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OAH 16-1005-21207-2 |
STATE OF
OFFICE OF ADMINISTRATIVE HEARINGS
FOR THE COMMISSIONER OF COMMERCE
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In the Matter of Marlon Terrell Pratt |
FINDINGS
OF FACT, CONCLUSIONS
AND RECOMMENDATION |
The above-entitled matter came on for hearing before Administrative Law Judge Manuel J. Cervantes on November 30, 2010. The OAH hearing record closed at the conclusion of the hearing on November 30, 2010.
Christopher M. Kaisershot, Assistant Attorney General, appeared on behalf of the Minnesota Department of Commerce (Department). Marlon Terrell Pratt (Respondent) appeared on his own behalf by videoconference.
STATEMENT OF ISSUES
1. Did the Respondent violate
standards of licensure by engaging in a fraudulent, coercive, deceptive, or
dishonest act or practice, demonstrating financial untrustworthiness, and being
convicted of a felony involving moral turpitude as set out under Minn. Stat. §
58.12?
2. If
so, is the Respondent properly subject to discipline by the Commissioner?
Based upon all of the files, records
and proceedings herein, the Administrative Law Judge makes the following:
FINDINGS OF
FACT
1.
The Respondent
worked as a mortgage originator, more commonly known as a “mortgage broker,”
for Universal Mortgage, Inc. (UMI). The
Respondent was not required to be licensed in that capacity because he was
working under the auspices of UMI’s mortgage originator licenses.[1]
2.
Respondent was
involved in five real estate closings between March 28, 2006 and August 28,
2006 involving Mark Ross. Consistent
with schemes involving occupancy fraud, a different lender was used for each
transaction. As the loans closed,
Respondent neglected to notify the lenders on the pending loans that Ross had
incurred significant liabilities and monthly payment requirements, thereby distorting
the debt-to-income ratio of the borrower.
This ratio is a key underwriting criterion in determining most mortgage
loans and the omission of liabilities artificially lowered Ross’ debt
ratio. These undisclosed liabilities
also significantly affected Ross’ ability to repay each loan and increased the
risk of default.[2] Respondent was the loan officer on four of
the five Ross transactions.[3]
3.
In each
subsequent Ross property purchase, Respondent engaged in conduct that had the
effect of including newly purchased property as an asset of the borrower, while
concealing the borrower’s outstanding liability on that same property. This conduct resulted in false information being
provided by the Respondent to induce lenders to loan money to Ross to carry out
the Respondent’s scheme.[4]
4.
Approximately five
months after Ross’ purchase of one of the five properties, Ross cashed out
approximately $43,000 from that property by refinancing. Respondent refinanced Ross’ loan with the
same lender. Respondent provided false
information as part of that refinancing by failing to include outstanding liabilities
incurred by Ross through his prior property purchases.[5]
5.
Respondent also
provided false information to lenders by failing to disclose that Ross was
purchasing more than one property as his “primary residence.” This is significant because lenders generally
charge a higher interest rate to investors compared to an individual who
personally occupies the residence because the risk of loss is generally higher
with an investor.[6] In several of the transactions, Respondent
overstated Ross’ $3,607 monthly income by $1,393 to $3,286 in forms submitted
to lenders.[7] Ross eventually defaulted on four properties
resulting in substantial losses to the lenders involved.[8]
6.
Like the Ross
fraudulent property transactions described above, Respondent, acting as a
mortgage broker, made similar false representations to lenders in three
property purchase transactions involving P. Smith.[9]
7.
On September 8,
2008, the Respondent was charged with 17 counts of Felony Theft by
Swindle. Each count reflected a mortgage
lending transaction that the Respondent was involved in some capacity arising
from employment as a mortgage broker for UMI.
None of the criminal charges arose from the property transactions
detailed in the foregoing Findings. The
charges included the allegation that the Respondent received a payment
(described as a “kickback”) ranging from $13,000 to $100,000 as part of each
transaction. The charges were later
supplemented with two counts of racketeering.[10] On July 8, 2009, the Respondent was convicted
of all seventeen felonies for theft by swindle and both racketeering felonies.[11] The Respondent was sentenced to 120 months in
prison and fined $500,000.[12] The Respondent is presently incarcerated as a
result of these convictions.
