal banking law.

95. Under the BSA, a bank such as Wachovia, must perform "enhanced due diligence"

on any customer that is likely to present gleater potential for money laundering.

96. MSB's and NBFIs are specifically identified under federal banking regulations as

businesses that present greater than average risk for being involved in or used for money laundering.

97. Wachovia had duties arising out of common law, their own internal policies; the

terms of the various loan documents; statutory law; and federal regulations and guidelines.

98. Specifically, Wachovia had duties and obligations mandatedunder federal laws,

including, the USA PAT-31 U.S.C . $$ 531 1-5330 and regulations enacted thereunder at 31 CF.R.

part 103; and the Bank Secrecy Act, 31 U.S.C. $$ 5311, et seq .. and 12 U S ..C. $$ 1786(q),

1818(s), 1829b and 1951-195ge and regulations enacted thereunder at 31 C..F R.part I03,12 C.F.R.

21.I1,21.21,208.62,208.63,21I.5,211.24,225.4,326 Subpart B, 353, 563.177,563.180, and748-

748.2.

99. Wachovia violated andlor failed to meed these duties and obligations.

100. Wachovia also had particular duties set forth in directives, guidance, and other

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101. Among other things, a bank such as Wachovia must have a BSA/.

Laundering ("BSA/AML") compliance program which sets forth mandatory internal controls.

102. These internal controls must:

b.

Identifu banking operations (i.e., products, services, customers, entities, and

geographic locations) more lrrlnerable to abuse by money launderers and

criminals; provide for periodic updates to the bank's risk profile; and provide

for a BSA/AML compliance program tailored to manage risks.

Inform the board of directors, or a committee thereof; and senior

management, of compliance initiatives, identified compliance defi ciencies,

and corrective action taken, and notifr directors and senior management of

Suspicious Activity Reports ("SARs") filed.

Identi$ a person or persons responsible for BSA/AML compliance.

Provide for program continuity despite changes in management or employee

composition or structure.

Meet all regulatory record keeping and reporting requirements, meet all

recommendations for B SA/AML compliance, and provide for timely updates

in response to changes in regulations.

Implement risk-based customer due diligence ("CDD") policies, procedures

c.

and processes.

g. IdentiS reportable transactions and accurately file all required reports

including SARs, Currency Transaction Reports ("CIRs"), and CTR

exemptions.

d.

e.

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CTRs, and CTR exemptions) generally must not als be

decision to file the reports or grant the exemptions.

1' Provide sufficient controls and systems for filing CIRs and CIR exemptions.

j' Provide sufficient controls and monitoring systems for timely detection and

reporting of suspicious activity.

k' Provide for adequate supervision of employees that handle c.,,rency

transactions, complete reports, grant exemptions, monitor for suspicious

activity, or engage in any other activity coveted by the BSA and its

implementing regulations.

l' lncorporate BSA compliance into the job descriptions and performance

evaluations of appropriate personnel.

m' Train employees to be aware of their responsibilities under the BSA

regulations and internal policy guidelines.

103' Pursuant to Section 326 of the Patriot Act, such compliance program must include

a CustomerIdentification

program("CIp").

104' All banks must have a written CIP. The cIP must be incorporated into the bank's

BSA/AML compliance program, which is subject to approval by the bank,s board of directors. The

implementation of a cIP by subsidiaries of banks is required as a matter of safety and soundness and

protection from risks such as what happened here.

105' The cIP is intended to enable the bank to form a reasonable belief that it knows the

true identity of each customer. The CIP must include account opening procedures that specify the

identifying information that will be obtained nom each customer. It must also include reasonable

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106. Wachoviar

of such program in permiuing Swifty's and/or Sabat to fimnel the

Wachovia.

107. Federal regulations and guidelines require bank management to have a thorough

understanding of the money laundering or terrorist financing risks of the bank's customer base, to

do so, the bank must obtain information at account opening sufficient to develop an understanding

of normal and expected activity for the customer's occupation or business operations.

108. Wachovia made no such efforts to confirm the true identity of their customer, its

business, and why FHA was funneling the Homeowner's payrnents through Swifty's and Sabat, and,

ultimately, Wachovia.

1 09. Wachovia also could not have reasonably believed that "normal and expected activity

for Swiftys, Sabat or FHA included the activities set forth here.

