Prison Clown

Chapter One

The Hole

Chuck and I were doing our usual pre-chow smoke outside by the tennis courts. That’s where the inmates usually smoked. They also smoked by the baseball field, but that made me nervous because the guard towers overlooked that area. I had never smoked a cigarette in my life until I came to prison. Now I smoke like a fiend, mainly because I’m so damn bored all the time.

I used to smoke cigars, but that would be impossible to get in prison. Plus, the fact that smoking a cigar is harder to hide because of the strong smell. The cigarettes we were smoking were skinny like a joint. The inmates would share between two guys every time they smoked. The cost of a cigarette hand-rolled by an inmate was two stamps a piece.

I passed the cigarette to Chuck when all of the sudden we heard Get against the building and spread ‘em.

Holy shit! It was a guard walking the perimeter of the camp. The guard was about half a block away, so Chuck had time to put the cigarette out and bury it in the stones with his shoes. This was something we always practiced just in case we got caught.

We stepped up to the gym building and placed our hands on the brick wall. The guard told us to follow him to the bubble and we would be going to the hole.

The hole was basically a dungeon with no windows. There was nothing to do there. You couldn’t read or watch TV. There was no companionship. It was very much like the hole Steve McQueen stayed in the movie The Great Escape. The lights are on all day and all night. You sleep on a cement slab. Many inmates came out with bad backs and needed a cane the rest of their sentence.

They let you out to exercise one hour a day. You get two cold showers a week. When they release you, sometimes after a year has gone by, you are usually shipped to a prison far away so it’s difficult for your family to visit.

Going to the hole was not a good thing. I was scared out of my mind.

Chuck, being twenty-two-years-old and having the experience that comes from being in the army, was not scared at all. As we walked thru the halls, my friend Pete Strand was telling Chuck to take care of me and keep me calm. Pete knew I had claustrophobia and would climb the walls in the hole.

When we got to the bubble (the camp office), the guard sat us down and asked where our floor was. Then, he and the other guards went there and looked through the entire floor for cigarettes and tobacco pouches. Every time an inmate gets caught smoking, the guards go through the belongings of all the inmates on the same floor. Not a good way to get popular with your fellow inmates.

As we sat in the bubble, inmates said their good-byes to us, figuring we would not be back.

Chuck told me over and over, Richard, do not say you were smoking.

The arresting guard came back and apparently found nothing on either of our units or floors. He also couldn’t find the cigarettes we had been smoking because there was hardly any of it left and Chuck had buried it.

The guard looked at me and said, Tell me the truth and I’ll let you go back to your room. Were you smoking a cigarette?

I looked at Chuck and looked back at the guard and replied, Could you ask him first?

The guard looked at Chuck and asked the same question. Were you smoking?

Chuck answered yes quickly.

I was confused because we were supposed to say no. I took his lead and yelled out, I was smoking also.

They told us to wait and we sat, relieved that we were going back to our rooms and not another prison.

I looked around the bubble and saw President Obama’s portrait along with the head of the BOP’s picture. Now that I could breathe again, my mind started flashing back to how I got here in the first place. How did a guy who never committed a crime in his life for 59 years get thrown in prison?

Chapter Two

The Calm Before the Storm

While holding a checklist in his hand, my friend Cliff was indicating items to be marked OK before takeoff. I’d never flown in a 4-seater plane, and since I was deathly afraid of flying in the first place, I had begun feeling nervous. I tried to hide it because it was important that Cliff not think I didn’t trust him—simply because he’d just received his pilot’s license. Cliff shared my uneasiness about flying, but he thought a great way to conquer his fear was to learn to fly.

We both got into the plane, and Cliff called to the tower, speaking words that made no sense to me. Meanwhile, I thought my stomach might fall out, the kind of feeling I had before a rollercoaster ride. Cliff started to taxi and soon the plane lifted off the tarmac, and seconds later so did we. The clouds grew closer and closer and the roar of the engine became a steady, loud hum.

Once in the air, I began talking to Cliff about my business dilemma, but he gently chided me, saying, Why don’t you just relax and enjoy the sky?

And so we did. The flying was so quiet and tranquil it seemed I was leaving all my problems down on the ground. We flew over my house in Buffalo Grove, Illinois, and around my neighborhood. I opened the window and let the air rush into my face.

Cliff let me take the wheel and it gave me a sense of security, even safety. My friend was a no-nonsense guy when he had to be, and I respected his ability as a pilot. He was one of those guys that make you feel safe. He also had a good head on his shoulders.

We flew for a couple of hours before we started descending to the airport in Milwaukee. Cliff talked to the tower before his picture-perfect landing.

