Mortgage firm's founder indicted Feinberg, ex-chief of Consumer First, charged with fraud

September 26, 1996|By Mark Hyman | Mark Hyman,SUN STAFF

The former president of Columbia-based Consumer First Mortgage Inc. has been indicted by a federal grand jury on charges of bank fraud and making a false statement to the Department of Housing and Urban Development, acts that overstated the bank's financial statements by more than $5 million.

The eight-count indictment announced yesterday by the U.S. attorney charges Mark M. Feinberg, founder, former president and sole shareholder of Consumer First, with devising a scheme to falsify financial statements to two banks in Pennsylvania, Harris Bank and Main Line Federal, in an effort to persuade them to extend credit to the lender.

Consumer First stopped doing business July 31 after Harris Bank cut off a line of credit that Consumer First had used to make loans it would then re-sell.

U.S. Attorney Lynne A. Battaglia said the scheme Feinberg is alleged to have devised follows a pattern seen often by federal prosecutors, but that it involved unusually large sums of money.

"This is certainly one of the larger schemes we have seen, in terms of it being a $5 million falsification," Battaglia said.

The lawyer for Feinberg, Gerard P. Martin, deferred comment on the indictment, saying he'd received it late yesterday.

But Martin did say: "I have talked to Mr. Feinberg and sent him a copy. He and I will talk. I don't expect to have comment until we get to court, which we most definitely will be doing."

Prosecutors said they expected Feinberg to be arraigned next week. Each bank fraud count carries a maximum penalty of 30 years in prison and a fine of $1 million. Making a false statement to HUD carries a five-year penalty and a $250,000 fine.

Consumer First, a 9-year-old company licensed as a mortgage lender and broker, lent money to homebuyers, and, when sales closed, sold the loans to permanent lenders, according to the indictment.

When it needed money to fund a loan, Consumer First would draw down on its line of credit with various "warehousing banks," the indictment said. The money was to be repaid when the loan was sold to a permanent lender. From mid-1994 to August 1996, the indictment says, Feinberg knowingly overstated the financial condition of Consumer First to various warehousing banks. In doing so, prosecutors allege, he induced them to extend credit to Consumer First.

In 1994, Consumer First's operating expenses exceeded its income, the indictment says. When payments were received from a permanent lender, Feinberg used them to continue to operate Consumer First, rather than sending them to one of the warehousing banks, according to the indictment.

Also, Feinberg and Consumer First concealed information from those banks, the indictment says. Prosecutors say Feinberg concealed from the warehousing banks that Consumer First had sold loans to permanent banks.

The indictment also alleges that Feinberg overstated Consumer First's assets on financial statements by more than $5 million. Consumer First had seven branches in Maryland and one in Virginia, and employed 120 people when it stopped accepting new loans about two months ago.

Pub Date: 9/26/96

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