By: Robin Ford Wallace, Reporter
A jury in Chattanooga federal district court has split its verdict on the guilt or innocence of two defendants in a $45 million bank fraud case stemming from Dade County development the Preserve at Rising Fawn.
Of the 12 counts of wire fraud, conspiracy and money laundering, jurors convicted both defendants on seven and cleared them on five more. The counts refer to specific instances of the same alleged crimes, so it seems reasonable to assume jurors found the defendants culpable in some of the five cases used by the government to build its prosecution and less so in others.
The jury had deliberated some 11 hours before announcing its verdict just before noon on Tuesday. Sentencing will take place on Aug. 8, and defendants Joshua Dobson and Paul Gott will remain free on bond until then. Sentencing guidelines for the seven counts could add up to 80-odd years of hypothetical jail time, but any estimate of time the defendants will actually spend behind bars would be pure speculation.
The case went before jurors on Friday afternoon just in time for them to disperse for the weekend, reconvening on Monday morning. They needed the break, having at that point listened to testimony and arguments for seven days stretched over two weeks beginning on April 8.
Last week, jurors heard from both men indicted following a years-long joint investigation by the Federal Bureau of Investigation and the Internal Revenue Service into the doings of the Preserve and its developer, Marion County, Tenn.-based Southern Group.
Josh Dobson, the youngest of the three Southern Group principals at 35, took the witness stand on April 16 to declare that he and his partners had never deceived banks about the 100-percent financing scheme they used to sell Preserve lots but had kept them apprised from the beginning. “We were shouting it out,” he said.
Southern Group is accused of slipping down payments on the sly to “straw buyers” – buyers in name only, who never intended to build at the Preserve, nor to make payments on the hefty loans the developer procured from banks in their names – deliberately deceiving loan officers who thought they were legitimate buyers risking their own money in the deal.
The developer promised to make investors’ loan payments – something else prosecutors said would have surprised the lenders – but defaulted on that agreement after lot sales slowed following the housing market collapsed in late 2008. Foreclosure after foreclosure ensued.
Individual investors – who had hoped to profit from the deal by selling their lots back to the developer at a substantial markup – were left on the hook for their own payments, and during the trial several of them testified they had lost their credit and/or homes, or been forced into bankruptcy.
But the lenders that made the loans lost millions, and Assistant U.S. Attorney John MacCoon told the jury on day one: “This is basically a fraud on the banks.”
Last Tuesday, though, Josh Dobson told jurors and presiding U.S. District Judge Curtis Collier that banks like Chattanooga’s Cornerstone and Farm Credit Services had gone into Preserve deals with open eyes. “It was always understood,” he said. “They knew.”
He said the payments his company furnished investors were in any case legitimate, representing option agreements to buy back the lots, or second mortgages Southern held against the buyer, which he and his partner and father, surveyor Tommy Dobson, had for years used to “pre-sell” lots at previous developments. “We’ve always held seconds,” he said.
Dobson mentioned only in passing “previous developments” the Cumberland at Suwanee in Tennessee and Long Island Overlook in Alabama, and MacCoon and his associate prosecutor, Perry Piper, did not bring them into the prosecution’s case at all.
Rather, MacCoon and Piper built their case against Southern Group around just five latter-day Preserve loans, only bringing up incidentally, and late in the proceedings the fact there were some 310 Preserve cases they could have mentioned.
Three of the prosecutors’ featured cases included demonstrably bogus gift letters – documents signed by a purported relative of the borrower attesting that the down payment money was being provided as a gift by that relative. In two cases, a Florida real estate agent, Sherlene Connor, swore she was that relative. In one case, Ms. Connor received $500 for that service and in the other a $10,000 commission on the sale.
But Dobson swore that wasn’t Southern’s usual modus operandi. “That’s the only three gift deals I’ve been involved with in my life,” he testified.
Dobson blamed those faked gift letters – as did, later, his codefendant, Paul Gott – on a loan officer named Keith Smartt at a now-defunct mortgage company called Financial Solutions of Chattanooga. He said Smartt had sworn that the lender didn’t care how a gifter got hold of the money to give to the borrower as long as it was “seasoned,” or had been in the gifter’s bank account a set period of time; and he referred to what he and Gott did to the gift letters as “forwarding” them from Smartt to the borrowers.
But Smartt took the stand himself later to the effect that though he’d been aggressive about trying to close loans, on which he made commissions – “My hope is that for every loan I get, somebody is going to say yes” – he had always known, and always told Dobson and Gott, that gifters must be related to borrowers.
Dobson’s attorney, Chris Townley, showed the jury slides of a swimming pool being poured at the Preserve and a clubhouse under construction, questioning Dobson about other improvements he and his partners, father and brother-in-law, Travis Shields, had made to the Johnson Crook property.
Dobson testified that finding “end users” – presumably buyers who really did intend to build on Preserve lots – had always been the goal, but that he and his partners had run out of money before they finished building their dream.
But Townley did not call to the witness stand any “end users.” The defense he mounted was practical as well as technical: He called attention to presumptive errors by the prosecution as to bank deposit dates and names on accounts. Twice during jury selection he questioned statements made by Judge Collier to the jury panel, and before final jury instruction he presented the judge a laundry list of changes he wished made.
Josh Dobson’s name appeared on few documents used by the prosecutors to make their case, though one instance stands out – a phone request for a $40,000 transfer into Gott’s account, money that would later be channeled into “gift” funds, as per the prosecutors’ flow charts.
Dobson denied involvement in the prosecutors’ highlighted cases, and when asked if others were lying when they connected him, he answered, “Absolutely.”
The case against his friend, Paul Gott, seemed clearer-cut. Gott, described by both himself and Dobson as an independent loan facilitator who made a one percent commission of proceeds when a loan closed, had authored email after email produced by the prosecution detailing how to use the false gift letters.
But Gott, whose slow, deep voice remained even and uninflected throughout two days of testimony, maintained he was just the guy who got blanks filled in and loan documents bundled up to send on to the lenders.
Gott also blamed Smartt for the gift letters, and his attorney, John McDougal, maintained Gott could feasibly have believed the “professional cousin,” Ms. Connor, really was related to Dwayne Jiles and Louise Joseph, the two lenders she “gifted” with Southern Group funds, because all three were African-American.
Like Dobson, Gott denied any intention of defrauding banks, or even consciousness that he was aiding the buyer to make down payments for the seller. In one case, he told the jury that down payment money had not in fact been furnished by the seller because it had originated from the bank account of not Southern but Abby Dobson Shields. Prosecutors were quick to point out that Ms. Shields was sister, wife and daughter to the three Southern partners, respectively, and as such could reasonably be seen as connected to the seller.
Gott and Dobson had separate attorneys who made separate defenses for each, and Gott made it clear he was not a Southern Group employee or involved in its management; but nor did he seem to direct blame at his codefendant, with whom he said he had been friends since age 12.