As we taxied down the runway, I was struck, hard, and jolted into my reality and the need to get back to work. The plane stopped, and as we got out and headed toward his car, my cell phone rang.

My wife Julie was on the phone. She told me to get back home fast. The FBI was waiting for me at my office.

Why?

She had no idea, but there was nothing for me to do but head home and find out.

Cliff dropped me off at my house.

Julie had left and we arranged to meet in the bowling alley parking lot a block from my office, about 15 minutes away. Julie got in my car and we drove the block to my office together.

When we arrived, we stared out the window. We counted 20 FBI officers in front of my office building. All my neighbors were outside, looking towards my office.

When one of the FBI agents approached me, I said, Did you think I would resist?

She remained stone-faced, pretending not to hear me.

We were directed to go into the office and sit down while the officers began opening my office cabinets and desk drawers, removing and packing up all my office files.

I asked the same agent if she could please tell me what was going on.

If you talk with me, I’ll tell you what is happening, she said.

Being an attorney, Julie immediately transitioned to lawyer mode. We are not saying a word to you. Where is your warrant?

Frowning, the agent handed Julie an envelope that we were instructed not to open. Apparently, this was a type of warrant we were not allowed to see or read.

Now, do you want to talk? the agent asked, her voice cool.

Just as coolly, Julie replied, No. We have nothing to say.

It’s a good thing Julie handled this. If it had been left up to me, I’d have poured them coffee and told them my life story! Later on, every lawyer I spoke to was relieved we didn’t talk to the Feds.

Rule #1: Don’t talk to the Feds. In case following Rule #1 is not possible, go to Rule #2: Don’t talk to the Feds.

I pulled Julie aside and asked why we shouldn’t speak to the FBI agents? I was keenly interested in learning what they were doing at my office and why they were boxing up all my files?

Julie explained it was important not to say a word because anything I say would be used against me. Julie practiced real estate law and was my company lawyer. She was focused on protecting me, but later we learned, she was protecting both of us.

Finally, the agent told us we were both going to be indicted for bank/mortgage fraud.

Mortgage fraud! (Really just another word for bank fraud.) But I’m not a mortgage broker and I don’t work for one. I don’t even borrow money from a bank.

You headed up a scheme to defraud many banks out of ten million dollars, she said, not backing down.

So, in less than a full day, the FBI closed down my company and told us to get a lawyer. We did as we were told and contacted a friend of Julie’s, who worked at the United States Attorney’s office. This person recommended a lawyer whom we called immediately.

Looking back, I realize my life was doomed as soon as I contacted the first lawyer. The way the justice system stands today, the only reason to bring in a lawyer is to negotiate the length of your prison stay. Once the Feds think they’ve got you or believe what they believe, that becomes the truth. The truth is what they believe happened. There is no way out. You are royally screwed.

After those events unfolded, I can fast forward to today. The truth is, I live the life of a post convict. Generally, when the public is watching breaking news on TV and someone has been indicted, the viewers assume the person is guilty. Otherwise, why would the powerful United States government prosecute in the first place?

Once the sentence is served, the former convict’s life never returns to what it once was or might have been. Employers don’t want to get involved with a past criminal, and this is true for those convicted of white collar crimes as much as it is for those involved in other crimes that result in incarceration.

This was true for me. To make a living, I ended up starting a steel brokerage company on my own, and I also sell as a rep for a friend who got me started in the construction equipment field. I lease construction equipment for his company out of California, and broker steel at the same time.

Given the internet, it’s even more difficult today for a past felon to conduct any business whatsoever. It takes only seconds to look me up and find my criminal history posted for anyone who wants to see it. Each time I fail to get an order, I believe it is because my buyers were scared away because of what they learned on the internet. It’s like living with a ghost of your past. If you looked me up, you’d see the government perceived me as the largest bank criminal since Dillinger.

In spite of this, I’m aware I’m one of the fortunate ones. I have a family that loves me, believes in me, and knows the truth. I have a house, and luckily, no assets in my name. I’m also sixty-four-years-old, at the end of my career, but I pity the younger inmates I came to know; these men face decades of problems ahead of them.

I have a $4,000,000 debt to the government, which is called restitution. They computed this figure by taking the price of the buildings I sold (without the fixtures yet installed) and subtracting that from the price it should have been without the fixtures installed. The problem is, I ended up always purchasing and installing the fixtures. (I’ll go into greater detail about this later.)

