United States v. David Movtady; and Golden First Mortgage Corporation, Southern District of New York (Apr. 4, 2013) — Complaint

PREET BHARARA · 
United States Attorney for the 
Southern District 
of New York 
By: LARA K. ESHKENAZI 
LAWRENCE 
H. FOGELMAN 
Assistant United States Attorneys 
86 Chambers Street, Third Floor 
New York, 
New York 10007 
Telephone No. (212) 637-2800 
Facsimile No. (212) 637-2730 
Lara.Eshkenazi@usdoj .gov 
Lawrence.Fogelman@usdoj .gov 
UNITED STATES DISTRICT 
COURT 
SOUTHERN 
DISTRICT OF NEW YORK 
UNITED STATES OF AMERICA, 
Plaintiff, 
-against-
·DAVID 
MOVTADY and GOLDEN FIRST 
MORTGAGE 
CORP., 
Defendants. 
ECF Case 
Jury Trial Demanded 
The United States of America (the "Government"), by its attorney, Preet Bharara, United 
States Attorney for the Southern District 
ofNew York, brings this action against David Movtady 
("Movtady") and Golden First Mortgage Corporation ("Golden First"), alleging upon 
information and belief as follows: 
INTRODUCTION 
1. This is  a civil mortgage fraud lawsuit brought by the United States against 
Movtady and Golden First. Golden First, by and through its owner, president and operator 
Movtady, participated in a mortgage insurance program 
of the Federal Housing Administration 
("FHA") of the Department of Housing and Urban Development ("HUD") known as the Direct 
Endorsement Lender program. Golden First and Movtady systematically violated their 

underwriting and quality control obligations, costing the United States millions of dollars of 
losses on defaulted loans. The Government brings this action seeking damages and civil 
penalties under the False Claims Act, 
31 U.S.C. §§ 3729 et seq., the Financial Institutions 
Reform, Recovery, and Enforcement 
Act of 1989 ("FIRREA"), 12 U.S.C. §  1833a, and the 
common law. 
2. Golden First was a Direct Endorsement 
Lender from 1989 until 2010. The Direct 
Endorsement Lender program 
grants participating lenders the authority to endorse mortgages 
that are qualified for 
FHA insurance. Since joining the program, Golden First has endorsed 
thousands 
of FHA loans, resulting in nearly $707 million in principal obligations since 2002. 
3. Golden First has had extraordinarily high default rates over the past decade. 
More than 60% of Golden First's loans since 2002 have resulted in defaults. Its default rate 
climbed to over 75% in 2008. Moreover, its early payment default rate-the rate of mortgages 
that defaulted within six months after 
closing-climbed to more than 30% in 2008. In other 
words, borrowers defaulted shortly after closing 
on nearly one out of every three loans 
underwritten 
by Golden First in 2008. Indeed, of those loans that closed in 2008, approximately 
60% defaulted within one year. 
4. These defaults were 
not happenstance, but rather resulted from Movtady's and 
Golden First's intentionally fraudulent practices. Movtady signed and submitted to BUD a false 
annual certification in order to obtain and maintain Golden 
First's Direct Endorsement Lender 
status. Specifically, Movtady falsely represented that Golden First 
"conform[ed] to all HUD-
FHA regulations necessary to maintain its BUD-FHA approval," when in fact Movtady and 
Golden First failed to meet the following three basic FHA requirements for Direct Endorsement 
Lenders: 1) implementation 
of a quality control program independent ofthe lender's business 
2 

units; 2) notification to HUD within 60 days ofthe initial discovery of findings of fraud or other 
serious violations; and 3) review 
of all loans that went into default within the first six payments. 
5. Further, on a loan by loan basis, Golden First and Movtady repeatedly lied to 
HUD to obtain approval 
of mortgages through the Direct Endorsement Lender program that 
should never have been approved. These mortgages were not eligible for FHA insurance under 
HUD rules. Notwithstanding the mortgages' ineligibility, underwriters at Golden First endorsed 
the mortgages by falsely certifying that they had conducted the due diligence required by 
HUD 
rules when, in fact, they had not. By endorsing ineligible mortgages and falsely certifying 
compliance with 
HUD rules, Golden First wrongfully obtained approval of these ineligible 
mortgages for FHA insurance. 
6. Specifically, Golden First, and in some instances Movtady, falsely certified as to 
each particular loan that 
"this mortgage is  eligible for HUD mortgage insurance under the Direct 
Endorsement 
program." The Office of the Inspector General ofHUD ("HUD-OIG") reviewed a 
sample 
of26 loans from 2007 and 2008 and found material underwriting violations in all of 
them. Indeed, 22 out of the 26 loans reviewed contained false documentation, such as fabricated 
paystubs, employment verifications, W-2s, deposit verifications and escrow letters. Each loan 
had multiple violations 
of HUD guidelines and material underwriting deficiencies such as the 
failure to verify gift funds, analyze the borrower's credit, and verify the authenticity 
of faxed 
verifications 
of deposits and employment. 
7. FHA has paid more than $12 million in insurance claims on loans underwritten by 
Golden First since July 
2007. In addition, millions of dollars in defaulted loan obligations on 
loans underwritten by Golden First and Movtady have not yet been submitted 
as claims to HUD. 
3 