110. Moreover, Wachovia was obligated to determine that Swiftys and/or Sabat posed a

high risk because of their activity, ownership structure, anticipated or actual volume and types of

transactions. As such, Wachovia was required to obtain the following information: (1) the purpose

of the account; (2) the source of funds and wealth; (3) the actual individuals with ownership or

control over the account, such as beneficial owners, signatories, or guarantors; (4) financial

statements; (5) banking references; (6) a description of the business operations, the anticipated

volume of currency or total sales as appropriate, and (7) a list of major customers and suppliers; and

explanations for changes in account activity.

1 11. Wachovia failed to conduct these mandatory inquiries.

ll2. Any review of adequate information would have revealed the scheme. Nevertheless,

the above listed information and documentation was not requested by Wachovia or received by

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113- Furfu,

I 2 CFR 208 .62, 21 1 . 5. (k), 2l I .24(0, and 225 .4(f) ; I 2 CFR 353 ; 12 CFR T,+S; lf31 CFR 103.18 to file a SARwith respectto transactions conducted orattempted by,at orthrough

the bank (or an affiliate) and aggregating $5,000 or more, if thebank or affiliate knows, suspects,

or has reason to suspect that the transaction:

May involve potential money laundering or other illegal activity;

Is designed to evade the Bank secrecy Act or its implementing regulations;

or

Has no business or apparent lawful purpose or is not the type of transaction

that the particular customer would normally be expected to engage in, and

the bank knows of no reasonable explanation for the transaction after

examining the available facts, including the background and possible purpose

of-the transaction.

114. Wachovia ignored or intentionally failed to perform its obligations and duties as set

forth above.

115. The manner in which Swiftys and/or Sabat was operating obligated Wachovia to

generate SARs.

I 16. Instead, Wachovia permitted Swiftys and Sabat to continue operating.

lI7 - Federal guidelines also suggest that banks must report continuing suspicious activity

by filing a report at least every 90 days. This practice is designed, in part, to remind the bank that

it must continue to review the suspicious activity to determine whether other actions may be

appropriate, such as a bank management determination that it is necessary to terminate a relationship

with the customer or employee that it's the subject of the filing.

a.

b.

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because the risk

transparent. This lack of transparency can create opportunities for r

These schemes often include: loans made for an ambiguous or illegitimate purpose; loans made for,

or paid for, by third parry; and attempts to sever the paper trail between the borrower and the illicit

firnds.

1 19. This is exactly the type of activity that Swiftys and/or Sabat were conducting, yet

Wachovia did nothing.

I20. The U.S. Government summarizes its views on anti-money laundering efforts

expected of banks in Appendix F to the BSA/AML Examination Manual, entitled, "Money

Laundering and Terrorists Financing'Red Flags. "'

121. That manual identifies potentially suspicious activity that may indicate money

laundering to include customers who, like Swifty's and/or Sabat:

a. Engage in frequent or large transactions;

b. Engage in suspicious movements of funds;

c. Have payments or receipts with no apparent links to legitimate contracts,

goods, or services are received;

d. Make funds transfers are sent or received from the same person to or fromdiflerent accounts.

e. Whose funds transfers contain limited content and lack related party

information;

f. Engage in unusual transfers of funds occurring among related accounts or

among accounts that involve the same or related principals; and

g. The size and frequency of currency deposits increases rapidly with no

corresponding increase in non-currency deposits.

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Due Diligence Requirements.

I23. Wachovia failed to meet its Enhanced Due Diligence Requirements.

COTINT ICONSPIRACY TO COMMIT FRAUD AGAINST SABAT AND CHARLY SABAT

124. Plaintiff realleges and incorporates paragraphs 1 through 89.

I25. This is an action for conspiracy against Sabat and Swifty's.

126. FIIA committed multiple frauds against the Homeowners as described here.

Specifically, FHA made false statements of material facts to the Homeowners as set forth here.

I27. FHA knew or should have known that the representations were false.

I28. FIIA intended that the representations induce the Homeowners to act on the

representations.

I2g. The Homeowners suffered damages in justifiable reliance on the representations.

130. A conspiracy existed between Sabat and Swifty's on the one hand and FFIA on the

other hand to do unlawful acts or lawful acts by unlawful means as set forth here.