So, although the government realizes I can’t ever pay the total restitution figure, I have to pay a percentage of my earnings after tax. Because our justice system just looks at the cold hard facts of the law, the ability of the felon to survive this hardship is not taken into account. Since this fine doesn’t go away in bankruptcy, I find myself branded as a felon with a debt large enough to choke a horse.

Despite that, I look at life differently today. Of course, I realize how precious freedom is. The inmates used to say, Each inmate should be made to spend some time in ‘the hole,’ so when they come out, they can realize how lucky they are to be able to enjoy the freedom of walking and talking to other inmates in the prison. The same thing is true in regular life. Once a person’s freedom is snatched away, one realizes just how precious it is.

Chapter Three

Englewood, the War Zone of Chicago

So, what was the actual basis of the government’s case against me? If you’re confused, I understand. Many people are, including lawyers and law professors I’ve spoken to over the years, because the case was so convoluted even legal experts have had difficulty. So, here is the raw material for my case.

The background

Englewood is one of Chicago’s rough Southside neighborhoods, and it was here that I purchased buildings on land contracted from a private company that handled tax sales and foreclosures. I also bought property from real estate agents. I purchased some on land contracts and some for cash borrowed from my friends. I repaired each house by hiring a single contractor to install sheet rock, paint, repair plumbing, replace electric service if needed, and replace old fixtures and windows. I also hired contractors to install sturdy indoor/outdoor carpet with padding, along with tile flooring.

One of my contractors, Gil Pearson, slept in the property undergoing the work. I was fortunate not to have much theft and vandalism. With Gil sleeping in the property, once it had been renovated it remained renovated. It was a good—and simple—arrangement all around, and Gil was paid on completion. Financially, it was a win-win.

I spent approximately $20,000-$40,000 for an entire rehab on an apartment building. This flipping practice became hugely popular, even to the point of generating a TV program called Flip This House. It never occurred to me I had anything to fear from the law.

I located buyers by running ads in the Chicago Sun-Times for about $200 a week. The newspaper was full of ads declaring, Purchase your dream home! No money down. No closing costs.

When I received calls from buyers, they came to view the home and purchased it with no money down. I worked with a few different banks and mortgage brokers and often closed the loan in 45 to 60 days.

The land contracts were good for 60 days, so time was of the essence when closing loans. If the loan did not close within the specified 60 days, I could lose the house, plus the cost of labor and materials that I had already spent.

In a typical closing process, the bank or mortgage broker would write the loan and then call my lawyer to schedule the closing, held at a title company. Since my wife is a lawyer, she usually represented our company at the closing, but if she couldn’t make it, I sent another lawyer in her place. Again, trying to keep the money in my family, I hired my cousin. Luckily, he didn’t get in trouble when all hell broke loose. Looking back, I wish I hadn’t involved either of them. I’d rather have paid the $300.00 to another closing attorney not in my family.

The seller cannot supply the down payment to the buyer, since it’s illegal for the seller to help with 100% of the down payment. However, some avenues were available to assist the buyer with the down payment. Gift letters must be from a relative, FDA loans, or high credit lending programs that allowed for 0% down payment.

And finally, no source loans meant the bank didn’t ask where borrowers got their down payment, which the Dodd-Frank law made illegal. (Its future is in question, nevertheless.)

Even at the time, however, the banks were offering these programs while the Feds assumed they were illegal. Banks always want the buyer to have skin in the deal, something to lose if the loan goes into default. Today, because of the 2008 and 2009 economic recession, almost no loans exist where the seller can help the borrower with all of the down payment. This is also true of the so-called no seasoning loans, which mean the funds don’t have to be in a savings account for a specific period of time. The brokers that were closing my buyers’ loans were using these programs. Once the loan was secured, the buyer would then close the loan without closing costs, earnest money, or down payment. At that time, the buyer could close a mortgage loan with only a valid driver’s license.

Before the regulations were tightened, the banking programs were so lenient, that a monkey could buy a home. Prior to these new lending programs a bank would never have thought about loaning money this easily or loosely. (Again, the future of financial regulation is still in question, and some loosening of lending guidelines has already taken place.)

Sometimes a buyer would bring an attorney to the closing, but most of the time not. Once the property was flipped to the buyers, I directed them to a real estate agent who worked with Section 8 tenants. Section 8 tenants are those whose rent is subsidized by the Federal government. The amount of rent was determined by the number of bedrooms in the property. At the time, the average property owner would clear $800/month profit above their mortgage payment on a newly acquired house rented to Section 8 tenants.

The value of Englewood properties were derived from the property appraisals. Most often, the mortgage broker hired the appraiser, but it was not uncommon for the seller to work with the appraiser hired by the broker. Today, the appraiser can only be hired by the broker or bank.

