Lawyer/Clergyman Convicted of Real Estate Ponzi Scheme
Martin T. Sigillito, 63, Webster Groves, Missouri, an attorney and clergyman, was convicted in federal court of leading a real estate fraud conspiracy that stole more than $52 million from its victims.
Sigillito was found guilty of all 20 counts charged in an April 28, 2011, federal indictment. Sigillito was immediately taken into federal custody.Sigillito was found guilty of participating in a conspiracy to commit wire and mail fraud. During a 10-year period from 2000 to 2010, investors in the United States loaned a total of $52.5 million to co-conspirators through a Ponzi scheme that was known as the British Lending Program (BLP). Victims believed they were loaning money for legitimate real estate development projects in England, but in reality, most of their money was kept by Sigillito and co-defendant James Scott Brown, 67, Leawood, Kansas (or used to pay interest and principal to other lenders). Sigillito gained more than $6 million from the fraud scheme and used it to support an affluent lifestyle.
Sigillito was also found guilty of nine counts of wire fraud. On nine separate occasions, Sigillito wired funds across state lines as part of the fraud scheme. The wire transfers typically involved hundreds of thousands of dollars and, in one case, a transfer of $15 million. The jury also convicted Sigillito of four counts of mail fraud related to documents that were mailed to lenders and six counts of money laundering related to financial transactions with funds illegally obtained by wire fraud.
In a later proceeding, the court will determine whether Sigillito must forfeit to the government $52.5 million, which was derived from proceeds of the offenses, as well as property that was seized by law enforcement officials, including hundreds of antique books, antique maps and prints, antique jewelry, antique coins, antique artifacts, six Persian rugs, dozens of bottles of cognac champagne, whiskey and wine, a 2006 Volvo S40, $19,500 in cash, $19,237 from bank accounts, and residential property in Marthasville, Missouri.
Brown and co-defendant Derek J. Smith, 68, Oxfordshire, United Kingdom, each pleaded guilty on September 16, 2011 to their roles in the conspiracy. As part of their guilty pleas, each was required to forfeit significant real estate holdings.
Following the presentation of evidence, the jury in the U.S. District Court in St. Louis, Missouri deliberated for approximately six hours before returning the guilty verdict to U.S. District Judge Linda Reade of the District of Iowa, ending a trial that began March 19, 2012.
Sigillito is an attorney and an ordained priest and bishop in the church of the American Anglican Convocation. Sigillito, doing business as Martin T. Sigillito and Associates Ltd., maintained an office in Clayton, Missouri. The business claimed to provide international business consulting services but did not have any actual associates or law partners and employed only a single clerical assistant. Sigillito portrayed himself as an expert in international law and finance and an experienced international businessman and attorney. He also claimed he was a lecturer at Oxford University in England, based upon his participation in an annual summer program of continuing legal education at Oxford through the University of Missouri-Kansas City.
Sigillito had very few, if any, law clients. Instead, Sigillito’s primary occupation from 2000 to 2010 was the BLP. Sigillito was a member of several exclusive, private clubs in St. Louis (including The Racquet Club and the Boone Valley Golf Club) and spent some of the fees on collecting rare and antique books, maps, prints, coins, jewelry, artifacts, liquor, and rugs. He routinely traveled first class, including internationally, took his family on expensive vacations, purchased a country home in Marthasville, Missouri, employed a chauffeur, sent his children to private schools, purchased and leased Volvo automobiles, and invested in a condominium project at the Lake of the Ozarks in Missouri. Prior to 2000, Sigillito was not financially successful, was divorced, and had declared bankruptcy.
Brown, an attorney, practiced law in England for several years prior to 2000. Brown also participated in the UMKC program at Oxford University. Between 2000 and 2010, Brown did not actively practice law; instead, Brown’s primary occupation was the BLP, from which he took substantial fees. Brown did business as British American Group and as J. Scott Brown and Associates.
Smith was a structural engineer and a business and real estate speculator/developer who resided near London, England. Smith did business as Princess Hotels Management and as Distinctive Properties. Smith was previously successful, but during the 1990s, he acquired distressed hotel properties, which were not profitable due to a recession in the English real estate market. By the end of the 1990s, Smith was in need of capital to maintain his ownership of several small hotels that were not trading profitably and to support his retention of several options to purchase land.
The British Lending Program
BLP operated as a Ponzi scheme and served as a fee-generating machine for the benefit of co-conspirators. Rather than sending the funds to England for use in real estate projects as promised to investors, Sigillito pooled lender’s funds in his attorney trust account in the United States. Rarely would funds from this account ever be sent to Smith. Rather, the funds were used to pay fees to Sigillito and Brown for initiating the loans. In cases where lenders requested payments of interest on their loan or sought to withdraw their funds from the program, the funds used to pay them came not from any profitable business of Smith’s but instead from funds that had been contributed.
Smith did not receive the bulk of the funds he “borrowed,” nor was he sending funds from profits to the U.S. to pay lenders. Throughout most of the BLP, Smith did not actually generate any profit from any of his ventures. Instead, new loan funds were actually consumed by the monthly interest payment and redemption obligations to lenders and frequent, large fees taken by Brown and Sigillito.