131. Swifty's and Sabat executed one or more overt acts in pursuance of the conspiracy

as set forth here.

I32. The Homeowners have suffered damages as a direct and proximate result of the acts

performed through the conspiracy, which damages Plaintiff has standing to bring this action to

recover on behalf of the Homeowners.

WHEREFORE, Plaintiff demands judgment be entered against Swifty's and Sabat for

damages, pre-judgment interest, and costs and such other relief that this Court deems just and

appropriate.

COT'NT IIAIDING AND ABETTING BREACH OF FIDUCIARY DUTY AGAINST SWIFTYIS

AND SABAT

133. Plaintiff realleges and incorporates paragraphs 1 though 89.

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135. At all relevant times, Swifty and Sabat knew ftX

consumers who handled the consumer/homeowners'money and had been provided said funds by

the Homeowners in order to provide services on the Homeowners'behalf.

136. At all relevant times, Swifty's and Sabat were aware that a fiduciary relationship

existed between the Homeowners on the one hand, and FHA on the other.

I37. Swifty's and Sabat also knew that FIIA was breaching that fiduciary relationship by

appropriating Homeowner funds and converting them to their own use.

138. As is described more particularly here, Swifty's and Sabat provided FHA with the

necessary flexibility and access to funds and check cashing services to operate the scheme.

I39. Swifty's and Sabat's conduct as described here permitted the scheme to operate,

prevented the Homeowners from learning that FFIA was stealing their money and/or operating

improperly and breaching its fiduciary duties to them.

140. Swifty's and Sabat provided knowing and substantial assistance to the scheme.

l4I . Swifty's and Sabat provided knowing substantial aid to FIIA, by among other things:

a. Providing FHA with access to funds and check cashing services as descried

here, thereby permitting FIIA to perpetuate its scheme.

I42. As a direct and proximate result of Swifty's and Sabat's substantial and knowing

assistance, the Homeowners suffered damages, including but not limited to, the loss oftheir up front

payments, additional mortgage charges and expenses and, in some cases, loss of their homes.

143. As a legal and proximate result of Swifty's and Sabat's conduct as set out herein, the

Homeowners have suffered significant damages.

WHEREFORE, Plaintiff demands judgmentbe

enteredagainst Swifty's and Sabat for

damages, pre-judgment interest, costs and such other relief that this Court deems just and

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Itrx:.r-r:il:[--]&[:jif

COT}T ITING AND A {LD AGAI\-ST STI

144. Plaintiff realleges and incorporates paragraphs 1 though g9.

145. This is an action for aiding and abetting fraud against Swifty's and Sabat.

146. At all relevant times, Swifty and Sabat knewthat FHA was committing fraud against

the Homeowners.

147. Swifty's and Sabat provided know'ing and substantial assistance to Vitulano in their

scheme to delraud the Homeowners.

148. Swifty's and Sabat's conduct as described here permitted the scheme to operate,

prevented the Homeowners from leaming that FHA was fraudulently misappropriating their money

and/or operating improperly and breaching its fiduciary duties to them. Swifty's and Sabat thus

provided knowing and substantial assistance to FHA's fraud.

I49. Swifty's and Sabat provided knowing substantial aid to Vitulano by, among other

things:

a. Providing FHA with access to funds and check cashing services as descried

here, thereby permitting FHA to perpetuate its scheme.

150. As a direct and proximate result of Swifty's and Sabat's substantial and knowing

assistance, the Homeowners suffered damages including but not limitedto the loss of their up-front

payments, additional charges and expenses and, in some cases, loss of their homes.

151. As a legal and proximate result of Swifty's and Sabat's conduct as set out herein. the

Homeowners have suffered significant damages.

WHEREFORE, Plaintiff demands judgment be entered against Swifty's and Sabat for

damages, pre-judgment interest, costs and such other relief that this Court deems just and

appropriate.

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r52. Plaintiff realleges and incorporates paragraphs r tn"&tr!3-

153' This is an action for aiding and abetting breach of fiduciary duty against Wachovia.

154' At all relevant times, Wachovia knew that FHA wasconducting services to

consumers who handled the consumerlhomeowners'money and had been provided said funds by

the Homeowners in order to provide services on the Homeowners'behalf.

