Value-add investors getting busted for fudging the numbers.

https://www.wsj.com/articles/u-s-pursues-one-of-the-biggest-mortgage-fraud-probes-since-the-financial-crisis-1534357872

That is a shame. So wrong, and so sad, on so many levels.

OMG! Investors exaggerating facts to banks! That’s terrible banks are so honest and never lie or exaggerate!

@Bjorn Ahlblad so you're saying their behavior is ok because the banks may have also engaged in illegal/immoral practices? I completely disagree with this sentiment. If more people would start stepping up and saying they are going to do the right thing regardless of what others are doing we would not have have had to deal with the past crisis and also any future crisisies. 

Very interesting article. I was sitting in a lender's office waiting for the banker, when I spotted this article. 

Unfortunately, in every line of business, there is always people trying to take short cuts and circumvent the system. 

Originally posted by @Jeff Kehl :

@Bjorn Ahlblad so you're saying their behavior is ok because the banks may have also engaged in illegal/immoral practices? I completely disagree with this sentiment. If more people would start stepping up and saying they are going to do the right thing regardless of what others are doing we would not have have had to deal with the past crisis and also any future crisisies. 

 I don't see where he said it was OK, rather I don't think he's "surprised" this happened.

Originally posted by @Henri Meli :

Very interesting article. I was sitting in a lender's office waiting for the banker, when I spotted this article. 

Unfortunately, in every line of business, there is always people trying to take short cuts and circumvent the system. 

 Here's one from my city:

https://www.ohio.com/akron/news/local/69-slumlord-properties-pushed-into-foreclosure

Gotta agree with @Bjorn Ahlblad . You lie with dogs, you get up with fleas. 

Investors, lender, property managers, brokers - everyone lies. Not saying it's right but to feign shock is... well... I can't understand it. 

@Matt K. Sorry but that's exactly what I took from his post. I hear 'If banks think it's ok to lie why can't I?'

And @Omar Khan you make me think the same thing which is fairly disturbing to me because I've heard your name mentioned as a 'financial expert'  around multi-family properties.

Are you saying that it's in anyway ok to be dishonest or mis-leading or immoral just because the banks are?

This whole discussion makes me want to stop investing in syndications immediately.

Originally posted by @Jeff Kehl :

@Matt K. Sorry but that's exactly what I took from his post. I hear 'If banks think it's ok to lie why can't I?'

And @Omar Khan you make me think the same thing which is fairly disturbing to me because I've heard your name mentioned as a 'financial expert'  around multi-family properties.

Are you saying that it's in anyway ok to be dishonest or mis-leading or immoral just because the banks are?

This whole discussion makes me want to stop investing in syndications immediately.

 Where do you get people say it's ok? They're saying it's happening and been happening, was only a matter of time till someone got caught.

Furthermore, that quote

If you lie down with dogs, you get up with fleas, or in Latin, qui cum canibus concumbunt cum pulicibus surgent. "He that lieth down with dogs shall rise up with fleas" has been attributed to Benjamin Franklin's Poor Richard's Almanack.[1][2] The Latin has been unreliably attributed to Seneca[3][4], but not linked to any specific work.

The quote has a large almost universally agreed meaning of "You should be cautious of the company you keep. Associating with those of low reputation may not only lower your own but also lead you astray by the faulty assumptions, premises and data of the unscrupulous."

Originally posted by @Matt K. :

Originally posted by @Jeff Kehl:

@Matt K. Sorry but that's exactly what I took from his post. I hear 'If banks think it's ok to lie why can't I?'

And @Omar Khan you make me think the same thing which is fairly disturbing to me because I've heard your name mentioned as a 'financial expert'  around multi-family properties.

Are you saying that it's in anyway ok to be dishonest or mis-leading or immoral just because the banks are?

This whole discussion makes me want to stop investing in syndications immediately.

 Where do you get people say it's ok? They're saying it's happening and been happening, was only a matter of time till someone got caught.

Furthermore, that quote

If you lie down with dogs, you get up with fleas, or in Latin, qui cum canibus concumbunt cum pulicibus surgent. "He that lieth down with dogs shall rise up with fleas" has been attributed to Benjamin Franklin's Poor Richard's Almanack.[1][2] The Latin has been unreliably attributed to Seneca[3][4], but not linked to any specific work.

The quote has a large almost universally agreed meaning of "You should be cautious of the company you keep. Associating with those of low reputation may not only lower your own but also lead you astray by the faulty assumptions, premises and data of the unscrupulous."

Pretty interesting to cast doubt over my reputation/character when (A) you don’t know me and (B) unlike everyone else, your assessment of the conversation went in a direction that nobody else was going towards.

As other, more sage folks besides me have said, nobody is justifying the behavior but hardly anyone experienced is surprised. This is a bit like saying that one shouldn’t murder but then being surprised when murders do occur. Not justifying the action, just saying that it happens.

Also, see how I didn’t call you a murderer in the above conversation. See how nice being civil feels? :)

Unfortunately, we don’t live in a world where we can all sing kumbaya and pretend everyone is honest.

I pay my lawyer a boat load of fees to make sure everyone is honest and transparent. Fortunately, every few months I realize why he makes so much money.

But, please, if you want to go ahead get on your high horse to preach… Go right ahead.

Or the next time you’re investing in a syndication, why don’t you invest without reading the PPM or analyzing the deal? After all, if the Sponsor is saying it’s a great deal, that should be enough, no?

P.S. See, others can also go off on a tangent. That causes the quality of the conversation to significantly dip. We can all stay civil and inquire politely (before judging) without impugning someone's character/intellect.

@Omar Khan only guilty people need lawyers..... (heavy sarcasm)

Unfortunately this type of thing happens and people do justify it with, "well the banks are crooked too." To behave in such a manner is terrible and then to justify it by thinking that the one you are cheating is cheating others, is even worse. Hopefully this doesn't become a common theme. 

@Marshall Hooper great post. More of these scenarios will come to light as the cycle turns.  Risk Management 201: underwrite 100 offerings before investing in one deal.  It's not a guarantee but will greatly reduce risk. Pay special attention to the sponsor, team, track record, etc.

Unfortunately, there is no shock factor for me on this one.  Quite sad to see.  I'm sure plenty feel justified in doing it because they know of other fraud in the system, some just pure greed.  Don't see much change anytime soon. 

Note: I do not condone fraud or any other illegal activity.

@Matt K. Based on what I've seen lately, your quote should be changed to, only investors that want their money back need lawyers.

If any of you know of these kind of activity going on in your own markets and would like to report it anonymously, I can put you in touch with the author of this article. He's a friend of mine and is looking for more stories like this. 

Omar Khan, you're correct I don't know you and I'm sorry if you took this as me casting doubt over your character. And you're also correct that most experienced investors aren't surprised by that behavior. 

I personally have a Google alert for the term real estate investor and about once a week i get an article about some syndicator that has duped investors out of millions.

My point was simply that we should just not shrug and say oh well the bankers did it and so we 'experienced'  investors should expect some fraud from some of the syndicators.

I believe we should try to change things by being shocked and condemn them whenever we see this behavior.

Sorry if you see this as being on my 'high horse' but that is what I believe.

Originally posted by @Marshall Hooper :

Value-add investors getting busted for fudging the numbers.

https://www.wsj.com/articles/u-s-pursues-one-of-th...

 Any way you could post the article for those of us that don’t have a WSJ subscription?

I think feigning shock at the headline is one thing, but just reading the first line to see the length that this group appears to have gone to in making vacant units look rented is shocking. 

Thanks for sharing.  I have less concern over fraudsters than I do simply for people's ability to execute during hardship and moral dilemmas.