----------------
FHA will likely pay FHA insurance claims on a substantial number of these additional loans in 
the future. 
JURISDICTION AND VENUE 
8. This Court has jurisdiction pursuant to 31 U.S. C. § 3730(a), 28 U.S.C. §§ 1331 
and 
1345, and the Court's general equitable jurisdiction. 
9. Venue is  appropriate in this judicial district pursuant to 12 U.S.C. § 1833a, 31 
U.S.C. § 3732(a) and 28 U.S.C. §§ 1391 (b)(l) and (c) because Defendants transact significant 
business within this district. 
PARTIES 
10. Plaintiff is the United States of America. 
11. Defendant Golden First is a mortgage lender headquartered in New York and is 
owned and operated 
by Movtady. Golden First participated in HUD's Direct Endorsement 
Lending program from 1989 until 
201 0. Although Golden First appears to have stopped 
underwriting mortgages in 
2010, Golden First is currently listed as an active corporate entity in 
the New York Department 
of State Division of Corporations database. Since 2002, Golden First 
has originated thousands 
of loans with a total principal amount of approximately $707 million. 
12. Defendant Movtady has been the owner, president and operator of Golden First 
since 1979. He was responsible for certifying 
to HUDon an annual basis that Golden First 
"conform[ed] to all HUD-FHA regulations necessary to maintain its HUD-FHA approval." 
Movtady also underwrote individual loans and certified that those mortgages were eligible for 
HUD mortgage insurance. 
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FACTUAL BACKGROUND 
I. 
THE FHA MORTGAGE INSURANCE PROGRAM 
A. Background 
13. FHA, a part ofHUD, is the largest mortgage insurer in the world, insuring 
approximately one third 
of all new residential mortgages in the United States. Pursuant to the 
National Housing Act 
of 1934, FHA offers various mortgage insurance programs. Through 
these programs, FHA insures approved lenders 
("mortgagees") against losses on mortgage loans 
made 
to buyers of single-family housing. FHA mortgage insurance encourages lenders to make 
loans to creditworthy borrowers who nevertheless might not meet conventional underwriting 
requirements. Under HUD's mortgage insurance programs, 
if a homeowner defaults on a loan 
and the mortgage holder forecloses on the property, HUD will pay the mortgage holder the 
balance 
of the loan and assume ownership and possession of the property. HUD also incurs 
expenses in managing and marketing the foreclosed-upon property until it is resold. FHA 
mortgage insurance makes mortgage loans valuable in the secondary markets, 
as FHA loans are 
expected to have met HUD requirements and because they are secured by the full faith and credit 
of the United States. 
14. BUD's Direct Endorsement Lending program is  one of the FHA-insured 
mortgage programs. A Direct Endorsement Lender is  authorized 
to underwrite mortgage loans, 
decide whether the borrower represents an acceptable credit risk for HUD, and certify loans for 
FHA mortgage insurance without prior HUD review or approval. To qualify for FHA mortgage 
insurance, a mortgage must meet all 
of the applicable HUD requirements (e.g., income, credit 
history, valuation 
of property, etc.). 
15. HUD relies on the expertise and knowledge of Direct Endorsement Lenders in 
5 