155' At all relevant times Wachovia was aware that a fiduciary relationship existed

between the Homeowners on the one hand, and FHA on the other.

156' Wachovia also knew that FHA was breaching that fiduciary relationship by

appropriating Homeowner funds and converting them to their own use.

157 ' Wachovia also knew that Sabat and Swifty's were cashing checks made payable to

FHA by Homeowners and providing the proceeds, less Swifty's fees, to FHA.

158' Wachovia knew that Sabat and Swifty's was providing substantial and material

assistance to FHA's scheme as described here.

159 ' Wachovia provided substantial aid to both Swifty's, Sabat and FHA by, among other

things:

Providing sabat and Swifty's with access to banking accounts and funds,

thereby permitting FHA to perpetuate its scheme.

Providing Swifty's and sabat with ready and substantial amounts of money

so as to enable to swifty's and sabat to cash Homeowner checks to FFIA and

thus enable FHA to steal funds from Homeowner

160' As is described more particularly here, Wachovia provided Swifty's and Sabat, and

thereby FIrA, with the necessary flexibility to operate the scheme.

161' Wachovia's conduct as described here in permitting the scheme to operate prevented

b.



162. Wachoviafailedto complywithfederalbankingrequiri:med$;

obligations as set forth above.

163. Wachovia failed to meet its Enhanced Due Diligence Obligations.

164. If Wachovia had complied with federal banking requirements and/or met its

Enhanced Due Diligence Requirements, it would have prevented the scheme to defraud and steal

the Homeowners as described here in whole or in part.

165 . As a legal and proximate result thereof, the Homeowners suffered damages, including

but not limited to, the loss of their up front payments, additional charges and expenses and, in some

cases, loss of their homes.

WHEREFORE, Plaintiff demands judgment be entered against Wachovia for damages,

pre-judgment interest, costs and such other relief that this Court deems just and appropriate.

COUNT VAIDING AND ABETTING FRAUD AGAINST WACHOVIA

166. Plaintiff realleges and incorporates paragraphs I though r23.

161. This is an action for aiding and abetting fraud against Wachovia.

168. At all relevant times, Wachovia knew that Swifty's and Sabat and/or FHA was

committing fraud against the Homeowners.

169. Wachovia provided knowing and substantial assistance to Swifty's and Sabat and

FHA in its scheme to defraud the Homeowners.

t7 0 . Wachovia's conduct as described here permitted the scheme to operate, prevented the

Homeowners from learning that FHA was fraudulently misappropriating their money and/or

operating improperly and breaching its fiduciary duties to them. Wachovia provided knowing and

substantial assistance to Swifty's and Sabat's and FHA's fraud.

l7I. Wachovia provided knowing substantial aid to FHA by, among other things:

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172. Wachovia failed to comply with federal banking requirements,

obligations as set forth above.

173. Wachovia failed to meet its Enhanced Due Diligence Obligations.

174. If Wachovia had complied with federal banking requirements and/or met its

Enhanced Due Diligence Requirements, it would have prevented the scheme to defraud and steal

the Homeowners as described here in whole or in part.

I75. As a direct and proximate result of Wachovia's substantial and knowing assistance,

the Homeowners suffered damages, including but not limited to, the loss of their up-front payments,

additional charges and expenses and, in some cases, loss of their homes.

WTIEREFORE, Plaintiff demands judgment be entered against Wachovia for damages,

pre-judgment interest, costs and such other relief that this Court deems just and appropriate.

Dated this 3rd day of February,20Il.

PAGE, MRACHEK, FITZGERALD & ROSE, P.A.505 South Flagler Drive, Suite 600

West Palm Beach, FL 33401(5 6l) 65 5 -2250 Telephone(56 1 ) 655-5537 Facsimile

e-mail: [email protected]: [email protected] for Plaintiff, Robert C. Furr, as Court AppointedReceiver for FHA All Day, Inc. , Safety Financial Services,lnc., Housing Assistance Law Center, PA, and HousingAssistance Now, Inc. ---

By:Alan B. RFlorida Bar No. 961825Kelly L. Reagan

Florida Bar No. T42506

Wachovia (Wells Fargo) FHA Sabat Modification Scam Complaint

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Transcript of Wachovia (Wells Fargo) FHA Sabat Modification Scam Complaint