Franklin First Execs Pay $1.25M in FHA Fraud Scheme

Franklin First Financial, Ltd., along with top executives Frederick Assini, Christopher Bertman, and Andrew Dauro, has agreed to pay $1,250,000 to settle federal civil fraud charges stemming from a scheme to manipulate mortgage default data tied to federally insured loans. The Melville-based lender and its leaders funneled secret payments through a sham charity to disguise rampant loan delinquencies, deceiving the Department of Housing and Urban Development and preserving their access to lucrative federal programs.

As part of HUD’s Direct Endorsement Program, Franklin First was authorized to issue mortgages insured by the Federal Housing Administration. But that privilege came with strict performance thresholds: if the company’s loans defaulted at a rate double the regional average within two years, HUD could audit, suspend, or boot them from the program. Instead of facing accountability, the defendants made at least 111 hidden payments on behalf of borrowers whose loans were on the brink of default, artificially inflating their performance metrics and lying to federal regulators.

The payments were laundered through the Rainy Day Foundation, a purported charitable organization that served as little more than a shell to conceal the fraud. By disguising corporate bailouts as charitable aid, Franklin First, Assini, Bertman, and Dauro kept their delinquency rates under the radar, maintaining eligibility for federal backing while undermining the integrity of the FHA insurance system meant to protect taxpayers.

In a stipulated consent decree, the defendants admitted to making the improper payments and acknowledged that the scheme directly altered their reported default statistics. The $1,250,000 settlement resolves claims brought under the False Claims Act in the case United States v. Rainy Day Holdings, LLC et al., Civil Action No. CV-15-5576, now pending before U.S. District Judge Joseph F. Bianco in Central Islip, New York. With this resolution, total settlements tied to the Rainy Day Foundation fraud now reach $2.399 million.

“This resolution demonstrates our Office’s vigorous pursuit of those who would abuse federal mortgage programs, whether they be companies or individuals,” said Robert L. Capers, U.S. Attorney for the Eastern District of New York. “The significant penalty and defendants’ admissions to wrongdoing help to restore the integrity of the FHA mortgage insurance program.” Capers credited HUD’s Office of the Inspector General, HUD’s Office of Program Enforcement, and the FDIC Office of the Inspector General for their critical investigative roles.

“This settlement is the latest example of our continued commitment to hold mortgage industry professionals accountable for their actions,” said Christina D. Scaringi, Special Agent in Charge of HUD OIG’s North East Region. FDIC Inspector General Jay N. Lerner added, “The civil penalties imposed today send a strong message that fraudulent practices like those committed by the principals of Franklin First will not be tolerated.” Assistant U.S. Attorneys Edward V. Boyd and Edward J. Glennon are handling the litigation for the government.