Most actions alleging fraud are civil suits, mainly because there are insufficient prosecutorial resources to file criminal actions against all fraudsters. For instance, each FBI office has a different minimum dollar threshold that determines which fraud cases will be investigated. There have been a number of criminal cases against mortgage fraudsters, however, and the amount of the fraud in those cases has typically exceeded $1 million. The FDIC has instead chosen civil courts to pursue fraudsters and those who aid and abet them, including appraisers. The SEC has also launched high-profile lawsuits against high-profile CEOs of the mortgage banking industry, such as Angelo Mozilo of Countrywide and Mike Perry of IndyMac.
Title 18 of the US Code is a useful place to start in defining criminal misconduct relating to fraud. Title 18’s Chapter 47, Fraud and False Statements, includes the following fraud statutes:
Section 1001 is the broadest of the fraud statutes, as it basically states that in any matter under the jurisdiction of the federal government, whoever knowingly and willfully “1) falsifies, conceals, or covers up by any trick, scheme, or device a material fact; 2) makes any materially false, fictitious, or fraudulent statement or representation; or 3) makes or uses any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry”1 shall be fined or imprisoned.
Title 18, Chapter 63, Mail Fraud and Other Fraud Offenses, includes additional fraud statutes:
These mail and wire fraud statutes are more often used in federal fraud prosecutions, partly because they are broad enough to cover just about any fraud and also pack a powerful punch in sentencing, allowing for prison sentences of up to 20 years. Almost any type of real estate fraud can be classified as mail fraud or wire fraud because it relies on either the mail, telephones, or the Internet. These statutes also allow US postal inspectors to help in investigations that may otherwise lack staffing resources.
Finally, Chapter 73, Obstruction of Justice, includes these statutes:
These statutes are particularly relevant to corporate fraud.
Conclusion
Until now, fraud has not been discussed in the commercial appraisal profession. The near collapse of the financial system and the escalating litigation against appraisers compel our profession to take fraud more seriously. What commercial appraisers don’t know about fraud can hurt them as well as others.
This book has presented the causes of fraud, the types of commercial real estate fraud known to be occurring, and specific methods used by fraudsters to deceive or influence commercial appraisers. The legal framework for the prosecution of fraud has been presented, including applicable federal statutes.
The next few years are likely to produce new case law concerning the expected obligations of commercial appraisers in preventing fraud. There may be some high-profile cases that will cause upheaval in our profession, embarrassing us and changing our professional rules. Ignoring the fraud problem will not make it go away; in this way, fraud is like a cancer. The best way we can tackle the problem is to know more about it and prevent it whenever we can. If we fail to do this as a profession, others will force a solution on us with less favorable terms.
“Whoever commits a fraud is guilty not only of the particular injury to him who he deceives, but of the diminution of that confidence which constitutes not only the ease, but the very existence of a society.”
-Samuel Johnson
1. US Code, Title 18, Part I, Chapter 47, Section 1001. The US Code is available on the website of Cornell University Law School, www.law.cornell.edu/uscode/.