providing FHA insurance and relies on their decisions. A Direct Endorsement Lender is 
therefore obligated to act with the utmost good faith, honesty, fairness, undivided loyalty, and 
fidelity 
in dealings with HUD. The duty of good faith also requires a Direct Endorsement 
Lender to make full and fair disclosures to HUD 
of all material facts and to take on the 
affirmative duty 
of employing reasonable care to avoid misleading HUD in all circumstances. 
16. A Direct Endorsement Lender is responsible for all aspects of the mortgage 
application, the property analysis, and the underwriting 
of the mortgage. The underwriter must 
"evaluate [each] mortgagor's credit characteristics, adequacy and stability of income to meet the 
periodic payments under the mortgage and all other obligations, and the adequacy of the 
mortgagor's available assets to close the transaction, and render an underwriting decision in 
accordance with applicable regulations, policies and 
procedures." 24 C.P.R. § 203.5(d). In 
addition, the underwriter must 
"have [each] property appraised in accordance with [the] 
standards and 
requirements" prescribed by HUD. 24 C.P.R. § 203.5(e). 
17. Mortgagees must employ underwriters who can detect warning signs that may 
indicate irregularities, as well as detect fraud; in addition, underwriting decisions must be 
performed with due diligence in a prudent manner. 
HUD Handbook 4000.4 REV -1, ~ 2-4(C)(5); 
see also HUD Handbook 4155.2 ~ 2.A.4.b. The lender must also maintain a compliant 
compensation system for its staff, an essential element 
of which is the prohibition on paying 
commissions to underwriters. 
HUD Handbook 4060.1 REV-2, ~ 2-9(A). 
B. 
Underwriting and Due Diligence Requirements 
18. HUD relies on Direct Endorsement Lenders to conduct due diligence on Direct 
Endorsement loans. 
The purposes of due diligence include: (1) determining a borrower's ability 
and willingness to repay a mortgage debt, thus limiting the probability of default and collection 
6 

difficulties, see 24 C.F.R. § 203.5(d), and (2) examining a property offered as security for the 
loan to determine 
if it provides sufficient collateral, see 24 C.F.R. § 203.5(e)(3). Due diligence 
thus requires an evaluation of, among other things, a borrower's credit history, capacity to pay, 
cash to close, and collateral. In all cases, a Direct Endorsement Lender owes HUD the duty, as 
prescribed by federal regulation, to 
"exercise the same level of care which it would exercise in 
obtaining and verifying information for a loan in which the mortgagee would be entirely 
dependent on the property as security to protect its 
investment." 24 C.F.R. § 203.5(c). 
19. HUD has set specific rules for due diligence predicated on sound underwriting 
principles. In particular, HUD requires Direct Endorsement Lenders to be familiar with, and to 
comply with, governing HUD Handbooks and Mortgagee Letters, which provide detailed 
processing instructions to Direct Endorsement Lenders. These materials specify the minimum 
due diligence with which Direct Endorsement Lenders must comply. 
20. With respect to ensuring that borrowers have sufficient credit, a Direct 
Endorsement Lender must comply with governing HUD Handbooks, such as HUD 4155.1, 
Mortgage Credit Analysis for Mortgage Insurance on One-to-Four-Family Properties, to 
evaluate a borrower's credit. The rules set forth in HUD 4155.1 exist to ensure that a Direct 
Endorsement Lender sufficiently evaluates whether a borrower has the ability and willingness to 
repay the mortgage debt. 
21. To properly evaluate a borrower's credit history, a Direct Endorsement Lender 
must, at a minimum, obtain and review credit histories; analyze debt obligations; reject 
documentation transmitted by unknown or interested parties; inspect documents for proof 
of 
authenticity; obtain adequate explanations for collections, judgments, recent debts and recent 
credit inquiries; establish income stability and make income projections; obtain explanations for 
7 

any gaps in employment; document any gift funds; calculate debt and income ratios and compare 
those ratios to the fixed ratios set 
by HUD rules; and consider and document any compensating 
factors permitting deviations from those fixed ratios. 
See id 
22. With respect to appraising the mortgaged property (i.e., collateral for the loan), a 
Direct Endorsement Lender must ensure that an appraisal and its related documentation satisfy 
the requirements in governing 
HUD Handbooks, such as HUD 4150.2, Valuation Analysis for 
Home Mortgage Insurance. The rules set forth in HUD 4150.2 exist to ensure that a Direct 
Endorsement Lender obtains an accurate appraisal that properly determines the value 
of the 
property for 
HUD's mortgage insurance purposes. 
C. Quality Control Prerequisites for Direct Endorsement Lenders 
23. Furthermore, to maintain HUD-FHA approval, a Direct Endorsement Lender 
must implement and maintain a quality control program continuously throughout its participation 
in the Direct Endorsement Lender program. HUD requires the quality control department to be 
independent 
of mortgage origination and servicing functions. See HUD Handbook 4060.1 REV-
1, ~ 6-3(B); HUD Handbook 4060.1 REV-2, ~ 7-3(B); HUD Handbook 4700.2 REV-1, ~ 6-l(A). 
To comply with 
HUD's quality control requirements, a lender's quality control program must 
(among other things): (a) review a prescribed sample 
of all closed loan files to ensure they were 
underwritten in accordance with 
HUD guidelines; and (b) conduct a full review of "all loans 
going into default within the first six 
payments," which HUD defines as "early payment 
defaults." HUD Handbook 4060.1 REV-1, ~~ 6-6(C), 6-6(D); HUD Handbook 4060.1 REV-2, 
~~ 7-6(C), 7-6(D); HUD Handbook 4700.2 REV-1, ~~ 6-l(B), 6-l(D). HUD has warned lenders 
that failure to comply with 
HUD's quality control requirements may result in the withdrawal of 
Direct Endorsement Lender status. 
8 

