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Commerce Department investigation uncovers elaborate real estate kickback scheme

September 20, 2011

For Immediate Release: September 20, 2011

Commerce Department investigation uncovers elaborate real estate kickback scheme

Not on my watch, says Commerce Commissioner Mike Rothman 

ST. PAUL, MN – An investigation conducted by the Enforcement Division at the Minnesota Department of Commerce recently unveiled an elaborate scheme designed to pad the pockets of a homegrown real estate fraud ring. Charges made public today by Commerce Commissioner Mike Rothman allege that Steven Hyland, a primary broker for Split Rock Realty, allowed his real estate salespersons to carry out an illegal kickback scheme deliberately intended to defraud lenders.
 
Here’s how it worked. In at least 45 instances, Mr. Hyland’s salespersons found buyers to purchase properties. The allegations detailed in the statement of charges claim that funds ranging in amounts from $25,000 to $70,000 were then illegally diverted from the sellers of those properties back to the buyers.
 
To mask the fraudulent kickback, Mr. Hyland’s associates allegedly developed a relationship with Robert Aslesen, owner of Options Plus Realty and Split Rock Title (not to be confused with Split Rock Realty). Mr. Aslesen and Options Plus received a “fee” – ranging from $25,000 to $70,000 – to complete purchase transactions conducted by Split Rock Title. Mr. Aslesen would then keep $1,450 and kick the rest back to the buyer after closing.
 
“This kind of deliberate, fraudulent activity cannot, and will not, be tolerated on my watch,” said Commissioner Rothman. “Let these charges serve as a warning to every crook trying to cheat the system: our Enforcement Division is watching very closely. If you knowingly and intentionally break the law, you will be investigated. If you are found guilty, you will pay the consequences.”
 
Kickbacks in the alleged scheme routinely exceeded the down payment required to purchase the property, leaving the buyer with a cash profit after purchase. Those kickbacks motivated buyers to purchase numerous properties. The buyers wouldn’t lose any of their money when the properties fell into foreclosure. To make the kickbacks possible, Mr. Hyland’s salespeople allegedly worked with other parties to artificially inflate appraisals.
 
“Our investigation uncovered a carefully-orchestrated system of fraud,” Rothman said. “These weren’t just ordinary crooks. These were industry professionals who knew the system, and willfully took advantage of it.”

Down payments on the properties involved in the scheme were allegedly fronted by mortgage broker Amri Elsafy. Mr. Elsafy would overstate income and assets and understate liabilities on the mortgage applications. He also altered documents to make the borrowers appear credit-worthy. In nearly every one of these transactions, the property fell into foreclosure, was sold in a short-sale or was otherwise not paid.

In September 2007, Mr. Hyland’s crew changed the scheme to cover their tracks. They began running the kickbacks through a shell company called Eastwind Construction Consulting instead of Options Plus. Eastwind was owned by Mr. Aslesen. This time the amount paid to Eastwind for “construction consulting” ranged from $36,000 to $50,000, and Aslesen kept $500.

In addition to Aslesen and Elsafy, the case involved several other co-conspirators, including Thomas Rosensteel, owner of Split Rock Realty; Sean Rosensteel, a salesperson for Split Rock Realty associated with Hyland; Jonathan Neal Roman, an appraiser who appraised properties that Split Rock Realty sold with the kickbacks; and Justin Joseph Christenson, a real estate salesperson under Hyland’s supervision.
The Minnesota Department of Commerce has taken action against several of these co-conspirators. For instance, the department barred Mr. Elsafy from mortgage origination and serving in Minnesota. Elsafy also entered into a plea agreement with the U.S. District Court in Minnesota, pleading guilty to one count of conspiracy to commit wire fraud in relation to the mortgage fraud scheme described above.
Additionally, Tom Rosensteel’s license has been revoked. Sean Rosensteel’s license has been revoked and he was ordered to pay a $70,000 civil penalty. All of Mr. Aslesen’s licenses have been revoked and he was ordered to pay a civil penalty of $100,000. Jon Roman’s license was revoked. Justin Christenson just pleaded ‘no contest’ to the charges against him on September 8, 2011.

Steven Hyland could be subject to a civil penalty of up to $10,000 per violation of the law. He may also have his license revoked or suspended or be barred from conducting his business in Minnesota.

A prehearing conference on the case is scheduled for October 13, 2011 at the Office of Administrative Hearings in St. Paul.