Published August 16, 2011
As the nation's financial system collapsed and millions of Americans struggled to pay off their home mortgages in 2009, a Maryland man now under investigation allegedly wiped away his $353,000 mortgage debt by convincing financial giant CitiGroup to accept a money order purportedly backed by then-Treasury Secretary Hank Paulson.
The one-of-a-kind ruse amazingly worked, current and former law enforcement officials told Fox News.
According to court documents filed in the case, 35-year-old Bryan Gardner of Waldorf, Md., sent CitiMortgage a $353,000 money order in January 2009 and indicated that it would be his final payment for a property in nearby Bowie, Md.
The money order stated it was "drawn on the account of 'Secretary of the Treasury Henry M. Paulson, Jr.,'" and Gardner signed it as Paulson's "Authorized Representative," the court documents allege.
"CitiMortgage erroneously accepted the document and credited Gardner's mortgage account in full," according to a Secret Service affidavit.
Within months, Gardner sold the property for $254,900 and then "distributed the proceeds to others," according to public records and the Secret Service affidavit. Investigators believe Gardner may have initially secured the mortgage under false pretenses.
Through a spokesman, an FBI agent who investigates mortgage fraud said he was surprised the scheme succeeded, and a former Justice Department official who helped lead fraud enforcement efforts in the wake of the financial meltdown agreed, calling the approval of the money order "bizarre."
"I've never heard of a case where a mortgage for such a large amount was satisfied with a fraudulent instrument -- an instrument that's so on-its-face fraudulent," said Paul Pelletier, who until a few months ago was a top-ranking official in the Justice Department's Fraud Section. "You'd be amazed at how many people try and pass off (fraudulent) stuff. But does it ever work? No, it rarely works."
In fact, Gardner's alleged scheme didn't work the first time he tried. In November 2008, two months before his successful attempt, Gardner sent a nearly identical money order to CitiMortgage, but it was rejected, according to the Secret Service. The only difference the second time around: Gardner requested slightly more money, court documents say.
Pelletier said this case is "extraordinarily unusual" not only because CitiMortgage ultimately honored a fraudulent money order, but the company allowed it to be credited to Gardner's mortgage and likely issued a "satisfaction" on the mortgage, as reflected by Gardner's ability to sell the property.
A CitiGroup spokesman said he was limited in the details he could offer about the case.
"We notify law enforcement authorities about matters of suspected fraud," spokesman Mark Rodgers said. "This case is currently under their purview, so we do not think it appropriate to provide details."
A spokeswoman for Paulson said the former treasury secretary was unaware of the case.
Pelletier, now with the firm Mintz Levin in Washington, said Gardner seems to have gotten "lucky" for two years, but in such cases, "You're going to get caught eventually."
Gardner has now been charged through criminal complaint with one count of mail fraud. A grand jury has yet to indict him.
Reached by phone Monday, Gardner said he was unable to talk about the case and referred questions to his attorney, public defender Lisa Lunt. Efforts to reach Lunt, who is out of the office this week but has access to email, were unsuccessful.
According to public records in Maryland, Gardner filed for bankruptcy protection in February, and two months later he agreed to surrender his Ford Expedition and Waldorf home. The case has since been closed.
In November 2008, Paulson and other Bush administration officials agreed to lend CitiGroup $45 billion in taxpayer funds, hoping to stave off an even deeper financial crisis. It was one of the largest bailouts ever in U.S. history. CitiGroup has since repaid its debt to the U.S. government.