8.
The Department
seeks to impose administrative discipline on the Respondent for violations of
statute and rule “including debarment or the imposition of civil penalties.”[13] On March 23, 2010, the Department filed a
Notice and Order for Prehearing Conference setting this matter on before the undersigned
ALJ.
9.
On June 18,
2010, the Department moved for summary disposition, asserting that there were
no genuine issues of material fact and sanctions should be imposed on
Respondent as a matter of law.
10.
On August 25,
2010, the ALJ issued the Order Denying Continuance and Granting Partial Summary
Disposition (Summary Disposition Order) in this matter. The Summary Disposition
Order found that there were no genuine issues of material fact that
remained for hearing on the contentions advanced by the Department regarding
Respondent’s criminal convictions and misconduct in the Ross and Smith
transactions, as set out in the foregoing Findings. The ALJ did not issue a Recommendation at
that time, since the Respondent had the right to present evidence regarding the
propriety of any particular sanction to be imposed by the Department.[14]
11.
In order to address the remaining issues, a hearing was
scheduled. Several continuances were granted
to accommodate scheduling conflicts. The
hearing was held on November 30, 2010, with the Respondent participating by
videoconference.[15]
Based
upon the foregoing Findings of Fact, the Administrative Law Judge makes the
following:
CONCLUSIONS
1.
The Administrative Law Judge and the Commissioner of
Commerce are authorized to consider the charges against Respondent under Minn.
Stat. §§ 45.027, subd. 7; 58.12; 58.13; and 14.50 (2004).
2.
The Respondent received due, proper, and timely notice of
the charges against him. This matter is,
therefore, properly before the Commissioner and the Administrative Law Judge.
3.
The Department has complied with all relevant procedural
requirements.
4.
The Department has the burden to prove by a preponderance of the
evidence that the Respondent violated applicable statutes, rules, and uniform
standards as alleged in its Notice of and Order for Hearing, Order to Show
Cause, and Statement of Charges.[16]
5.
The Commissioner may sanction
a mortgage
originator where the mortgage
originator has violated any law, rule, or order related
to the duties and responsibilities entrusted to the Commissioner, or has engaged in an
act or practice which demonstrates that the person is untrustworthy,
financially irresponsible, or otherwise incompetent or unqualified to act under
the authority of Minn. Stat. ch. 58.[17]
6.
Pursuant to
7.
Respondent was acting as a mortgage originator while engaging in
the conduct for which he was convicted for felony fraud and while engaging in
the activities leading to the mortgage transactions involving Ross and Smith.
8.
Respondent’s conviction of felony fraud involves moral turpitude and constitutes a violation of Minn.
Stat.§ 58.12, subd. 1(b)(2)(vi).[18]
9.
The Department has shown by a preponderance of the evidence that
Respondent’s conduct in the Ross and Smith transactions constitutes violations
of Minn. Stat. ch. 58, fraudulent and dishonest practice, demonstrations
of untrustworthiness in violation of Minn. Stat.§ 58.12, subd. 1(b)(2)(i), (iv) and (v).
10.
An Order imposing discipline is in the public interest.
11.
These Conclusions are reached for the reasons discussed in
the attached Memorandum, which is incorporated by reference in these
Conclusions.
Based upon the foregoing Conclusions, the Administrative Law Judge makes the following:
IT IS HEREBY
RECOMMENDED: that the Commissioner of
Commerce impose appropriate discipline against the Respondent, Marlon Terrell
Pratt.
Dated: December 14, 2010
s/Manuel J. Cervantes
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MANUEL
J. CERVANTES Administrative
Law Judge |
Reported: Digitally recorded; no transcript prepared.
