Co-defendants won’t have to cooperate in mortgage fraud case

The misdemeanor plea deals this week for Robert C. Morgan’s three co-defendants do not necessarily signal added troubles for the Rochester developer, who still faces the brunt of felony charges in what federal prosecutors once called a “wide-ranging mortgage fraud scheme.”

None of the three co-defendants has to cooperate in his prosecution. And his attorneys are still negotiating a settlement with the government, as well.

Prosecutors often extract cooperation agreements from co-defendants as part of plea deals in order to go after a bigger target, usually a ringleader. But no such requirement is part of Monday’s plea agreements, said defense attorney Herbert Greenman, who represents Frank Giacobbe, one of the three co-defendants who pleaded guilty in federal court.

The plea offers came from U.S. Attorney Trini E. Ross, who inherited the case — and an array of procedural problems with it — from her predecessor in October when she took office in the Western District of New York.

“This was not on Ms. Ross’ watch,” Greenman said of the complicated case against Morgan; his son Todd; his former finance chief, Michael Tremiti; and Giacobbe, a Buffalo mortgage broker. “But she was the one who had to make the decision about where do you go with the case.”

Todd Morgan, Tremiti and Giacobbe each pleaded guilty in federal court to bank larceny of less than $1,000, a misdemeanor that carries a maximum penalty of one year in prison and a $100,000 fine, plus a year of probation. However, the plea agreements call for no jail time and a fine of up to $9,500.

The single misdemeanor admissions are a far cry from the dozens of felony accusations in the indictment � showing how much Ross and her office retreated from the initial charges. Todd Morgan, for example, faced 55 separate counts, but pled to a single reduced charge. Sentencing will be in July.

A year ago, when a new grand jury indictment was handed down, then-U.S. Attorney James P. Kennedy Jr. said Robert Morgan and his three co-defendants obtained money and property through what he called a “wide-ranging mortgage fraud scheme” that targeted financial institutions and government-sponsored enterprises such as Fannie Mae and Freddie Mac.

That new 104-count indictment came nearly five months after a federal judge dismissed an earlier 114-count criminal indictment from May 2019 against the four, citing violations of the defendants’ rights to a speedy trial.

According to the 2021 indictment, the defendants provided false information to lenders to purchase properties, refinance properties and build properties. As part of the applications for mortgage loans, the defendants submitted inflated and false rent rolls, which included non-existent tenants and inflated rents to fraudulently increase the income for a building, prosecutors said. To further inflate the income, defendants told lenders that they were receiving fake fees; for example, they stated that residents paid for cable when it was actually included in the rent, according to prosecutors.

The Buffalo News first reported the federal investigation in September 2017, and Kennedy once hailed the case as the biggest example of mortgage fraud since the Great Recession.

But the case languished amid procedural motions, technical problems, myriad delays in producing evidence and frequent complaints from defense attorneys, who accused the government of misconduct that violated the defendants’ rights.

An evidentiary hearing about prosecutors’ handling of the case had been scheduled for this week for the judge to hear testimony on a defense motion to dismiss the case again, but this time permanently. The defense had planned to call two federal prosecutors, two federal investigative agents and others, and had amassed nearly 300 emails, affidavits and other documents to bolster their case.

Indeed, U.S. District Court Chief Judge Elizabeth A. Wolford has been highly critical of the government’s prior actions and conduct, including last week, when federal agencies declined to make some witnesses available for that hearing. She has previously criticized prosecutors for missing court-imposed deadlines, failing to review and disclose everything they have in their possession and even misrepresenting their actions in court.

Prosecutors ran the risk that Wolford might side with the defendants.

“I think it’s important to emphasize that all of the problems in the case, and all of the stuff that was going to come out in the evidentiary hearing occurred during the prior administration of the U.S. Attorney’s Office,” said David Rothenberg, the Rochester attorney for Todd Morgan. Ross “was willing to take a fresh look at the case and handle the situation in a much more reasonable manner.”

Prosecutors initially wanted an overall settlement involving all the defendants. But talks soon broke off into individual discussions with each of them, although the defense attorneys were coordinating with each other, according to a legal source familiar with the discussions. Ross was intricately involved in the discussions, attorneys said.

“She’s hands on. She knows what’s going on with her office,” Greenman said. “The case involved a lot of sensitive documents. She offered these pleas. We negotiated back and forth and came up with this resolution. We thought it was a fair resolution.”

Settlement talks began in late January with all the defendants, but the pace picked up recently with the scheduled hearing approaching, and “were just frantic over the weekend, even up to the very last minute,” according to a legal source familiar with them. The evidentiary hearing was suspended for at least a week because of the plea agreements.

Robert Morgan is now expected to appear in court Thursday for a status conference before Wolford. He has maintained his innocence.

But his attorneys are now negotiating with federal prosecutors, who have shown their willingness to make a deal, especially with the looming hearing that could prove embarrassing to the government if it reveals further procedural mistakes or omissions. And with his son’s case resolved, Robert Morgan may now feel more comfortable entering a plea.

Morgan Management and its subsidiaries, which operated as Morgan Communities, once owned more than 180 apartment complexes and other properties with 36,000 units in 14 states, including several thousand units in Buffalo. But that empire is largely gone as a result of the indictment, as Robert Morgan was forced to sell more than half of his business to another company, while shedding other properties here and there.

The defendants were accused of engaging in and orchestrating a wide-ranging mortgage fraud scheme, in which Robert Morgan and the other defendants allegedly falsified documents submitted to both local and national lenders in order to obtain more than $500 million in commercial real estate loans. They were charged with deceiving lenders into extending far more in credit than would otherwise be justified by the actual value of the properties.

According to prosecutors, Todd Morgan and Tremiti, who worked for Morgan Management LLC, admitted submitting false documents to ESL Federal Credit Union of Rochester to obtain a construction loan for Ellison Heights Apartments in Penfield, based on a false construction contract.

Giacobbe, meanwhile, admitted he worked with others to submit documents and information to Evans Bank that overstated the contract purchase price of Morgan Ellicott Apartments, a multifamily residential apartment complex at 221 and 291 William St. in Buffalo. Giacobbe — representing Morgan Ellicott Apartments LLC — also falsely represented the obligations associated with the complex, and misrepresented the actual purchase price of the property.

And he made misrepresentations designed to conceal from Evans that he and others were not using the loan proceeds to purchase or maintain the property as required by the loan agreement, according to prosecutors.

The guilty pleas mean they acknowledged some wrongdoing within the Morgan real estate empire.

In doing so, they joined three other former defendants who pleaded guilty to related charges of bank and insurance fraud nearly three years ago, including Robert Morgan’s nephew, Kevin; his former chief operating officer, Scott W. Cresswell; and Giacobbe’s associate, Patrick Ogiony.