24. Under HUD's rules, a lender must report to HUD (along with the supporting 
documentation) "[s]erious deficiencies, patterns of non-compliance, or fraud uncovered by 
mortgagees" during the "normal course of business and by quality control staff during 
reviews/audits 
ofFHA loans" within 60 days ofthe initial discovery. HUD Handbook 4060.1 
REV-1, CHG-1, ~~ 6-13, 6-3(J); see also HUD Handbook 4060.1 REV-2, ~ 7-3(J) (requiring 
Direct Endorsement Lenders to 
"immediately" report findings of "fraud or other serious 
violations" affecting an FHA loan); HUD Handbook 4060.1 REV-2, ~ 2-23 ("Mortgagees are 
required to 
repmi to HUD any fraud, illegal acts, irregularities or unethical practices."). 
1 
Upon 
making such findings, the lender must also expand the scope of the quality control review both 
by increasing the number 
of files reviewed and conducting a more in-depth review of the 
selected files. 
25. 
Until2005, HUD's rules instructed Direct Endorsement Lenders to make the 
required self-reports 
of loans with serious deficiencies, patterns of noncompliance, or fraud in 
writing to HUD through the Quality Assurance Division 
of the HUD Homeownership Centers 
("HOCs") having jurisdiction. In May 2005, HUD issued Mortgagee Letter 2005-26, which 
notified lenders that going forward they would have to participate in electronic reporting through 
HUD's online Neighbo~hoocl'Watch system. That new method became mandatory at the end of 
November 2005, and required mortgagees "to report serious deficiencies, patterns of 
noncompliance, or suspected fraud, to HUD in a unifonn, automated fashion" and in lieu of 
written reports to the various individual HOCs. 
1 
Prior to November 2003, lenders were required to self-report to HUD loans affected by 
"significant discrepancies," such as "any violation of law or regulation, false statements or 
program abuses by the mortgagee, its employees, or any other party to the transaction." HUD 
Handbook 4060.1 REV -1, ~ 6-1 (H). 
9 

26. In addition to reporting loans affected by fraud or other serious violations to 
HUD, the lender is required to take corrective action in response to its findings. In particular, 
quality control review findings must 
"be reported to the mortgagee's senior management within 
one month 
of completion ofthe initial report" and "[m]anagement must take prompt action to 
deal appropriately with any material findings. The final report or an addendum must identify the 
actions being taken, the timetable for their completion, and any planned follow-up 
activities." 
HUD 
Handbook 4060.1 REV-2, 'U 7-3(1); see also HUD Handbook 4060.1 REV-1, 'U 6-3(I); 
HUD Handbook 4700.2 REV-1, 'U 6-l(F). Appropriate action by management includes 
following up with underwriters responsible for material findings to ensure that they are properly 
trained and diligently reviewing 
each file before endorsing it for FHA mortgage insurance. 
D. Direct Endorsement Lender Certifications 
1. Annual Certifications 
27. To obtain and maintain Direct Endorsement Lender status, a Direct Endorsement 
Lender must submit an 
mmual certification to HUD. 
28. The Direct Endorsement Lender must make the following annual certification, in 
sum and substance: 
I know or am in the position to know, whether the operations 
of the above 
named mortgagee conform to HUD-FHA regulations, handbooks, and 
policies. 
I certify that to the best of my knowledge, the above named 
mortgagee conforms to all HUD-FHA regulations necessary to maintain 
its HUD-FHA approval, and that the above-named mortgagee is  fully 
responsible for all actions 
of its employees including those of its HUD-
FHA approved branch offices. 
29. The 
mmual certification requires compliance with the basic eligibility 
requirements for Direct Endorsement Lenders, which include compliance with the mandatory 
HUD rules concerning quality control described above. 
10 

