Opinion ID: 2758262
Heading Depth: 3
Heading Rank: 1

Heading: Hutchens and the Alleged Fraud

Text: -7- We take the facts as alleged in the complaint. The complaint alleges that Sandy Hutchens was the mastermind behind the loan commitment fraud at the heart of this case. Plaintiffs contend Hutchens is a career criminal with a history of schemes similar to the one at issue here. In 2004, Hutchens pleaded guilty to financial fraud charges in Canada and was sentenced to two years of house arrest followed by two years of probation. 2 For reasons that become relevant later, after his Canadian conviction, Hutchens converted to orthodox Judaism and changed his name to Moishe Alexander Ben Avraham. In addition to the moniker Moishe Alexander, Hutchens maintained several other aliases to conceal his identity, including Moishe Alexander ben Avrohom, Moshe Ben Avraham, Fred Hayes, Alexander MacDonald, Matthew Kovce, and Frederick Merchant. 3 Not surprisingly, Hutchens disagrees with the plaintiffs’ characterization of his operation and contends that he was a legitimate financial investor and lender with success closing mortgage transactions, asset purchases, and other investments. 2 The amended complaint contains numerous allegations regarding Hutchens’s past. For example, plaintiffs allege that Hutchens misrepresented joint venture relationships with prominent North American lenders and invented certain offshore funding sources. Furthermore, the record reflects that Hutchens’s history of malfeasance was chronicled in several newspaper articles and on various internet websites. 3 For consistency, we refer to Sandy Hutchens as “Hutchens” throughout the opinion, even though he went by different names during his interactions with the putative class members. -8- Plaintiffs’ central claim is that Hutchens and his associates engaged in a common scheme to defraud distressed, do-or-die borrowers out of up-front payments. The formula for Hutchens’s alleged cookie-cutter scheme is not complicated. First, a potential borrower would submit a loan application to one of several issuing entities through a loan broker. Typically, the applicant would identify in its application a piece of real estate that could serve as collateral to secure the loan. After receiving the application, an issuing entity would extend the applicant a loan commitment agreement. Under its terms, the applicant was required to pay, among other advanced fees, an up-front, non-refundable payment known as a “loan commitment fee.” In addition to this up-front fee, as a strict condition of the terms of the agreement, the applicant was also required to meet certain eligibility requirements prior to receiving the loan. One of these conditions set a minimum valuation for the collateral property. If an appraisal valued the property below the amount necessary to secure the loan, then the commitment agreement would be annulled. Another condition required that the applicant timely submit necessary paperwork to facilitate the loan’s approval. At some point in the process, the issuing entities terminated each of the borrowers’ loan commitment agreements for failing, in one form or another, to comply with the conditions of the agreement. Plaintiffs claim this scheme was subterfuge for a scam to appropriate the up-front fees without any intent or ability to ultimately fund the committed loan. -9- To this end, Hutchens and his cohorts would fabricate a reason to deny the loan or otherwise blame the borrower for the deal’s dissolution. According to Hutchens’s former accountant, Martin Lapedus, by the end of 2009 the issuing entities controlled by Hutchens had received over $8 million in up-front fees from applicants, but had lent less than $500,000 in total funding. Furthermore, Lapedus alleges that the issuing entities, and by extension Hutchens, never had the liquidity to close the substantial loans committed to in the loan agreements. Plaintiffs also allege that Hutchens and his syndicate concealed several material aspects of Hutchens’s criminal or otherwise problematic past, including his use of aliases to perpetuate false perceptions and obscure his identity. In the same vein, plaintiffs allege that the physical addresses associated with the issuing entities were façades used to shield the illusory nature of Hutchens’s business. At bottom, plaintiffs contend that this deceit amounted to an effort to beguile class members, ignorant of Hutchens’s unsavory methods, to enter the loan commitment agreements. But for these active omissions and misrepresentations, say plaintiffs, no putative class member would have participated in the deals.