Here is the core of my Fin-Fin plan: brokers and banks earned their fees, and the buyers earned profits from the rents; the neighborhood, in this case, Englewood, benefited from rehabilitation of its older buildings. I brought in approximately $40,000 gross per property. Out of this, I paid overhead and payroll. Overall, my program made business sense and brought in a very solid profit.

Later the Feds would use the fact I made a healthy profit against me. When a defendant is in front of a jury, the prosecutor always brings up the fact that there was a lot of money made. All of a sudden, making a profit in the U.S. took on a dirty connotation. Maybe, the Feds already knew some jurors who were jealous when they learned the defendant made money.

The funding of down payments was provided by long-term friends of mine, who earned a healthy return on this short-term investment. Because there was room in my rehab-then-sell (flip) formula for a healthy earned interest, I decided to share the wealth with friends and family rather than strangers. Later, I would regret this.

The high interest stemmed from my short-term need for the money. As soon as the loan closed, the money would be deposited back into the company account. Later, when I began buying properties outright, I used friends’ money for 90- to 120-day loans. It made no sense for a private investor to take a risk of lending $70,000 for a 1% interest rate per month. Instead, I’d pay 15% for a three-month loan.

A turn for the worse

Things went well until my General Contractor, Gil Pearson, died. I had no idea his death would ultimately lead to my financial demise and shockingly, dreadfully, a head on collision with a train I never saw coming—prison. After Gil’s death, I needed to hire other contractors, some by referrals and others by way of newspaper advertisements. Those who placed advertisements in the Chicago Sun-Times were mostly experienced rehabilitation contractors, so I thought I had easy pickins’. I was very much mistaken.

It wasn’t easy to find a trustworthy contractor on the south side of Chicago, and building trust all over again also wasn’t easy. A government organization for low income housing, Chicago Housing Authority Commission (CHAC), asked that I draw my labor from Chicago’s South Side. None of the contractors were able to front money for any portion of the labor draw, which Gil Pearson had done.

In addition, if I’d hired outside of the Englewood area, the cost for the fix-up would have been way out of my budget. This meant I needed to front all labor expenses until the loan closed. So, I obtained the necessary labor expense funds from an investor and repaid him when the loans closed.

Without Gil, I began to experience theft. Furnaces, windows, cabinets, toilets, tubs, sinks and copper wiring, and copper pipes were being stolen hours after installation. The first time this happened, I was shocked to turn over a house to a buyer and found nothing inside. Every fixture had been stolen—even the outside siding was gone.

This meant I had to buy fixtures twice, or even three times, for each house. Hiring an armed guard was way too expensive. Since the appraisal kicks off the loan process, I’d have had to keep an armed guard around the premises for 60 days or so. There was no way I could turn a profit using an armed guard for that long of a time.

My new general contractor and I attempted to find a solution, first installing burglar alarms. But the thieves stole the alarms. Then, we placed a live-in house sitter to watch the property, but the house sitters couldn’t remain on the property all of the time, and thieves ended up watching the houses and timing their break-ins. We even had a few house sitters who worked with the thieves and helped them remove fixtures.

Next, we tried boarding up the windows with heavy wood and carriage bolts, but vandals pried off the boards. We put up VPS (Vacant Property Services) on the entire first floor of unsold properties. VPS is an expensive steel structure covering windows and doors and needs a series of color codes to unlock. The system costs about $1,000 per month to install. Almost unbelievably, the thieves were able to get under this steel structure by using crowbars and wire.

We tried guard dogs and burglar bars, and made deals with the neighbors in the area to help watch the houses. Nothing worked.

By this time, I’d borrowed a great deal of money from many good friends. My parents and my wife pressured me to get out of Englewood and return to the safety of the suburbs, but I’d involved my friends and family. I couldn’t quit and leave.

After conferring with other friends in the rehab industry, I met Jim Hayman, an expert appraiser in the Englewood area. Jim knew all the troubles involved in building in this troubled area. He said, that although properties must be 100% complete at closing, he didn’t see a huge problem withholding fixtures until shortly after closing. Just get them in quickly, he said.

Jim’s appraisal would declare the property complete, and as long as I installed fixtures shortly after the title transfer, he saw no problem. After all, who were we hurting? This would allow fixtures to be installed after the title transferred to the new buyer. The new owner would then be responsible to protect the property.

This sounded plausible and we decided to operate this way going forward, at least for a while until I could find a way to stop the theft. The problem? The theft still occurred. (Once I’d closed on the property the owners had to worry about theft.) I thought the new owners would make arrangements to protect their property.

I was wrong. Some