Former Suffolk County Legislator George O. Guldi of Westhampton Beach was arraigned Tuesday in Suffolk County Criminal Court in Riverhead on 110 criminal charges, accusing him of leading a $82 million mortgage fraud scheme that authorities say he and others carried out using falsified loan applications and straw buyers.
Donald MacPherson, a part-time Westhampton Beach resident and owner of Magic’s Pub in the village, is accused of being the second ringleader in the scheme. Court records state that he recruited straw buyers—those who get paid to provide their names and personal information to help another party obtain mortgage loans—at his Arena Studios in Manhattan, a fetish studio also known as “The Dungeon.”
Suffolk County District Attorney Thomas Spota said the two men were central to a scheme to obtain loans for houses with forged or falsified documents, and then flip the homes every few years with new straw buyers as the price of real estate shot up. But when the bottom fell out of the housing market in 2007, and mortgages were no longer readily available, the “Ponzi scheme” fell apart, according to Mr. Spota.
Mr. Spota called it the largest mortgage fraud ring to date in Suffolk County. At least 66 houses within Southampton Town were included in the scheme, all of which are now in foreclosure, he added. A few houses farther west in Suffolk County are said to have been part of the scheme, as well as a restaurant in Cold Spring Harbor.
Mr. Guldi and Mr. MacPherson both pleaded not guilty on Tuesday before Judge James F.X. Doyle, as have 13 others since July 23, the day a Suffolk County grand jury handed down a 130-count indictment. The indictment, which names 17 individuals in total, leaving two people to still be arraigned, includes charges of grand larceny, conspiracy, money laundering, criminal possession of a forged instrument, offering a forged instrument for filling, forgery and insurance fraud.
Mr. MacPherson faces 90 counts in the indictment, including 23 counts of grand larceny in the first degree, and was ordered held at Suffolk County Jail in Riverside in lieu of $200,000 cash bail or $500,000 bond. Mr. MacPherson had not posted bail as of Wednesday morning.
Mr. Guldi was given the same bail conditions and was released Tuesday when he immediately posted a $500,000 bond.
“The risk of flight is at its greatest,” Assistant District Attorney Thalia Stavrides stated Tuesday as she urged Judge Doyle to set Mr. Guldi’s bail at $250,000 cash or $1 million bond. She said Mr. Guldi has a pilot’s license and owns homes in Maryland, Vermont and in the West.
Twelve of Mr. Guldi’s bank accounts, which total $155,000, have been frozen, Ms. Stavrides said.
Mr. Guldi’s attorney, Paul Gianelli of the Hauppauge law firm Reynolds, Caronia, Gianelli, Hagney & La Pinta, replied that the court and Ms. Stavrides had been amenable to rescheduling Mr. Guldi’s arraignment from August 7 until Tuesday, to accommodate his vacation schedule. If Ms. Stavrides was concerned Mr. Guldi was a flight risk, the district attorney’s office should have moved his arraignment up instead of allowing it to be delayed, Mr. Gianelli argued.
Mr. Guldi’s legal team further argued that Mr. Guldi is not a flight risk because he was a Suffolk County legislator for 10 years and plans to wage a primary election to secure the Democratic line in this November’s election to win back his former seat. They also said Mr. Guldi has a wife, five children and an undisclosed health issue that requires that he maintain contact with his doctor.
Judge Doyle said considering the amount of money reported to be involved in the case, he was compelled to set bail at a substantial sum.
Mr. Guldi and Mr. MacPherson were originally arraigned in March in Southampton Town Justice Court on charges related to the purported scheme, but because there are felony charges involved, the case has since been moved to Suffolk County Criminal Court.
Mr. Spota said that as his Economic Crimes division’s Mortgage Fraud Unit has continued to investigate the scheme, his agents are discovering that its scope is wider than they initially uncovered and more arrests are expected. “Quite frankly, we’re still not finished,” he said.
Other defendants include Mr. MacPherson’s wife, Carrie Coakley, who was charged with one count each of grand larceny in the first degree and scheme to defraud in the first degree, both felonies.
Her mother, Dortha Coakley, was charged with grand larceny in the second degree, a felony, and accused of acting in concert with Mr. MacPherson last October to steal $50,000 from a mortgage company. She pleaded not guilty on July 31 and was released on her own recognizance.
Mr. Spota said Dortha Coakley is an example of a straw buyer. Mr. MacPherson claimed she was working for him in New York City at his publication, The Soho Journal, and making $20,000 a month, so he could obtain a loan in her name under false pretenses, according to Mr. Spota. In reality, she is unemployed and lives in Riverhead, he added.
The scheme also included “mortgage stacking,” Mr. Spota said, the practice of getting multiple mortgages on one property by creating bogus title reports that concealed outstanding mortgages in order to dupe lenders.
Mr. Spota’s agents raided Mr. Guldi’s Westhampton Beach law office in February and seized computers and nearly 50 boxes of files. Later that month, Wachovia Federal Savings Bank filed a civil lawsuit against Mr. Guldi claiming he pocketed about $1.8 million as part of a mortgage fraud scheme involving a Water Mill home owned by his late father.
During a press conference following the arraignments Tuesday, Mr. Spota laid out the mortgage history of a home on Dune Road in Westhampton Beach that was involved in the scheme.
He said that, in 1999, the property was “sold” to a straw buyer, who obtained a $1,295,000 mortgage. Some of the money was used to pay off an existing loan and the rest was split among several of the defendants. The property was “sold” again four years later to a straw buyer with a $1,462,000 mortgage. Once the original mortgage was paid off, the defendants pocketed $167,000.
The plan was repeated again in 2003 and 2005 and finally in 2007, the latter with a $2,795,000 mortgage. After that final time, the defendants could no longer secure loans because of the credit crunch.
“They can’t get any more financing and the bank is left holding the bag—with $2,795,000 in a defaulted mortgage,” Mr. Spota said.
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