A Nevada woman who was once part of the largest mortgage fraud schemes in the history of the state will no longer forfeit $107 million after a federal court of appeals overturned part of her penalty because it violated the Eighth Amendment, which prohibits the government from imposing “excessive fines” and “cruel and unusual punishments.”
In 2012, Melissa Beecroft was found guilty and sentenced to three years in federal prison for her role in a Las Vegas mortgage fraud scheme that caused more than $52 million in losses to federally insured banks.
The scheme also included Eve Mazzarella and her husband Steven Grimm, who controlled and operated numerous Nevada companies that conducted business in Las Vegas.
According to the Federal Bureau of Investigation, the scheme included 450 straw buyer transactions involving approximately 227 properties with a total purchase price of more than $107 million.
According to legal documents surrounding the case, from 2003 to 2008, Grimm and Mazzarella recruited and paid straw purchasers to buy homes at substantially inflated prices, often with 100% financing.
Once the mortgage loans were funded, Grimm and Mazzarella caused title and escrow companies to disburse excess funds to various shell corporations they owned, by claiming they were going to use the money to make repairs and improvements to the home. But the repairs were never made.
Grimm and Mazzarella also arranged participating mortgage brokers and loan officers remit a portion of their commissions and fees to Grimm. After each sale, the straw buyers would then transfer ownership in the properties themselves to Grimm and Mazzarella’s shell corporations, who then turned around and resold the properties again for higher prices.
Beecroft participated in the scheme first as a loan processor at a company that Grimm owned. Eventually, Beecroft became the owner and manager of Secured Mortgage Services, in which the majority of her business consisted of mortgages she prepared for Grimm.
In these positions, Beecroft “participated extensively” in Grimm’s mortgage-fraud scheme, completing loans for Grimm, handling false information that was given to banks on behalf of straw buyers, which in some cases involved inflating income information and even completing some of the fraudulent loan applications herself.
According to court documents, Beecroft participated in the scheme for years, participating in the scheme with Grimm even before his wife did.
One witness even described Beecroft as Grimm’s “right hand.”
According to the government, Beecroft’s participation caused 143 of the 227 properties to go into default. The government believes she made in excess of $400,000 from commissions and fees generated during the scheme.
Eventually, Grimm and Mazzarella defaulted on mortgage payments on many of the loans, which caused the properties to go into foreclosure. Almost all of the 227 properties purchased by the defendants were in default as of 2012, causing losses to the banks estimated at more than $52 million.
At the time, Daniel Bogden, the United States Attorney for the District of Nevada, said that the scheme was the largest in the state’s history.
“Over 200 Las Vegas properties valued at over $107 million were fraudulently purchased in this case,” Bogden said in 2012. “The losses to the banks were over $52 million. This is the greatest number of properties and largest loss amount of any mortgage fraud case charged in Nevada.”
For her involvement, a district court judge ordered Beecroft to pay approximately $2.3 million in restitution, and forfeit a total of $1.42 million for four of the counts she was convicted of, as well as serve three years in prison.
But that wasn’t the only penalty levied against Beecroft.
She was also ordered to forfeit $107 million, equal to the amount of the fraudulently obtained loans – a figure that she appealed, claiming that the government did not calculate the figure properly, and that it violated the Eighth Amendment.
The United States Court of Appeals for the Ninth Circuit found in Beecroft’s favor, at least in part, tossing out the $107 forfeiture claim, but upholding the other penalties against her.
According to the court’s decision, which can be read in full here, many of Beecroft’s claims surrounding the $107 million forfeiture claim did not pass muster, but the court still found that the order violated the Eighth Amendment.
From the court’s decision:
The panel held that the defendant’s bare speculation that the process employed by the district court in calculating the losses incurred by the victim banks was somehow deficient does not approach her burden of demonstrating clear or obvious error in the district court’s restitution calculations. Rejecting the defendant’s Eighth Amendment challenge to the restitution order, the panel wrote that without error in the loss calculation, the defendant cannot show that requiring her to pay that amount back to the victims was somehow excessive or grossly disproportional to her crimes. The panel noted that the district court required the defendant to pay slightly more than $2 million of the more-than-$50 million in losses caused by the conspiracy in which she participated.
The panel held that the district court did not err in calculating the proceeds of her criminal activity when imposing the order of money forfeiture. The panel rejected the defendant’s contention that the district court needed totake additional evidence to determine the “accurate” amount of loan proceeds obtained by the conspiracy, where the defendant has not argued, let alone demonstrated, what “good reason” the court had to believe that the government’s proposed forfeiture amount exceeded the proceeds of her crimes. The panel wrote that this court has previously rejected the argument that a defendant should not be ordered to forfeit the total loan proceeds, where the defendant never personally received the money but instead made only a small commission on each transaction.
Therefore, the court stated, the forfeiture order was “punitive,” which made it subject to an Eighth Amendment excessiveness review.
Again from the court’s decision:
The panel held that the amounts of forfeiture ordered on the defendant’s four subsidiary counts of conviction ($330,000; $305,000; $325,000; and $460,000) are not excessive, given the gravity of the offenses, and that the amounts are substantially less than the $1 million maximum fine authorized by statute and the Sentencing Guidelines range. The panel held that the $107 million forfeiture order on the conspiracy count, which is 100 times greater than the maximum fine allowable and 5,000 times greater than the lower end of the Guidelines range, runs afoul of the Excessive Fines Clause.
The court added that it has “little doubt” that the Eighth Amendment allows for Beecroft to be ordered to forfeit a “substantial sum of money” for her participation in such an “extensive and damaging conspiracy,” but notes its “difficulty” with “exceptional amount” of the forfeiture.
“Without even an argument supporting the propriety of the $107 million forfeiture, we have no choice but to conclude that an order which so vastly outpaces the otherwise available penalties for Beecroft’s criminal activity runs afoul of the Excessive Fines Clause,” the court ruled.