Investigating Residency Fraud

SPECIAL TO THE WEB

Philip A. Becnel IV, CFE

On a chilly spring morning, Zainab Al-Shammary sits in the passenger seat of her car — almost a football field's length from a townhome in Prince George's County, Maryland. Anyone who glanced at her would assume she's waiting for a friend. But Zainab has carefully parked her car facing away from the townhome, and she keeps an eye on the house through her rearview mirror. A woman and her preschool-aged son emerge from the townhome, and Zainab swivels into action. She steadies her camera with its 300mm lens on the car seat and holds down the automatic shutter to take a series of photos of the child and her mother as they get into their car and drive off to school.

Zainab is a private investigator, but she's not investigating a child custody matter. As team lead for residency fraud investigations at my firm, she's working under a contract we have with the District of Columbia Office of the State Superintendent of Education (OSSE). 

EXPLOITING THE SYSTEM

Residency fraud occurs when parents who reside outside of a school jurisdiction lie about their residency on enrollment forms so their children may attend public charter schools in jurisdictions where they don't reside.

"Residents are denied access to tuition-free education and services because non-residents are illegally attending schools in their place for free," says Zainab. "It's not only unlawful, but it's unfair that residents are placed on waiting lists due to others cheating and exploiting the system."

One parent of a D.C. preschooler who testified via email at a 2011 D.C. council hearing complained that her daughter's spots on the waiting lists for three of their preferred schools ranged from 200 to 400. (See Council of the District of Columbia Committee of the Whole, Committee Report, December 20, 2011.) This makes some of the District's public charter schools about as competitive as an Ivy League university.

Although this problem exists in many school jurisdictions throughout the U.S., it's a particularly serious problem in the District, which encompasses less than 70 square miles sandwiched between Virginia and Maryland. Parents who commute from these states into the city will sometimes use the D.C. addresses of relatives or friends to falsely claim residency. This enables them to take advantage of the District's highly desirable public charter school programs — including free, full-day preschool and pre-kindergarten programs — all while not paying D.C. taxes. In other words, these parents are getting a free, high-quality education for their children at the expense of D.C. taxpayers.

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District Attorney Looks Ahead to New Career in Private Sector

MEMBER PROFILE

Douglas Lowe, CFE
Palestine, Texas

Douglas Lowe, CFE, has served as Anderson County Criminal District Attorney (D.A.) for 16 years. He is based in Palestine, Texas, where he worked in private practice as a certified personal injury trial lawyer prior to becoming a D.A. Recently, Lowe decided to become a Certified Fraud Examiner (CFE), and he earned the credential this spring after attending the Phoenix, Arizona CFE Exam Review Course.

Becoming a CFE was a natural choice for Lowe after his work as a D.A. stirred a passion for fighting fraud. 

“Through my work as District Attorney I have seen the cost of fraud to our community,” Lowe said. “There may not be a ‘fraud tax,’ but the losses to consumers, businesses and taxpayers are unreasonable and drain resources.”

Lowe added that part of the draw to this type of work is the challenge posed by fraudsters, and the satisfaction that comes from foiling their schemes.

“White-collar criminals can be very ingenious and creative in finding the weak spots in financial systems,” Lowe said. “I enjoy the challenge in identifying the scheme and then bringing them to justice.”

These days, change is in the air for Lowe, and he looks ahead to returning to his own practice.

“After being District Attorney for 16 years, I am excited about moving [back] to the private sector,” Lowe said. “I want to continue fighting fraud and being involved with companies, governments and individuals who want to minimize their losses due to white-collar crime.”

Lowe said that being a CFE will help him immensely in his future fraud fighting.

“I have tried numerous white-collar crime cases, but the CFE certification will enhance my credibility and strengthen my skills,” Lowe said. “I feel confident the CFE certification will help expand my client base and open doors to opportunities that otherwise would not be accessible.”

When he’s not bringing bad guys to justice, Lowe stays busy coaching his daughter’s YMCA all-girls soccer team: “We don’t win that many games, but we have fun and look snappy in our uniforms.”