30. A truthful annual certification is a condition ofHUD's decision to insure loans 
originated 
by Direct Endorsement Lenders and to pay insurance claims submitted to HUD on 
such loans. 
2. Loan Application Certifications 
31. A Direct Endorsement Lender must also submit a certification to FHA for each 
loan for which it seeks FHA insurance 
("loan-level certifications"). 
32. A Direct Endorsement Lender may use an FHA-approved automated underwriting 
system to review loan applications. The automated underwriting system processes information 
entered by the Direct Endorsement Lender and rates loans as either an 
"accept"/"approve" or a 
"refer" I" caution." 
33. In cases where a Direct Endorsement Lender uses an FHA-approved automated 
underwriting system, and the system rates a loan as an "accept" or "approve," the Direct 
Endorsement Lender must make the following certification, in sum and substance: 
This mortgage was rated as an 
"accept" or "approve" by FHA's Total 
Mortgage Scorecard. As such, the undersigned representative 
of the 
mortgagee certifies to the integrity 
of the data supplied by the lender used 
to determine the quality 
of the loan, that Direct Endorsement Underwriter 
reviewed the 
appraisal (if applicable) and further certifies that this 
mortgage is eligible for HUD mortgage insurance under the Direct 
Endorsement program. I hereby make all certifications required by this 
mortgage as set forth in HUD Handbook 
4000.4. 
34. In cases where a Direct Endorsement Lender uses an FHA-approved automated 
underwriting system, and the system rates a loan as 
"refer" or "caution," or in cases where a 
Direct Endorsement Lender does not use an FHA-approved automated underwriting system, the 
underwriter must make the following certification, in sum and substance: 
This mortgage was rated as a 
"refer" or "caution" by FHA's Total 
Mortgage Scorecard, and/or was manually underwritten by a Direct 
11 

Endorsement underwriter. As such, the undersigned Direct Endorsement 
Underwriter certifies that I have personally reviewed the appraisal report 
(if applicable), credit application, and all associated documents and have 
used due diligence in underwriting this mortgage. I find that this 
mortgage is  eligible for HUD mortgage insurance under the Direct 
Endorsement program and I hereby make all certifications required for this 
mortgage 
as set forth in HUD Handbook 4000.4. 
35. The certifications in HUD Handbook 4000.4, incorporated by reference in the 
certifications above, include the certification that the mortgage complies with HUD underwriting 
requirements contained in all outstanding HUD Handbooks and Mortgagee Letters. 
36. Absent a truthful loan application certification, a Direct Endorsement Lender is 
not entitled to endorse a particular loan for FHA insurance. 
II. 
GOLDEN FIRST AND MOVTADY LIED ABOUT COMPLIANCE WITH HUD'S 
RULES AND REGULATIONS REGARDING QUALITY CONTROL TO 
MAINTAIN GOLDEN FIRST'S DIRECT ENDORSEMENT LENDER STATUS 
3 7. Golden First and Movtady failed to comply with HUD rules and regulations 
regarding required quality control procedures, even though those procedures were mandatory for 
Golden First's maintenance 
of its Direct Endorsement Lender status. Instead, Golden First and 
Movtady maintained Golden First's Direct Endorsement Lender status by making false 
representations 
to HUD about Golden First's purported compliance with HUD rules and 
regulations regarding quality control. In reality, Golden First's quality control procedures 
egregiously violated 
HUD rules and regulations. 
38. From 1989 through 
2010, Golden First was required to file annual certifications 
with HUD 
to obtain and maintain its Direct Endorsement Lender status. 
39. 
On September 15, 2008, for example, Movtady signed an annual certification 
stating: 
"I know, or am in the position to know, whether the operations of the above named 
12 

mortgagee conform to HUD-FHA regulations, handbooks, and policies. I certify that to the best 
of my knowledge, the above named mortgagee conforms to all HUD-FHA regulations necessary 
to maintain its HUD-FHA 
approval." 
40. 
Golden First and Movtady knew that Golden First did not have a quality control 
plan that conformed to 
HUD rules when Movtady signed the annual certification in 2008. 
Golden First and Movtady thus: (i) intentionally lied to HUD, (ii) consciously avoided learning 
whether the certification was true or false, (iii) recklessly disregarded whether the certification 
was true or false; and/or (iv) were negligent in determining whether the certification was true or 
false. 
41. Contrary to the representations required to be made in annual certifications 
necessary 
to maintaining Golden First's Direct Endorsement Lender status, such as 'the 
certification signed by Movtady in 2008, Golden First and Movtady failed to implement and 
maintain basic quality control requirements. Golden First and Movtady's quality control 
violations were not technical or innocent, but knowing, material, and substantial. 
42. In order to obtain and maintain Direct Endorsement Lender status, a lender is 
required 
to continuously implement a quality control program that is independent of its business 
operations. Independence ensures that the quality control department brings its own judgment to 
bear in assessing the validity 
of loans previously made, without pressure to make the facts look 
rosier than the reality and without concern for meeting a targeted volume 
of business. 
43. 
Since at least 2002, Golden First failed to maintain a quality control program 
independent 
of its operations. To the contrary, Movtady and Golden First's business personnel 
systematically interfered with the quality control process by pressuring all employees 
of Golden 
First to increase production at the expense 
of quality control. 
13 

