Hoschton man pleads guilty to multi-million dollar scheme

ATLANTA - A Hoschton man pleads guilty Thursday to a $20 million mortgage fraud, real estate investment scam and check-kitting scheme.

Authorities with the U.S. Department of Justice said 47-year-old Edward William Farley scammed over 150 victims.

According to Acting United States Attorney Sally Quillian Yates, Farley operated through a number of companies to defraud mortgage lenders through same-day "flips" of properties located in Buford, Cumming, Lawrenceville, Suwanee and elsewhere.

Yates said Farley paid an appraiser to fraudulently inflate the value of each property by $50,000 to $100,000, and recruited often unqualified investor/borrowers to purchase them from one of his companies. The loan applications of these investor/borrowers who were purchasing the properties were often supported by false income, employment, bank deposits, bank statements, W-2s, and/or leases.

However, as is common with "flips," authorities said Farley did not purchase the properties he was selling to the investor/borrowers until after the fraudulently obtained loan proceeds on the "second" purchase had been disbursed. At that time he purchased the properties for up to $100,000 less than the amount of the inflated mortgage loans he had arranged for the investor/borrowers in the "second" purchase, thereby causing lenders to lose millions of dollars.

In the real estate investment-Ponzi part of the scheme, Yates said Farley then began to operate under the name of "Alliance Resource Management" ("ARM") in Lawrenceville to conceal his new source of income from prior victims. He falsely represented that ARM was in the business of purchasing primarily residential properties which were being renovated and sold at a profit, when ARM had insufficient equity and income to do so. Real estate investors and lenders, including private investors, corporate lenders, and banks, were induced through false promises that their investments and loans were fully secured by a first security position in property, plus a personal guarantee, and sometimes title insurance.

Yates said Farley also received $1.2 million from Washington Mutual Bank in a check-kiting scheme by transferring funds he did not have among several ARM bank accounts, and withdrawing scheme proceeds before the "insufficient funds" checks were returned. He then used $400,000 in investor funds solicited for property refinance loans to address the check-kiting problem.

Farley could receive a maximum of 60 years in prison and a fine of up to $2 million. Sentencing is scheduled for Feb. 3, 2010.