“I also like remodeling, home improvement projects and physical fitness, especially weight training,” Lowe said.

Read more ACFE member profiles in the ACFE's online Career Center.

'Buy Low, Sell High': Rory the foreclosure fraud lizard king

SPECIAL TO THE WEB

Rory Sykes was about a foot shorter than Bam-Bam Baker but just as clever. He briefly operated as a traditional real estate agent before opening his own business, Sykes Real Estate Services, in 1999, which focused on the acquisition of residential properties in the late stage of foreclosure and quick-turnaround sales. "Buy low, sell high" was Rory's secular mantra.

Rory had a deep understanding of the complex minutiae of the foreclosure process and an equally deep understanding of the lack of scrutiny exercised on the contents of documents filed in the county recorder's office. Rory wanted to gain an advantage over his numerous competitors in acquiring specific properties after a sheriff's foreclosure sale, and to enhance the likelihood of owning these properties at the end of the redemption periods at the least possible expense. So he filed documents — affidavits, lien notices, documents of conveyance — containing one or more false statements designed either to discourage redemption by others or to minimize the cost of his acquisition of the properties. He also timed the filings of these fraudulent documents so that no others could have a good chance at redeeming.

FALSE FILINGS GALORE

The Hennepin County Attorney's Office detailed Rory's acquisitions of seven properties in its case against him. In three of these acquisitions, Rory filed Notices of Lien for Payment of Property Taxes, Notices of Intent to Redeem Under Property Tax Lien, an Affidavit of Amounts Owed and a subsequent Corrected Affidavit of Additional Amounts, all falsely stating he or Sykes Real Estate Services had paid property taxes on the parcels.

In five of these acquisitions, Rory filed other Affidavits of Amounts Owed on Redemption or on the Sheriff's Certificate, which falsely claimed expenses that were never incurred, that were misstated as to type of expense (certain expenses incurred in the acquisition of a foreclosed property are allowed, others are disallowed) and/or that were grossly inflated.

In two of these acquisitions, Rory filed quitclaim deeds (QCD) conveying the properties from the owners to him after he had directly paid each of these owners $2,500 and $6,250 respectively. (A quitclaim deed transfers the owner's interest in a parcel of real estate to another with no warranties of the status of the property title.) A false statement was printed on each of these QCDs — "total consideration is less than $500" — which resulted in the minimum deed tax assessment of $1.70 rather than an accurate deed tax calculated on the actual consideration paid to the owners.

In one acquisition, Rory filed an Assignment of Sheriff's Certificate for the benefit of and on behalf of Sykes Real Estate Services, falsely stating "[t]he total consideration for this transfer of property is $500 or less," for which a deed tax of $1.70 was again assessed. This property was being foreclosed based on a default of townhome association dues of a fairly minimal amount.

In one acquisition, Rory filed a mortgage that falsely stated that it had been issued "in consideration of the sum of $5,000 to Mortgagor in hand paid by Mortgagee" rather than the accurate figure of $6,250, and filed a Notice of Intention to Redeem upon the mortgage containing the false statement. In another acquisition, Rory filed a mortgage from himself to his corporate alter ego, Sykes Real Estate Services, and a subsequent Mortgage and a Notice of Intent to Redeem from the Mortgage, signed by Rory, resulting in an issuance of a Sheriff's Certificate of Redemption to Sykes Real Estate Services.

BUY LOW, SELL HIGH

While the false statements in these documents may seem picayune to the outside observer, they had their desired effect. Rory acquired certain properties at amounts significantly beneath their true market value and cost — after he'd discouraged others from redeeming or buying them — and shortly afterward resold the properties at substantial profits. Owners or estate heirs redeemed back other properties or competitors acquired them after they paid inflated amounts back to Rory. One of the property owners was in prison, another was suffering from profound lung problems that required him to use an oxygen tank, another was dead, two were elderly and one was being foreclosed upon for default on a $15,000 second mortgage that would have been forgiven had she been able to remain in the property for a few more years. Buy low, sell high.

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