Smith received the benefit of a total of approximately $6.1 million during the time in which approximately $52.5 million in loan funds were received in the BLP. In contrast, during the same period, Sigillito took “fees” totaling more than $6 million, Brown took fees totaling approximately $1.4 million, and approximately $27 million was used to pay interest and principal to lenders. All BLP funds were dissipated and as of June 2010, the BLP had no funds.
In the original, legitimate form of the BLP, funds were loaned by U.S. investors/lenders for short terms at high interest rates. Early loan funds were sent to the United Kingdom and lenders received written loan agreements through a British law firm. Brown and his family were lenders in the BLP; then, Brown began soliciting other lenders and took finder’s fees for himself.
Sigillito became involved in the BLP in 2000. Brown and Sigillito developed a packet of marketing materials and began marketing the BLP to other U.S. lenders. Later, Brown and Sigillito also utilized third-party recruiters to locate new investors and bring their funds into the BLP. Soon afterward, Smith became the sole and exclusive borrower in the BLP and became the focal point of marketing efforts by Sigillito and Brown.
Sigillito and Brown marketed the BLP to lenders based upon a number of false, fraudulent, and deceptive material representations.
Sigillito told investors that Smith and the BLP had a track record of success and a unique ability to identify undervalued properties and properties whose values could be greatly increased through the re‑zoning process. Smith’s goal was to sell or “flip” the properties for a profit. Conspirators also claimed that Smith was a highly successful real estate owner and developer who generated cash flow and profits from flipping properties and options. In reality, Sigillito knew that Smith’s trading properties were unprofitable and required funding to avoid foreclosure, that Smith’s re‑zoning efforts did not produce successful property flips, and that Smith could never repay the large sums which had been borrowed in his name from BLP lenders.
Sigillito claimed that Smith was willing to borrow at, and could afford to pay, high rates of interest, and that British banking practices made it cumbersome for Smith to borrow funds in a timely fashion to take advantage of time-sensitive opportunities. In reality, no real estate developer could afford to make enough money from BLP loans with the small amount of funds left over after payment of interest and fees to make a profit and to meet BLP interest and redemption obligations. Also as Sigillito knew, Smith could not borrow from a traditional lending institution because he lacked sufficient equity in his properties to serve as collateral, because his hotels were not profitable and because his options could not serve as loan collateral.
Sigillito also claimed that there was little or no risk of not being repaid in full, because the present market value of Smith’s assets exceeded his liabilities by a ratio of at least 2-to-1 and often as high as 6-to-1. In reality, Sigillito knew that Smith’s financial statements were false and misleading.
Sigillito told investors/lenders that their loan funds were sent to Smith in England for use in his real estate activities and that payments of interest and principal came from England out of Smith’s business revenues and profits. In reality, the vast majority of BLP loan funds were never sent to or received by Smith for use in productive business activities. Instead, the vast majority of funds remained under the control of Sigillito and Brown; the funds were used to pay fees to Sigillito, Brown, and others, and to pay interest and principal to prior BLP lenders.
Many BLP lenders placed a great deal of trust in Sigillito and Brown based on their claimed expertise, their status as attorneys, affinity through family connections and private organizations, and particularly Sigillito’s mastery of multiple languages, his status as a board member of The Racquet Club, and his status as a bishop. Sigillito took advantage of several lenders who were particularly vulnerable due to age, friendship, lack of financial expertise, family circumstances and faith.
Sigillito used high-pressure tactics to persuade some lenders to loan funds to Smith. As part of his sales tactics, Sigillito often avoided giving direct and specific answers to questions about documentation and his claimed due diligence in the BLP. Once loans were “closed,” Sigillito avoided direct contact with lenders.
Many victims loaned funds that had been saved for retirement and were held in Individual Retirement Accounts (IRA). Many IRA lenders let their “interest” accrue and also rolled their loans over annually for years, each time receiving a signed loan agreement for a new, larger amount. Thus, many IRA lenders were led to believe that their IRA accounts were growing and that they could be relied upon in retirement.
Under federal statutes, Sigillito is subject to a sentence of up to five years in federal prison without parole for the conspiracy conviction, up to 20 years in federal prison without parole on each count of wire fraud, up to 20 years in federal prison without parole on each count of mail fraud, and up to up to 10 years in federal prison without parole on each count of money laundering. A sentencing hearing will be scheduled after the completion of a presentence investigation by the United States Probation Office.
David M. Ketchmark, Acting United States Attorney for the Western District of Missouri, announced the conviction.
This case is being prosecuted by Jess Michaelsen, Steven Holtshouser, and Richard Finneran, special attorneys to the U.S. Attorney General. It was investigated by the FBI and IRS-Criminal Investigation.
“This massive Ponzi scheme collapsed under its own weight, as such schemes inevitably do, but not before conspirators stole tens of millions of dollars from their unwitting victims in one of the largest fraud schemes in Missouri history,” said Ketchmark. “We are pleased with the jury’s verdict today. Although conspirators squandered most of the ill-gotten gain on their own extravagant lifestyle, we are committed to providing as much restitution as possible to the victim investors.”
SOURCE: MORTGAGE FRAUD BLOG