MYRTLE BEACH — Kenneth Paul Holmes, a home builder who was released from federal prison in June after serving five months for his role in an Horry County mortgage fraud scheme, was back in court last week to face allegations that he knowingly concealed information in his separate bankruptcy case.
Holmes – who was ordered to pay nearly $2.5 million in restitution for his role in the fraud scheme – filed for Chapter 7 bankruptcy liquidation in December 2010. That was more than seven months after he had pleaded guilty to criminal charges that he defrauded RBC Bank, SunTrust Bank, JP Morgan Chase Bank and Plantation Federal Bank on several area real estate transactions.
Holmes did not list any of those banks as creditors and failed to show any of the money he owed to the financial institutions on his bankruptcy forms. Holmes also did not disclose the criminal case in his bankruptcy filings.
Robert Anderson, the Columbia trustee in charge of Holmes’ bankruptcy estate, says Holmes intentionally misled him about his financial condition. Holmes claims he didn’t think he had to include the information on his bankruptcy forms because those bank debts were being dealt with in his criminal case.
Judge Helen Burris heard arguments from both sides on Thursday in Columbia and is expected to rule on the matter after post-trial briefs are filed on Aug. 2.
If Burris rules in favor of the trustee, Holmes will not be eligible for a discharge on the nearly $3.3 million in debts he claimed in his bankruptcy filing. Those debts are in addition to the $2.5 million he owes the four banks, and those debts cannot be discharged regardless of the judge’s ruling.
If Burris rules in favor of Holmes, all of the debts he listed in the bankruptcy documents will be excused.
Holmes pleaded guilty to conspiracy to commit bank fraud in April 2010, but he remained free on bond until this year as he cooperated with investigators on a ongoing and wide-ranging mortgage fraud investigation along the Grand Strand. That cooperation landed him a light sentence – although he faced a maximum of 30 years in prison, Judge Terry Wooten ordered him to serve five months with another 4 1/2 years of probation. Wooten also allowed Holmes to wait until after the Christmas holidays to report to prison.
Holmes had asked for a sentence without any confinement, claiming he was lured to this area by the housing boom and didn’t realize he was participating in a fraud scheme until it was too late to back out of the home sales. Holmes also said in an affidavit that he was threatened by others involved in the scheme if he didn’t go along with the sales.
Holmes was released from prison on June 1, according to a federal prison database, and he is to start paying restitution at the rate of $1,000 per month beginning this month, according to court documents.
Holmes – who once boasted on his website about his ability to flip homes for a profit – owned a Chapin-based development company called Stonegate Properties, which built seven homes in Myrtle Beach, Garden City Beach and Surfside Beach between October 2007 and November 2008. When Holmes was unable to sell the properties, he and a group of mortgage brokers and investors found straw buyers to purchase the homes at inflated prices, according to evidence at his guilty plea hearing.
The group obtained loans totaling more than $5.2 million for the properties – about $1.7 million more than their value. Holmes and the others split the excess proceeds and all of the homes went into foreclosure months later.
Meanwhile, a related civil lawsuit between a pair of banks that loaned money in the Holmes transactions has been settled, according to a lawyer for Plantation Federal Bank, which provided second mortgages totaling more than $1.8 million on four home sales.
Plantation Federal accused JP Morgan Chase of negligence and fraud because JP Morgan Chase – which provided the first mortgages on the homes – allegedly guaranteed that the mortgage loans had met the bank’s strict underwriting guidelines. Plantation Federal relied on JP Morgan Chase’s statements when it decided to provide the second mortgages, according to court documents.
“Unbeknownst to Plantation Federal, JP Morgan Chase failed to supervise its loan originators and employees, failed to properly manage the underwriting and verification processes and disseminated false and misleading information concerning the subject loans and borrowers to Plantation Federal,” the bank said in court documents.
Gary Albert Hager was the loan originator for JP Morgan Chase in its Myrtle Beach office, according to court documents. Hager pleaded guilty to conspiracy to commit bank fraud in April 2010 and was sentenced to two years in prison. Evidence at Hager’s guilty plea hearing showed he approved loan applications that contained false information in exchange for kickbacks from mortgage brokers.
Hager is incarcerated in an Atlanta facility and is scheduled to be released in December.
JP Morgan Chase, in its answer to the allegations, said Plantation Federal’s losses were due to its own lack of due diligence.
Nate Fata, a lawyer who represents Plantation Federal, told The Sun News last week that the lawsuit has been settled. He did not disclose the terms of that settlement.
