Mark Dain, a Woodbridge man who used his connections in Fairfax County — including his old football coach at Chantilly High — to lure hundreds of investors into buying worthless real estate in North Carolina and South Carolina, pleaded guilty Thursday afternoon in federal court in Alexandria to conspiracy to commit bank fraud. In an interesting twist, he offered to surrender himself to prison even before his sentencing in October, and a federal judge took him up on the offer and told him to turn himself in next Wednesday.
Dain, 33, admitted defrauding banks out of $7.1 million, and federal sentencing guidelines recommend a sentence between 63 and 78 months. Dain also agreed to cooperate with federal investigators.
After five years of waiting, it was a huge moment for thousands of people who were drawn into costly, failed real estate deals by Dain in what’s been called the biggest real estate scam in North Carolina history, though most of the victims were from Dain’s home turf in Northern Virginia. Still, the moment felt anticlimactic because the courtroom was empty. Not one of the many investors were there to see the man they’ve vilified since 2008, and blamed for saddling them with bad debt or even bankruptcy. Such hearings aren’t publicized in advance, and real estate fraud doesn’t exactly sell episodes of “TMZ.” So there were three feds (agents and prosecutors), a probation officer and me, thanks to a tip (H/T Anonymous). The sentencing on Oct. 4 may be different.
Dain and a fellow real estate speculator, Mark Jalajel, started a company named Total Realty Management whose scams are still being unraveled, and several of whose employees are already in prison. Their plan, which co-workers said they implemented after attending a seminar by renowned real estate investor Ron LeGrand, involved buying parcels of undeveloped land and immediately reselling them for millions of dollars in profits between 2006 and 2008, shortly before the real estate market collapsed.
Dozens of the buyers were school teachers or administrators from Fairfax, who already had their own mortgages, but were convinced in Dain’s sales seminars that, with interest-only loans, they could flip the properties for big profit with no money down and no monthly payments for two years. To help draw investors, Dain first targeted his former coach Danny Meier, enabled him to turn a quick $60,000 profit on his first deal, then had Meier tell his story to groups of potential buyers. Meier and his brother both bought back in again, and both wound up in bankruptcy.
The properties were available for sale directly from the original developer for around $150,000. But the school employees, and hundreds of others around the region, paid TRM from $200,000 to $400,000 for the vacant lots with the promise that others would soon be along to buy them for more. Dain’s company falsified loan applications and inflated the buyers’ qualifications, and allegedly worked with at least one Bank of America loan officer and friendly appraisers, to make sales to Northern Virginia buyers who couldn’t afford them. Dain’s company also temporarily dumped money into purchasers’ accounts to inflate their value, and also bought and sold properties among themselves to inflate the comparable values for appraisers.
When the scheme collapsed, values of the properties near Emerald Island and Topsail Beach in North Carolina plunged to less than $20,000, banks foreclosed on properties and were left holding vacant lots. Nearly 500 investors sued not only Dain and his TRM company based in Woodbridge, but also Bank of America, SunTrust and BB&T, claiming they were involved in a conspiracy with TRM. In Alexandria, U.S. District Judge Gerald Bruce Lee initially dismissed the banks out of the suit. But after e-mails surfaced in 2010 showing direct involvement of a Bank of America official, Lee reversed himself and reinstated Bank of America into the suit and they settled in 2011 with nearly all of the Virginia plaintiffs.
The FBI got involved, and several of TRM’s loan officers pleaded guilty to falsifying loan documents, and received prison time. The most interesting of these was Michael J. McCracken, the chief financial officer of TRM, who was arrested at his Herndon home in December 2010. The affidavit in that case said that “the majority owner of TRM” was a cooperating witness and wore a wire to McCracken’s home to record a conversation about McCracken’s gun collection. McCracken was a convicted felon and couldn’t have guns.
The two owners of TRM were Dain and Jalajel. The informant’s identity has not been revealed. Jalajel has not been charged with anything.
At his sentencing in March 2011, McCracken told U.S. District Judge T.S. Ellis III he “had convinced myself that we were not hurting or fooling anyone since the purchasers knew that their applications were overstated — that we overstated their incomes. The salespeople knew it, and the bank loan officers knew it.”
Ellis jumped in. “The bank loan officers knew that the loan applications were false?”
McCracken: “For the most part, yes.”
Ellis: “Who is a loan officer that knew it, from a bank?”
McCracken: “I would say all of them, just by looking at their applications.”
Ellis: “Give me their names.”
McCracken: “Every single one that we worked with. Bank of America would have been Lynne Cooke.”
Cooke was identified in the previously revealed e-mails as working closely with Dain to pump out more loans and make more sales, for which she received rewards from the bank. She has not been charged. Ellis gave McCracken, facing a sentence of 57 to 71 months, a reduced term of 40 months. For some reason, he was convicted of causing losses of $9.3 million to the banks, $2 million more than Dain, and court documents did not indicate why Thursday. Assistant U.S. Attorney Mark Lytle said he could not comment, or explain why Dain was suddenly prosecuted now, five years after the scheme collapsed.
The failed developments that TRM sold to investors are called Cannonsgate in Carteret County, N.C., Summerhouse in Onslow County, N.C., and Craven’s Grant in Georgetown, S.C.
Ellis took Dain’s plea late Thursday afternoon in a deserted courtroom, five years after his scheme collapsed and more than two years since McCracken’s sentencing. He did not quiz Dain on many specifics of his operation, which often comes at sentencing. He asked Dain what he had done to merit a guilty plea to conspiracy to commit bank fraud.
“Employees of mine,” Dain said, “during 2006 to 2008, submitted loan applications and HUD-1 statements to banks that contained information that was inaccurate, including inflated income and inflated assets…in order for purchasers to qualify who would not have otherwise qualified.”
Ellis asked Dain what work he’d been doing the last five years, and Dain said, “Very little.” He said he had done part-time work as a paralegal and law clerk for the Reston law firm founded by his father, Robert Dain, at Dain, Walker, Sobhani & Nicoli.
Ellis wanted to set the sentencing for Sept. 20, but Dain’s lawyer, Michael Pritchard, wanted another month, because there was “quite a vast array of information that we need to gather from various jurisdictions.” The judge was reluctant, and asked if this was related to Dain’s cooperation. Pritchard asked if he could speak to the judge at the bench. Ellis waved him off, then set the sentencing for October 4 at 9 a.m.
For more details on the trail Mark Dain left behind, my lengthy story on this whole episode from 2010 is here.