Friday, October 30, 2009 1:00PM Delaware couple convicted in loan fraud fee scheme that victimized churches David C. Weiss, United States Attorney for the District of Delaware, announced today that Ed Johnson, age 60, and G. Carol Johnson, age 67, of Wilmington, were both found guilty by a federal jury yesterday of one count of conspiracy to commit mail and wire fraud, 10 counts of mail and wire fraud and one count of engaging in an illegal monetary transaction. Mr. Johnson was also convicted individually of one additional mail and wire fraud count. The jury also found that $1,549,598.78 is subject to forfeiture by Mr. and Mrs. Johnson, as that amount represented the proceeds of their fraud. The conspiracy and mail and wire fraud counts are punishable by a maximum term of 30 years imprisonment and a maximum fine of $1,000,000. The count of engaging in an illegal monetary transaction is punishable by a maximum term of imprisonment of 10 years and a fine of not more than twice the amount of the criminally derived property involved in the transaction.
Beginning in 2003 through 2007, Mr. and Mrs. Johnson engaged in a multi-year loan fraud scheme, operating initially through MERL Financial Group and later through Heritage Capital Credit Corporation and Independent Capital Credit Corporation – all companies controlled by Mr. and Mrs. Johnson. As part of that scheme, the defendants fraudulently collected large fees totaling $1,549,598.78 from at least 21 different sets of victims, including a number of churches. The victims, who were seeking funding for a variety of building and development projects, were told by Mr. and Mrs. Johnson that if they paid these large fees, the defendants’ companies would arrange for them to receive loans for these projects. However, at the time the defendants made these promises, they had no source of funding available, nor was this funding imminently available. When promised loan closing dates came and went with the victims receiving no money, the defendants continued to attempt to collect additional fees from the victims and to make misrepresentations regarding their ability to fund loans. Ultimately, none of the 21 sets of victims ever received a loan through the defendants and their companies.
As part of their scheme, the defendants told victims that the victims had to pay application fees, loan commitment fees, closing costs and appraisal fees – at times totaling over $300,000 per victim – in order to receive their loan. With respect to the appraisal fees, in some instances the defendants hired an appraisal company to work on the victim’s project, but the defendants wrongfully retained the fees they had collected for appraisal work and never paid the appraisal company. At other times, victims paid appraisal fees to defendants, yet the defendants never even hired the appraisal company to complete work on that victim’s project and instead kept the money for themselves.
The evidence at trial demonstrated that in significant part, Mr. and Mrs. Johnson spent the victims’ money on luxury items for themselves and their family. These purchases included over $66,000 of jewelry and clothing at stores such as Tiffany and Company or Saks Fifth Avenue. The defendants also spent over $44,000 of victim monies at restaurants and distributed victim funds to their children in various ways.
United States Attorney David C. Weiss said “The defendants used Delaware as the launching pad for a nationwide financial fraud scheme, in which they wrongfully took money from victims living all over the country. These victims, including some from the Delaware Valley, suffered financially and emotionally losing thousands of dollars and their dreams of success. We are pleased with the jury’s guilty verdict and will continue to help the victims attempt to recover funds from the defendants.”
The case was investigated by Special Agent Peter Gangel of the Federal Bureau of Investigation’s Wilmington, Delaware office. It was prosecuted by Assistant United States Attorneys Lesley F. Wolf and Christopher J. Burke.
Delaware courts: Couple sentenced to prison for fraud, conspiracy WILMINGTON -- A couple that operated a Delaware lending institution that never lent any money -- while collecting hundreds of thousands of dollars in fees -- were sentenced to prison terms Wednesday in federal District Court.
Ed Johnson, 60, whom prosecutors described as "a lifelong con man," was sent to prison for 10 years, while his wife, G. Carol Johnson, 67, a formerly respected loan executive and community activist, will serve three years and four months behind bars. Both at trial and at Wednesday's sentencing, Ed Johnson maintained that the criminal prosecution, followed by October's convictions by a jury on 14 fraud and conspiracy counts, was all a misunderstanding. If he'd gotten just a little more time and staff assistance, the financing would have worked out, he said. "We were trying to help people, and now it's turned into a criminal event," he said.
But Assistant U.S. Attorney Lesley F. Wolf told District Judge Joseph J. Farnan Jr. that this was not an isolated incident. She said Johnson's criminal record stretched back 20 years, including convictions for larceny, bad checks, misappropriation of funds and fraud. She said prison time and previous court orders have not deterred Johnson and the only way to protect the public is to lock him up. Farnan agreed, telling Johnson that the evidence showed that his loan business was conceived and executed as a criminal enterprise. "I think you started out to rip people off," he said. According to court records, from 2003 to 2007 the Johnsons' companies -- MERL Financial and Heritage Capital Credit Corp. -- accepted 21 applications from businesses across the country for $370 million in loans to buy land and renovate buildings. But despite collecting $1.5 million in fees, the companies never delivered even a dollar in loan money to any of their clients. Carol Johnson's attorney, Federal Public Defender Edson Bostic, picked up on the government charge that Ed Johnson was a con man, saying Ed brought that quality to his marriage.
In detailing Carol Johnson's impressive résumé, her charitable work and lack of criminal record, Bostic said she should not be defined by this conviction.
During her brief address to the court, Carol Johnson repeatedly and tearfully apologized. "I am so sorry, so sorry we are here," she said. "I wanted Ed to succeed. We were married 25 years and I wanted him to succeed." She also said she never meant to do wrong and begged Farnan not to incarcerate her. Wolf, however, pushed back against the portrayal of Carol Johnson as a victim. She said Carol's role -- her credibility as a loan executive before joining Heritage -- "was an essential part of the fraud." Were it not for Carol Johnson's sterling reputation, Wolf said, many victims would not have done business with Heritage. And, she said, given Carol Johnson's lengthy experience in the loan industry, "she should have known better" Farnan agreed, though in handing down a lighter sentence he said he was taking into account Carol Johnson's previous good works. And unlike Ed Johnson -- whom Farnan ordered incarcerated immediately -- the judge allowed Carol Johnson to report to prison late next month. Farnan also told Carol Johnson she might benefit from relationship counselling during her incarceration. The Johnsons were also ordered to pay restitution to their victims.
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