Kontogiannis Pleads Guilty in $92 Million Fraud

Thomas Kontogiannis, serving prison time for his role in laundering bribe money for former U.S. Representative Randy “Duke” Cunningham, pleaded guilty in a $92 million real-estate scheme.

Kontogiannis, 61, pleaded today in federal court in Brooklyn, New York. He led a scheme to defraud Washington Mutual Inc. and Credit Suisse Group AG’s DLJ Mortgage Capital in connection with the development of properties in Brooklyn and Queens, New York, said prosecutors in the office of U.S. Attorney Loretta Lynch.

“I used the funds generated by the fraudulent transactions primarily to finance the construction of ongoing real-estate development projects,” Kontogiannis told U.S. District Judge Kiyo A. Matsumoto. “While I never intended to cause any financial loss to any financial institution, I knew that the means I was using to obtain these loans was wrong.”

Nine people were indicted in the case last year, accused of obtaining multiple mortgages and staging repeated sales of the same properties to straw buyers to obtain the home loans. The fraud began in March 2003 and ran until September 2007, prosecutors said. Three defendants pleaded guilty earlier this year and one has died.

Kontogiannis, who admitted to conspiracy to commit bank and wire fraud, previously pleaded not guilty in the case in June 2009. The conspiracy count carries a maximum sentence of 30 years in prison, Matsumoto said in court.

‘Expressed Remorse’

“Mr. Kontogiannis acknowledged his participation in fraudulent mortgage activities today,” his lawyer, Gregory O’Connell of De Feis O’Connell & Rose PC in New York, said after the hearing. “He expressed his remorse and hopes to put this matter behind both him and his family.”

Kontogiannis is serving a sentence of eight years and one month for helping to launder Cunningham’s bribe money through fraudulent mortgages that allowed the former congressman to buy a $2.4 million mansion in Rancho Santa Fe, California. Kontogiannis was sentenced in San Diego in May 2008.

Cunningham, a California Republican, resigned from Congress after pleading guilty in 2005 to taking $2.4 million in bribes from defense contractors. He is serving a sentence of eight years and four months.

The defendants in the Brooklyn case also allegedly obtained permits to construct multi-unit housing in Queens and Brooklyn and, to finance the projects, subdivided the land tracts and staged sales of the properties financed by the mortgage loans, the U.S. said.

False Filings

They are accused of preparing false loan filings to create the appearance the properties were being purchased by credit- worthy individuals.

One defendant provided fraudulent appraisals to support the price of the properties, even when no buildings existed or had fictional addresses, prosecutors said.

Kontogiannis “controlled every aspect of the mortgage-lending process,” Lynch said in a statement today.

Loans were financed by lenders controlled by Kontogiannis and later sold to Washington Mutual and DLJ, prosecutors said. The defendants stopped making the mortgage payments in 2007 with about $92 million in principal outstanding on the fraudulent mortgages, the government said.

The case is U.S. v. Kontogiannis, 09-cr-360, U.S. District Court, Eastern District of New York (Brooklyn).

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