This Report is a recommendation, not
a final decision. The Commissioner of
Commerce will make the final decision after reviewing the record and may adopt,
reject or modify these Findings of Fact, Conclusions, and Recommendation. Under Minn. Stat. § 14.61, the Commissioner’s
decision shall not be made until this Report has been available to the parties
to the proceeding for at least ten (10) days.[19] An opportunity must be afforded to each party
adversely affected by this Report to file exceptions and present argument to
the Commissioner. Parties should contact
Emmanuel Munson-Regala,
If the Commissioner fails to issue a final decision within 90 days of the close of the record, this report will constitute the final agency decision under Minn. Stat. § 14.62, subd. 2a (2004). The record closes upon the filing of exceptions to the report and the presentation of argument to the Commissioner, or upon the expiration of the deadline for doing so. The Commissioner must notify the parties and the Administrative Law Judge of the date on which the record closes.
Under
MEMORANDUM
During
the hearing, Respondent contended that the Department’s complaint was defective
as the forms he used indicated that the borrower was responsible for the
accuracy of the information provided.
Respondent also contended that other facts existed concerning the Mark
Ross transactions. These issues were
decided in the Summary Disposition Order.
Respondent cannot collaterally attack that Order in the hearing
conducted on November 30, 2010. That
hearing is limited solely to any evidence relating to the seriousness of the
demonstrated violations for the purpose of assessing the appropriate penalty.
Respondent
maintained that he received no money out of the real estate transactions that
constituted the basis for the criminal convictions and the Department’s
proceedings. The record in this
proceeding contains significant evidence that lenders, home buyers, and others
were harmed by the deliberate actions taken by Respondent to induce lenders to
make mortgage loans under terms inconsistent with the borrowers’ true risk of
default.
Respondent
also contended that the problems identified in the Department’s pleadings (and
which supported Respondent’s conviction) arose from the use of “stated
loans.” Respondent argued that the
lenders were responsible for the practice of accepting the information
provided, without further investigation, when making mortgage loans. Respondent did not offer any explanation for his
failure to inform lenders of the true nature of the multiple property
purchases, each identified as the residence of the borrower. Respondent appeared to be unaware that he
was, in his role as a mortgage originator, responsible for making truthful
statements to mortgage lenders in the course of obtaining mortgage loans.
The record in this proceeding established
that Respondent is appropriately subject to discipline, including both
sanctions precluding work in the mortgage industry and civil penalties. The Commissioner may consider the significant
criminal fine already imposed in assessing a civil penalty, but that determination
is within the Commissioner’s discretion to assess appropriate discipline.
M.J.C.
[1] Boyer Aff., at 1. Citations are to the record established on
the Department’s Motion for Summary Disposition, except where noted.
[2] Boyer Aff., at 3.
[3] Boyer Aff., at 3.
[4]
[5]
[6]
[7]
[8]
[9]
[10] Eidem Affidavit, at 1-2, Ex. 1.
[11] Eidem Aff., at 2, Ex. 2; Boyer Aff., Ex. 1.
[12] The Department’s Notice and Order of Prehearing Conference, at 3 (filed March 23, 2010).
[13] Notice and Order for Prehearing Conference,
at 1 (filed March 23, 2010).
[14] ITMO
the Disciplinary Hearing Relating to Michael Alan Kveene, License No.
10639, OAH Docket No. 12-2402-10724-2 (ALJ Order Granting Partial Summary
Disposition issued November 1, 1996) (relying on ITMO the Matter of the Teaching License of Falgren, 545 N.W.2d 901,
905-06 (Minn. 1996)).
[15] See Fourth Scheduling Order (issued November 8, 2010).
[16]
[17]
[18] Moral turpitude is not defined in the statute, but Black’s Law Dictionary, pp. 1008-09 (6th ed. 1990) (citations omitted), defines it as follows: The act of baseness, vileness, or depravity in private and social duties which man owes his fellow man, or to society in general, contrary to accepted and customary rule of right and duty between man and man. Act or behavior that gravely violates moral sentiment or accepted moral standards of community and is a morally culpable quality held to be present in some criminal offenses as distinguished from others.
[19] Unless otherwise noted, all references to Minnesota Statutes are to the 2004 edition and all references to Minnesota Rules are to the 2005 edition.