44. During certain periods oftime from 2002 unti12010, Golden First and Movtady 
failed to have any employees assigned to conduct quality control. In addition, even when 
Golden First did assign a small number 
of employees to conduct quality control, those 
employees consistently failed 
to promptly review and report to HUD findings of fraud and other 
serious violations, despite a HUD requirement that all such findings be reported within 
60 days. 
45. A HUD audit conducted in 
2005 examined loans dating back to 2002 and found 
material deficiencies in multiple loans stemming from Golden First's failure to have adequate 
controls to ensure that loans were processed in a manner consistent with 
HUD's requirements. 
HUD made two significant findings. First, HUD concluded that Golden First had improperly 
approved loans in 
2002 and 2003 that did not qualify for FHA insurance. HUD found that "these 
deficiencies occurred because Golden First did not follow HUD regulations in the verification of 
the borrower's employment and/or sources of funds for the loans." Second, HUD concluded that 
Golden First had not implemented a quality control plan in accordance with HUD's 
requirements. Specifically, the HUD audit found, among other things, that Golden First did not 
ensure that: 
(1) loans defaulting within the first six months were reviewed, (2) quality control 
reviews were conducted in a timely manner, and (3) management responses and planned 
corrective action were adequately documented. 
46. Movtady responded to HUD's audit 
in 2005 as follows: "We changed our policy 
of conducting Quality Control in house to outsourcing Quality Control functions and providing 
an 
'in house' Quality Control department to act as a liaison between our firm and the Quality 
Control 
company." 
47. Although Golden First did retain Magnet Portfolio Services ("Magnet") to 
perform a quality control review, Golden First continued to approve loans that did not meet 
HUD 
14 

requirements, and failed to take any corrective action in response to quality control summaries 
from Magnet. 
48. Magnet advised Golden First in 
2007 and 2008, for example, of loans that it 
randomly selected to audit that did 
"not meet guidelines. Significant deviations from the 
guidelines were noted, with no apparent compensating factors to offset the overall 
risk." 
49. But even when Magnet identified loans with material deficiencies, quality control 
took a back seat to closing and selling loans. Golden First did not conduct any investigation or 
take any corrective action 
to address the significant problems in the loans identified by Magnet 
on loans that had already been sold. Moreover, in violation 
of HUD regulations, Golden First 
failed 
to self-report these loans to HUD. Indeed, Golden First never reported a single loan to 
HUD despite the serious deviations from the guidelines identified by Magnet. 
50. Forexample, Magnet graded at least 25 loans that closed between September 19, 
2007, and August 18, 2008, as having "significant deviations from the guidelines." Yet Golden 
First and Movtady nevertheless failed 
to report these bad loans to HUD. HUD paid more than a 
million dollars in claims and thousands 
of dollars for loss mitigation on just these 25 loans. 
51. In 
2008, with a continuing lack of a compliant quality control process in place at 
Golden First, the loan origination process emphasized speed and volume, sacrificed quality, and 
created an atmosphere 
of fraud and sloppy underwriting. Underwriters were pressured to cut 
corners 
to keep up production. Three employees of Golden First were closing about 100-200 
loans per month-a rate that made it impossible to conduct adequate due diligence on each 
loan. 
52. Moreover, it was common practice for loan officers to pay Golden First 
employees hundreds 
of dollars in kickbacks to speed up the approval of loans. At least one 
15 

