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Last week, Darrell Underwood of Chesterfield, Virginia was sentenced to ten years and his wife Cynthia to three years for an elaborate Ponzi scheme that preyed upon desperate homeowners, many of whom were fellow church members, and cost victims more than $9 million.
The Underwoods convinced defaulting homeowners they could save their homes from foreclosure by investing money with their company, Walkwood Properties. For example, if a homeowner had a home valued at $300,000 and a $200,000 mortgage that was about to be foreclosed on by the bank, they would offer the bank $180,000 for the property, which the bank would take to avoid a foreclosure. The Underwoods would then refinance the property for $250,000, gaining $70,000 on the deal.
They told homeowners that their funds would be funneled directly into investment properties targeted by Walkwood's foreclosure efforts. In exchange, the Underwoods promised them that they would receive returns of up to 50 percent within 60-120 days, depending on the timing of the investments as the scheme progressed.
In 2007, the Underwoods did pay their investors a rate of return, but funds used to repay investors were mostly derived from monies paid by subsequent investors, or groups of investors. Some of the money was used by the Underwoods to help pay their own mortgage and to make payments on expensive cars.
As a result of the Underwoods' ongoing Ponzi scheme, the victimized investors incurred significant losses. From April through December 2007, the Underwoods received approximately $18,400,000 in investor funds. Of that amount, only $2,100,000 was actually paid towards any type of real estate transaction. During the same time frame, the Underwoods paid approximately $16,200,000 to investors; of that amount, approximately $13,400,000 was derived from investor funds that were simply used to repay other investors. As of December 13, 2007, the date authorities seized the Underwoods' investment accounts in connection with the investigation, the Underwoods had a balance of $780,557.07. As of that same day, the Underwood's investment program had an outstanding balance of over $14,000,000 owed to various investors. That amount was comprised of over $9,000,000 in principle alone.
The couple changed their pleas to guilty during their trial in June after a jury heard evidence from more than two dozen prosecution witnesses on 36 charges, including fraud and money laundering. Each pleaded guilty of conspiracy to commit mail fraud. Darrell Underwood also pleaded guilty to engaging in unlawful transactions pleaded guilty yesterday and agreed to repay victims more than $9.7 million.
One of the victims was WRIC-TV anchor Gwen Williams Dandridge, who along with her husband made some money investing in partnerships with Darrell Underwood but lost $200,000 investing in the Underwoods' investment pool.
Among other investors was Simoan Roane, 29, a Verizon employee. Roane said she had been $30,000 to $40,000 in credit-card debt and was $100 to $200 a month short of meeting all her financial obligations each month.
She did not know how she would dig herself out of the hole. Then she heard of the great returns that people were making with the Underwoods, a couple she had seen at church. She visited their busy offices and met with Cynthia Underwood.
Roane said she thought not only would she make a good return but also would be helping people keep their homes.
She arranged a $20,000 credit-card advance and invested, thinking "this was my opportunity to finally break free." Thus far, however, she has been paid back $900 and is now in a far deeper financial hole.
"I keeping borrowing from Peter to pay Paul," she said.
Many victims -- some of whom also borrowed money on credit cards to invest – testified during the trial. Yet several said they still consider Underwood a friend. After pleading guilty, Cynthia Underwood was hugged inside the courtroom by a victim who had testified.
The investigation was conducted by the Internal Revenue Service, the Department of Housing and Urban Development Office of Inspector General, the United States Postal Inspection Service, the Federal Bureau of Investigation, and the United States Secret Service. Assistant United States Attorneys Michael Gill and John Adams prosecuted the case for the United States.
From
Real Estate Economy Watch
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