Pawleys Island-based Plantation Federal was shut down in April by the Federal Deposit Insurance Corp., largely because of financial losses the bank sustained due to risky real estate loans. The bank had been operating for nearly two years under regulatory orders to shore up its capital, but could not rebound from the bets it took during this area’s real estate boom.
Truett: The check was in the mail
The S.C. Ethics Commission jumped the gun in filing a civil judgment against former Surfside Beach Town Councilman Sammy Truett, according to Cathy Hazelwood, the commission’s general counsel.
Truett had until Monday to pay a reduced fine of $12,556 for a series of ethics law violations dating back to 2009. Truett told The Sun News that he mailed the payment last week.
However, the ethics commission filed a civil judgment totaling $48,556 – the full amount of the fine – against Truett back on June 8, which was more than a month before his deadline to pay.
Hazelwood said she timed the filing of the judgment based on the commission’s initial order on Truett’s case, which was dated Aug. 31. She said the timing should have been based on the Jan. 29 order that was issued following Truett’s appeal hearing.
The commission, in that order, gave Truett nearly six months to pay a reduced fine of $12,556. If he missed that deadline, the fine would jump to $48,556.
Hazelwood told The Sun News on Friday that the commission received Truett’s check and, “I will be sending a [judgment] satisfaction order to the Horry County clerk’s office today.”
Truett was found guilty of failing to deposit three donation checks into his campaign bank account in 2009 and then failing to file quarterly disclosure reports showing those checks, other contributions and campaign expenditures, according to the Aug. 31 order.
Truett, who has corrected the disclosure reports, lost an appeal of the commission’s decision in January.
Regardless of the amount of the fine, Truett said he thinks the commission’s actions are heavy-handed.
“There was no misappropriation of funds and all the paperwork has been corrected,” he said. “It’s a little frustrating, but I didn’t have a choice. It was either pay the reduced fine or they’ll slap a judgment on me.”
Truett has told The Sun News that the donation checks were handed to him by Brant Branham, the former chairman of the Myrtle Beach Area Chamber of Commerce’s board off directors.
Branham also helped distribute more than $300,000 in chamber-related campaign contributions to Myrtle Beach City Council incumbents, area state legislators and others following passage in 2009 of a 1 percent sales tax for tourism promotion. Money from that sales tax goes to the chamber for its out-of-area marketing programs, prompting some chamber critics to call the contributions a form of political payback.
Truett has said Branham was standing with then-Surfside Beach Mayor Allen Deaton and Brad Dean, the chamber’s president and chief executive officer, when Branham handed him an envelope containing the checks during a fall festival in 2009.
“I was introduced to Branham and he said something to the effect of we appreciate the job you’re doing down here and here’s a little something to help you,” Truett told The Sun News.
Truett said he put Branham’s envelope into his pocket and later stuck it under the visor in his car. Truett said he did not open the envelope until weeks later.
“When I did, my mouth fell open,” he said. “I couldn’t believe it. I didn’t know I was doing such a good job.”
Woods’ detention hearing set
A detention hearing for Duwayne Woods, the alleged mastermind behind the Bahama Island and Crystal Palace condominium scams in North Myrtle Beach, has been scheduled for Aug. 2 before federal Judge David Hartick in San Diego, according to court documents filed in the case.
Woods – who allegedly disappeared in 2007 with about $3 million from an escrow account holding condo depositors’ money – had been sought by federal agents ever since an indictment charging him with bank fraud was issued in September. Woods was arrested in San Diego on Wednesday by police officers who initially questioned him about loitering at a city library.
Woods, age 69, made an initial appearance before Hartick on Thursday and was ordered to be held without bail pending the Aug. 2 hearing. Woods is being held at the Metropolitan Correctional Center in San Diego.
A removal hearing also will be held on Aug. 2 to determine whether prosecutors can prove whether the man they have in custody is, indeed, Woods. Candis Mitchell, a federal public defender, has been appointed to represent Woods.
Depending on the outcome of the Aug. 2 hearings, Woods could be transported back to South Carolina to face felony wire fraud charges in federal court in Florence.
Bahama Island was supposed to be a condo and marina project along the western bank of the Intracoastal Waterway while Crystal Palace was supposed to be an oceanfront condo tower. Neither project was built and, so far, there has been no financial recovery for those who lost deposits on the projects.
Contact DAVID WREN at 626-0281