underwriter at Golden First accepted money to selectively speed up the approval of certain loans. 
That same underwriter barely reviewed loan applications, spending approximately 
20 minutes to 
fully 
"underwrite" each loan and certify it for FHA insurance. 
53. From 
2008 to 2009, HUD's Quality Assurance Division conducted multiple 
reviews 
of Golden First mortgages and found numerous material violations ofHUD underwriting 
guidelines, including falsified documents, further demonstrating that there was no compliant 
quality control process in place. 
54. Notwithstanding these findings by 
HUD, Golden First did not report a single 
mortgage to HUD that it had underwritten under the Direct Endorsement Lender program. That 
Golden First's and Movtady's failure to report even a single mortgage to HUD was intentional is 
supported by its default rate 
of more than 75% in 2008 alone, and by HUD's findings in an audit 
ofloans from 2007 and 2008 of false documentation in 22 ofthe 26 files reviewed, including of 
paystubs, employment verifications, W-2s, deposit verifications, and escrow letters. 
55. Golden First also continued to fail to review all early payment defaults as 
mandated by 
HUD rules, even after HUD specifically noted this failure during the 2005 audit. 
Nor did Golden First have a system in place to review all such defaults. Magnet did not conduct 
reviews 
of all of Golden First loans resulting in early payment defaults, nor did Golden First 
charge Magnet with this task. Rather, Magnet periodically provided a review 
of randomly 
selected loans. Thus, from 
2002 through 2010, when it ceased operations, Golden First failed to 
comply with 
FHA's quality control requirement that it fully review each and every early 
payment default. 
56. In light 
of these material defects in Golden First's quality control program, 
Golden First and Movtady could not truthfully complete the annual certifications required to be 
16 

submitted to HUD to maintain Golden First's Direct Endorsement Lender status. For example, 
the annual certification signed by Movtady on behalf 
of Golden First in 2008 attesting to 
compliance with 
HUD's requirements for the fiscal year July 30, 2007, through July 30, 2008, 
for FHA approval was patently false. Without submission of this annual certification, Golden 
First would not have been able to continue to participate in the Direct Endorsement Lender 
program. 
HI. GOLDEN FIRST AND MOVTADY ABUSED GOLDEN FIRST'S DIRECT 
ENDORSEMENT LENDER STATUS TO ENDORSE 
MORTGAGES INELIGIBLE FOR FHA INSURANCE 
57. Golden First and Movtady abused the company's Direct Endorsement Lender 
status through the false statements 
of Golden First and Movtady regarding individual loans. In 
particular, as a Direct Endorsement Lender, Golden First regularly violated HUD rules, prudent 
underwriting practices, and Golden First's duties to HUD, by failing to conduct due diligence on 
mortgages that it reviewed and approved for FHA insurance, including mortgages underwritten 
by Movtady. Despite its repeated violations 
of HUD rules, Golden First, through its 
underwriters, falsely certified, on a loan-by-loan basis, that it had complied with 
HUD rules and 
that the mortgages it endorsed were eligible for FHA insurance under 
HUD rules. Movtady 
personally underwrote a number 
of loans on behalf of Golden First, and accordingly signed some 
of the false loan-level certifications. IfHUD had known that Golden First's mortgage eligibility 
certifications were false, HUD would not have permitted Golden First to endorse those loans for 
FHA insurance. 
58. For each mortgage, Golden First certified that it  complied with all 
HUD rules, 
including 
HUD rules requiring due diligence. Movtady signed these certifications with regard to 
certain loans. For example, one 
of the individual loan certifications signed by Movtady 
17 

specifically stated: "the undersigned Direct Endorsement underwriter certifies that I have 
personally reviewed the appraisal report 
... , credit application, and all associated documents and 
have used due diligence in underwriting this mortgage 
.... [T]his mortgage is  eligible for HUD 
mortgage insurance under the Direct Endorsement program and I hereby make all certifications 
required for this mortgage as set forth in HUD Handbook 
4000.4." 
59. Contrary to the certifications appearing on each mortgage endorsed by Golden 
First, Golden First and Movtady engaged in a pattern 
of failing to conduct due diligence in 
accordance with HUD rules and with sound and prudent underwriting principles. 
60. Violations ofHUD's underwriting and due-diligence requirements included a 
failure to verify the applicant's employment, the approval ofloans with unacceptable debt-to-
income ratios without compensating factors, inadequate documentation 
of assets and gift funds, 
and a failure to identify fabricated and falsified income and asset documentation. This pattern 
of 
false certifications is illustrated by the examples below. These examples were not isolated 
events, but rather provide a representative sample 
of Golden First and Movtady's fraudulent 
practices. 
A. Catherine Avenue Property 
61. FHA case number 061-2891167 involves a mortgage for a property on Catherine 
Avenue in Waterbury, Connecticut (the 
"Catherine Avenue Property"). Movtady falsely 
certified that the loan complied with 
HUD due diligence rules. In fact, this loan violated many 
HUD rules within HUD 4155.1, including: 
1) the file lacked verification of rent, 2) the file 
contained documents that were faxed from an interested third party, 3) the file lacked 
documentation 
of purported gift funds, and 4) the file lacked verification of a source of a large 
deposit involved in this transaction. Nevertheless, Golden First through David Movtady 
18 

