Six longtime local real estate investors, including the District's second-largest real estate foreclosure auctioneer, have pleaded guilty within the last six weeks to illegally rigging bids at public real estate auctions in the city.
Their activities were uncovered as a result of an ongoing, seven-year investigation into fraud involving the Department of Housing and Urban Development's Federal Housing Administration loan insurance program. The investigation brought the bid-rigging schemes to light as well.
The six, all Montgomery County residents, have admitted to government prosecutors that they agreed not to bid against each other on the auctions of foreclosed properties, which allowed them to buy the properties at artificially low prices.
Then, after one of them bought a property at a low price, they would hold their own private, secret auction of the property among themselves, with the winning bidder agreeing to make payoffs to the others for not bidding at the public auction, according to court documents.
One of those who has admitted involvement in the bid rigging was Douglas K. Goldsten, president of Goldsten Auctioneers, the District's second-largest real estate auction house. Goldsten, 38, pleaded guilty to conspiring to rig bids at real estate auctions from 1983 through May 1985.
The others who have pleaded guilty include Eric Adolph Baer, 62, of Bethesda; Frank Gittleson, 39, of Silver Spring; Irvin Greenbaum, 65, and his son, Robert Greenbaum, 37, both of Chevy Chase; and Sidney Spiegel, 58, of Silver Spring.
A seventh Montgomery County man, longtime inner-city real estate speculator George Basiliko, who in 1970 pleaded guilty to more than 8,000 violations of city housing regulations, has been charged with bid rigging and mail fraud. He has not yet entered a plea in the cases.
Contacted by telephone, all seven either declined to discuss the cases or were unavailable for comment. However, Gittleson's attorney, Thomas Abbenante, said his client had been duped into participating by the others.
At least one real estate foreclosure broker in the District said that auction bid rigging has been a fact of life in the city for many years.
Robert Castar, a real estate broker who specializes in handling foreclosed properties, said he has watched as groups of speculators gathered outside auction halls and then sent one member of their groups in to bid.
"This has been going on for many, many years and it has discouraged people from buying foreclosed properties in the District," he said.
"The market here should determine the value of the foreclosures -- not a small handful of people."
The bid-rigging charges were brought by the Justice Department as violations of the Sherman Antitrust Act. The seven were charged with the offenses in late July, and six of the seven have since entered guilty pleas.
The bid-rigging investigation is continuing, and more people are expected to be charged, according to a Justice Department spokesman.
According to prosecutors, the most serious victims of the bid-rigging schemes were homeowners whose properties were sold at foreclosure, and who did not receive as much money as they should have.
James F. Rill, an assistant attorney general in charge of Justice's antitrust division, said that in some cases the properties were being sold on behalf of orphaned children or people too ill to manage their own financial affairs.
"Bid rigging is a serious crime," he said. "Some of these auctions were held by the Superior Court of the District of Columbia on behalf of persons under the court's protection, such as minor children and persons who are not legally competent. These victims are among the most vulnerable citizens of our city.
"We will not tolerate this kind of theft."
Another victim was the real estate auctioneering and appraisal company of Thos. J. Owen & Son, the District's largest auction house, said Jody Krieger, manager of its auction department. She said her firm had lost commission revenue in the rigged transactions because sales prices were artificially lowered.
She said officials at Thos. J. Owen believe that more people were involved in the conspiracies, although they were not aware of them at the time they were occurring.
"We're basically sitting back and waiting and watching," Krieger said.
Six properties were specifically noted in court documents as having been purchased through a rigged-bid process. The six houses noted were at 4255 Eads St. NE, 2317 Third St. NE, 4520 Foote St. NE, 1524 Howard Rd. SE, 4604 14th St. NW and 22 T St. NW.
In at least two of the cases, District land records show unusual price gyrations.
In May 1986, Spiegel bought the property at 2317 Third St. NE, a Brookland row house, for $31,600 at an estate sale. He sold it two months later for $68,500, holding a note on the property himself for $67,483 with a 12.5 percent interest loan on it. He repurchased the same property at a default sale in January 1988, paying $30,000 for it.
A row house at T St. NW also quickly changed price, according to land records. Gittleson purchased it at an estate sale on July 6, 1988, for $37,851 and sold it two weeks later for $50,000.
The bid-rigging cases are only peripherally linked to the HUD investigation, according to prosecutors, although it was uncovered as a result of that investigation. But there was some overlap among the persons involved, with some of those who had defrauded HUD also seeking to reap improper profits from foreclosure auctions, prosecutors said.
In other cases, the properties ended up in the foreclosure process because they had been fraudulently purchased in the first place by people who were not financially qualified to pay their mortgages, according to prosecutors and foreclosure experts.
One of the seven charged with bid rigging, Irvin P. Greenbaum, was also charged with FHA insurance fraud.
"Clearly ... some people who did foreclosure fraud did HUD fraud as well," said Anthony Nanni, a Justice Department spokesman.
The maximum penalty for a person convicted of a violation of the Sherman Act is three years imprisonment. Fines for convictions could reach as high as $100,000 if the offense occurred before Jan. 1, 1985. After that date, the fine is either $250,000 or twice the gain derived from the crime or twice the loss suffered by its victims.