By: Robin Ford Wallace, Reporter
An investigation by the Federal Bureau of Investigation and the Internal Revenue Service resulted last week in criminal charges of bank fraud and money laundering against the developer of the Preserve at Rising Fawn, the stalled luxury housing development in Johnson’s Crook.
Josh Dobson and Paul Gott, both of Marion County, Tenn., appeared before a U.S. Magistrate judge in Chattanooga on Thursday to make initial answers to a federal indictment dated May 1. Dobson, 34, is co-owner, with his father, Thomas Dobson, and brother-in-law, Travis Shields, of the Southern Group, developer of the Crook property. Southern Group was also named as a defendant in the indictment, as were associated entities, Southern Mountain Resorts, Southern Real Estate and Southern Property Management.
Gott, 39, is the only other individual named with Dobson as participating in an alleged conspiracy to defraud multiple individuals and lending institutions spread over several states, resulting in losses of over $45 million. Not named was either the elder Dobson or Travis Shields. Assistant U.S. Attorney John MacCoon, who is prosecuting the case, would not say in a telephone interview Monday whether more arrests were expected, but he did confirm that the FBI investigation was ongoing.
Southern Group had previously been involved in developments in Tennessee and Alabama, but MacCoon confirmed that all the transactions used to build the fraud case in The United States vs. Dobson, Gott, Southern Group, et al. were sales at the Preserve.
At issue is Southern Group’s no-money-down, no-monthly-payment scheme for selling Preserve lots to “straw buyers” who in some cases had never seen them. As previously reported, these buyers’ only participation in the development was to use their good credit to obtain bank loans secured by the lots’ value. Proceeds were turned over to the developer, who promised to make monthly payments on the mortgages for a 30-month period, after which buyers hoped to profit by selling their lots back to the developer or to “real” buyers who did intend to build on them.
Southern Group in the summer of 2009 defaulted on its promise to make monthly payments to the banks on those loans. Though many lots had no access to roads, water or electricity, for borrowing purposes they had been appraised at $175,000-$250,000. So investors who had never intended to pay on the loans at all found themselves suddenly liable for whopping monthly payments, many on multiple lots. Foreclosure after foreclosure resulted.
These individual investors lost their good credit and were disappointed in their hopes for gain; but MacCoon said the real victims of the financing scheme were the banks that parted with millions of dollars under the misapprehension they were dealing with bona-fide borrowers risking their own money as down payment.
“It was a further part of said conspiracy that the defendants, Joshua Dobson and Paul Gott, would and did deceive the mortgage lenders by creating the appearance through false closing documents, and in some cases false ‘gift letters,’ that the down-payment was being provided by the buyer, when in fact it was secretly being provided by the seller,” reads one count of the indictment.
The indictment describes specific instances in which Gott and Dobson provided lenders false closing documents attesting that the borrowers had made their own down payments, or in which the defendants wired money to third parties who in turn paid it to the banks with letters explaining they were cousins of the borrowers furnishing them down payment money as gifts.
Five financial institutions are named as victims in the indictment, including Chattanooga lender Cornerstone Community Bank. MacCoon said these five were by no means the only banks harmed in the scheme but had been selected to make the prosecution’s case succinctly, so that a trial of the case need not take six months. “We just bite off chunks to indict,” he said. “You have to bite off chewable chunks.”
MacCoon said that if the case is proven against the defendants, restitution will be ordered for all affected financial institutions, not just those named – but he agreed lenders should probably not hold their breaths. “It’s often the case that things go sour and you don’t find nearly the money that the banks lost,” he said.
The indictment does not mention –and nor would MacCoon discuss – another category of banks that figure in the Preserve story – the developer’s “preferred lenders,” notably Farm Credit Services of America, which furnished so many loans on so many Preserve lots it is difficult to see how it could have been consistently deceived by the developer’s alleged misrepresentations.
FCS issued a statement to this newspaper in 2009 condemning the Southern Group lending program as a distortion of prudent banking practices; but in two separate civil lawsuits filed in federal court in Rome, Ga., by disappointed investors, the bank was named along with Southern Group as part of the conspiracy the litigants said had defrauded them. FCS was later released from both suits under undisclosed terms, and both lawsuits subsequently settled out of court.
MacCoon would not say precisely how long the FBI investigation of the Preserve sales had gone on, but however long it took, now that an indictment has been served the matter is moving speedily enough. Plea bargaining is to be concluded by June 18, with a trial date set for July 9. MacCoon explained that though initial appearances were before a U.S. Magistrate, if the case goes to trial it will be before a jury in federal district court.
The Chattanooga Times Free Press reported that Josh Dobson had engaged Rossville attorney Chris Townley, who would press for a trial to prove the young developer’s innocence.
As for sentencing, MacCoon said that each of the eight counts of bank fraud potentially carries a 30-year prison term and a $1 million fine, but that judges have broad latitude in assigning appropriate punishment.