JUDGE SAYS NOT GUILTY IN FEDERAL CASE AGAINST THREE SHERIFF’S DEPUTIES ACCUSED OF “BUY & BAIL” MORTGAGE FRAUD
The federal trial of three Los Angeles County Sheriff’s deputies for conspiracy to commit bank fraud ended last Thursday in a manner that no one saw coming.
Midway through the proceedings against Billy, Benny and Johnny Khounthavong,—who in addition to being LASD deputies are also brothers—U.S. District Court Judge Manuel Real stunned court observers by abruptly entering a verdict of acquittal, after announcing that no reasonable jury could find beyond a reasonable doubt that the Khounthavon brothers were guilty.
The basics of the case are as follows: the three Khounthavong brothers were charged with making false statements to two different banks so that they could buy one house in Corona, CA, while simultaneously dumping another house in Chino, CA, for which they had paid too much in 2006 during the real estate boom, and which was, by 2011, disastrously under water.
The feds alleged that the brothers lied to Flagstar Bank, making their collective financial situations appear better than they were so they could qualify for a loan to buy the Corona House. At the same time, according to the prosecution, they had painted their financial status as far more dire to Bank of America, their primary mortgage holder on the underwater Chino house, so they qualify for a “short-sale”—which is the term for selling a loan-encumbered property for less than the amount of the remaining mortgage.
The allegations were slightly more detailed, but that’s the gist of it.
Yet, after Assistant U.S. Attorney Margaret Carter finished putting on her case late last week, before the defense could call its own witnesses, Judge Real announced the startling acquittal in what is called a Rule 29 ruling.
In brief, here’s how Real’s action works: In every federal criminal trial, the defense has the right to make what is known as a Rule 29 motion. This is when the defendant’s attorney stands up and says to the judge: “Your honor, I move for a judgment of acquittal on the ground that the prosecution has failed to present sufficient proof from which any rational juror could conclude beyond a reasonable doubt that my client is guilty on each and every count.” Or similar words to that effect.
The motion is generally made just after the prosecution has finished putting on its case (and before the defense puts on its case). But sometimes it can come at the end of both presentations, just before the case goes to the jury.
In most instances, the Rule 29 motion is pro forma, a legal ritual.
Yet, even if those at the defense table know they are sunk, the motion is nearly always made.
And it’s almost never granted.
For one thing, in order to acquit under Rule 29, the judge is required to see the evidence in the most favorable possible light for the prosecution before taking such a huge step. You see, unlike a jury verdict of not guilty, a Rule 29 acquittal cannot be appealed. So Rule-29-ing a case, as they say, is a big deal.
Yet, last Thursday, before the defense put on any witnesses, Judge Real—–who has a reputation for generally being pro-government, and a lengthy record for, shall we say, quirky behavior—announced that the prosecution led by Carter, had not made its case against the Khounthavong brothers.
And that was that.
JUDGE QUESTIONS UNDERPINNINGS OF PROSECUTION’S CASE
“It represents a complete failure of proof when a judge enters a judgment of acquittal,” said Adam Braun, who was Benny Khounthavong’s attorney. “We were grateful that Judge Real made the correct decision.” Braun added that now the brothers mostly wanted to rebuild their lives. “It was a nightmare,” he said. “They’ve been through the wringer. My client has a four-month old baby.”
Had the brothers been convicted they could have been sentenced to up to five years in federal prison.
Thom Mrozek, spokesman for the U.S. Attorney’s office, declined to comment on the details of the case yet said, “We are disappointed with the judge’s ruling, but we accept the outcome.”
According to Braun, Real said when he announced his decision, that there was no evidence to support an attempt to deceive the banks on the part of the brothers; no evidence that any of the banks were harmed; no evidence that the brothers themselves caused the errors in question on the loan application.
During the trial, bank representatives reportedly confirmed that none of the brothers had ever had any direct interactions with bank officials about the matters in question, and neither of the banks had complained to the feds, according to testimony. In fact, according to Braun, the B of A representative told the court that, from the bank’s point of view, a short sale was actually preferable to a foreclosure, which would have been the brothers’ other legal way of getting out from under a crippling mortgage that they felt they could no longer afford. (The payments on the $492,298 mortgage for the new 3,900-square-foot Corona house, where the three brothers now live, are substantially less than the payments for the $740,000 the Khounthavongs still owed on the underwater Chino house, although the two houses are comparative in size.)
The crucial witness for the prosecution in the case, according to Braun, was the Khounthavongs’ real estate agent, who was also their loan broker. The agent/broker was evidently given immunity by the prosecution because she had her own legal issues.
It seems in certain kinds of real estate transactions in California, a real estate agent cannot also act as a loan broker, because they are both incentivized functions, involving commissions, and thus present a conflict of interest. This agent, however, was reportedly attempting to do both, and in so doing to collect two healthy commissions for her trouble. “When the bank brought up that she couldn’t be the loan broker,” explained Braun., “she whited out her signature and had a subordinate sign in her place,” then reportedly went ahead and collected the two commissions. “She committed undisputed bank fraud, but the government gave her immunity,” said Braun.
Yet, when the broker/loan agent testified at trial, she stated that the primary misrepresentation on the loan documents—namely an incorrectly high valuation for the underwater Chino house, which was crucial to the prosecutors’ case—was actually a number that the agent had personally filled in without discussing her choice with the brothers. When the brothers signed the 160-page loan docs in front of a notary, according to Braun, they just signed in the designated sections with only a cursory glance at the rest of the lengthy paperwork.
After the real estate agent/broker appeared to get the brothers off the hook for at least a part of the charges, prosecutor Margaret Carter asked to treat the woman as a hostile witness, and things reportedly went downhill from there with the judge, who had already been questioning some of the witnesses on his own.
THE OTHER LASD INDICTMENTS
The case against the Khounthavong brothers was a bit of an outlier to begin with, coming as it did in a group of 18 indictments unsealed in December 2013, the majority of which pertained to either brutality in the jails, or obstruction of justice—as in the case of the six who were found guilty last July, for hiding federal informant Anthony Brown from his FBI handlers, and the case of James Sexton who was found guilty of similar charges in September 2014, after being acquitted of those same charges earlier in the year.
Then in February 2014, two more LASD deputies were indicted, also for jail brutality, specifically for allegedly using illegal force against an inmate and then covering up the incident with false reports that resulted in a false prosecution initiated against the victim.
(In addition to the case against the Khounthavongs, the other outlier case involved a deputy named Richard White Piquette, who was charged with illegally building and possessing an assault rifle. Piquette took a deal and pled guilty to building the rifle in April of 2014.)
The alleged mortgage scam involving the Khounthavong brothers was reportedly discovered by accident when the feds were looking into one of the brothers who was stationed at the department’s chronically-troubled Men’s Central Jail. According to those with knowledge of the case, the FBI reportedly hoped the MCJ Khounthavong would help them out with their investigation into deputy brutality at the facility where he worked, but the deputy reportedly proved unwilling or unable to give the feds what they wanted.
Dominic Cantalupo, attorney for one of the other brothers, told Victoria Kim of the LA Times that the fraud charges were brought after the MCJ Khounthavong refused to cooperate with investigators and give information on other deputies in the jail investigation.
It is difficult to say what Judge Real thought about the rumored provenance of the case against the Khounthavong brothers. Yet, at the end of the unexpectedly truncated court proceedings, he reportedly asked federal prosecutor Carter, “Where was this coming from if the banks weren’t harmed? Where was it coming from?”