As the housing market began to crumble five years ago, a desperate Seeno company began paying $30,000 apiece to obtain loans for unqualified buyers at an Oakland development, according to a federal criminal complaint unsealed Friday.
In this latest revelation of legal problems involving Contra Costa's Seeno construction family, kickbacks on those payments went to three people -- one of Bank of America's top loan officers, a mortgage broker and an employee of Discovery Sales, one of the Seenos' companies, the complaint said.
As part of this mortgage fraud scam, Jennifer Xiao, also known as Guo Xiu Xiao, a 47-year-old Chinese citizen, was arrested Wednesday on suspicion of one count of bank fraud and faces up to 30 years in prison and a $1 million fine if convicted on the charges outlined in an eight-page FBI complaint. Also named were co-conspirators who have cooperated with federal agents as part of plea deals in the ongoing probe that began with a 2010 raid on the Seenos' Concord headquarters.
A permanent resident alien in the United States, Xiao is in custody and scheduled for a detention hearing Monday.
Seeno spokesman Sam Singer stressed that no Seeno family members are named in this latest complaint.
"There's nothing in this complaint that says Discovery management had any knowledge of this alleged kickback scheme; in fact, Discovery management had no such knowledge," Singer said.
The FBI says the kickback scam began
At the meeting, Discovery Sales management approved paying an extra $30,000 fee for each deal brokered by Wang, the FBI alleges. That "consulting fee" got them access to Xiao, who from September 2005 until November 2007 was "one of the top producing loan officers employed by Bank of America," processing more than 1,000 loans totaling about $384 million, the complaint alleges.
Xiao crafted loan applications with false information to allow otherwise unqualified buyers to obtain mortgage loans, often inflating borrowers' income and assets, the FBI alleges. In exchange, Xiao earned commissions on those illegitimate loans, as well as a $1,000-per-deal kickback, paid with Discovery Homes funds, the complaint alleges. In just two months in late 2007, the FBI found Xiao received $26,000 in kickbacks.
Wang would divvy out the kickbacks to Xiao and Sterlino, and was vexed when they wanted the payments in cash, impeding her ability to fraudulently write them off as business expenses on her income tax returns, the FBI alleged.
Wang, who has been indicted on a charge of bank fraud, aggravated identity theft and conspiracy in connection with a separate case, told the FBI that she would send her least qualified applicants to Xiao because the loan officer would doctor their applications to make them eligible.
"Wang explained to me that she engaged in a scheme involving members of the staff at Discovery Sales and Jennifer Xiao," the FBI special agent wrote. "The purpose of the scheme was to sell a large number of homes to unqualified buyers who would fraudulently obtain loans from Bank of America.
"Because (Discovery Homes was) desperate to sell properties during the crisis in the housing market in 2007, Wang said the management of Discovery Sales approved extraordinary payments of $30,000 to Wang for each application referred to the Bank of America loan officers that resulted in the sale of a property in Leona Quarry," the special agent wrote.
In interviews with the FBI, Sterlino admitted to the kickbacks and scheme, according to the complaint.
"I have no comment right now. If I can get ahold of my attorney I'll have him contact you," said Sterlino, 33, of Hercules, when reached by phone Friday.
Discovery Sales terminated Sterlino due to "his repeated failures to follow policy on selling homes only to qualified buyers," Singer said.
The FBI also interviewed Wells Fargo employee Heather Yin, another suspected participant in the scheme. She was indicted with Wang on bank fraud, aggravated identity theft and conspiracy charges. Wang also stole some clients' identities, the FBI said, and used that information to buy multiple homes, ensuring more kickbacks for Wang.
One of those identity theft victims, Bao Huang, told the FBI her income and job were fabricated and multiple homes were bought in her name without her permission. Another Leona Quarry buyer, Olric Carter, bought two properties at the Oakland development simultaneously on the advice of the Seeno employee so he could "hide his level of indebtedness from the lenders' underwriters."
Sterlino told the FBI that, by early 2008, management was pleased with Leona Quarry sales but resented paying the extra $30,000 fee and told him to sever ties with Wang.
Along with Bank of America, entities such as Fannie Mae and Freddie Mac that acquired an interest in packages of loans ended up as victims when many of these loans went into default, leaving taxpayers in the lurch.
The kickback scam is the latest trouble for Seeno construction companies. In a criminal complaint unsealed last week, the FBI alleged the same Seeno company, Discovery Sales, was implicated in a suspected Southern California mortgage fraud ring.
Contact Matthias Gafni at 925-952-5026. Follow him at Twitter.com/mgafni.