underwrote this mortgage, reviewed and approved it for FHA insurance, and certified that due 
diligence had been conducted on the mortgage application. The mortgage closed on or about 
October 
10, 2005. 
62. One of the multiple HUD rules violated by Golden First and Movtady in 
approving the Catherine Avenue Property application was 
HUD 4155.1, Ch. 2, § 1 O(C). That 
rule provides that, in order to ensure that gift funds are not provided by a party to the sales 
transaction, the Direct Endorsement Lender must document gift funds with a gift letter, signed by 
the borrower, that specifies the amount 
of the gift and states that no repayment is  required, and 
the Direct Endorsement Lender must document the transfer 
of the funds from the donor to the 
borrower. Contrary to this rule, Golden First and Movtady failed to adequately document the 
source and transfer 
ofthe gift funds. In violating HUD 4155.1, Ch. 2, § 10(C), Golden First and 
Movtady endorsed the application for the Catherine A venue Property without proof that the 
borrower closed with gift funds from a proper source rather than from, for instance, the seller. 
63. Golden First and Movtady likewise violated HUD 4155.1, Ch. 2, 
§ 1 O(B) with 
regard to this loan. That rule requires that: 
"A verification of deposit (VOD), along with the 
most recent bank statement, may be used to verify savings and checking accounts. 
If there is  a 
large increase in an account, or the account was opened recently, the lender must obtain a 
credible explanation 
of the source ofthose funds." The borrower's checking account transaction 
journal shows a 
$10,000 deposit-but Movtady, the underwriter, did not obtain a credible 
explanation for the source 
of those funds. 
64. Golden First's and Movtady's false certification on the application for the 
Catherine Avenue Property loan was material and bore upon the likelihood that the borrower 
would make mortgage payments. 
19 

65. The loan first went into default on March 1, 2007. 
66. As a result, HUD paid an FHA insurance claim on or about April 5, 2009 of 
$248,565.00 plus costs. 
B. Mountain View Drive Property 
67. FHA case number 061-2891150 involves a mortgage for a property on Mountain 
View Drive in East Hartford, Connecticut (the "Mountain View Drive Property"). Movtady on 
behalf of Golden First und~rwrote the mortgage, reviewed and approved it for FHA insurance, 
and falsely certified that the loan complied with 
HUD due diligence rules. The mortgage closed 
on or about September 2, 2005. 
68. Contrary to Movtady's certification, Golden First and Movtady did not comply 
with 
HUD rules in reviewing and approving the application for the Mountain View Drive 
Property and FHA insurance on the property. Instead, Gold~n First and Movtady violated 
multiple HUD rules, including HUD 4155.1, Ch. 2, § 
3 (Band C), HUD 4155.1, Ch. 2, § 
4(C)(5), and HUD 4155.1, Ch. 2, 
§ 12(B). 
69. HUD 4155.1, Ch. 2, §  12(B) requires Direct Endorsement Lenders to determine 
if 
the total of the mortgage payment and all recurring charges exceeds 41 percent of the gross 
effective income. A ratio exceeding 
41 percent may be acceptable only if"significant 
compensating factors" are documented and are recorded on the mortgage credit analysis 
worksheet. HUD 4155.1, Ch. 2, 
§ 12(B). The ratios with regard to this application exceeded the 
ratios set by HUD guidelines. Golden First and Movtady, however, failed to indicate that any 
compensating factors, much less 
"significant compensating factors," supported approval ofthe 
loan application. In violating HUD 4155.1, Ch. 2, §  12(B), Golden First and Movtady had every 
reason to believe that the approved loan would default. 
20 

70. Golden First's and Movtady's false certification on the application for the 
Mountain 
View Drive Property was material and bore upon the likelihood that the borrower 
would make mortgage payments. 
71. The loan first went into default on 
October 1, 2007. 
72. As a result, HUD paid loss mitigation claims on October 1, 2010 and February 7, 
2011 totaling $176,766.00 plus costs. 
C. Wyona Street Property 
73. FHA case number 374-4637348 involves a mortgage for a property on Wyona 
Street in Brooklyn, New York (the 
"Wyona Property"). Movtady and another Golden First 
employee served 
as the underwriters on this loan that contained multiple deficiencies. Movtady 
on behalf 
of Golden First underwrote the mortgage, reviewed and approved it for FHA 
insurance, and falsely certified that the loan complied with 
HUD due diligence rules. The 
mortgage closed on or about September 
19,2007. 
74. Deficiencies in the underwriting included, among other things, the failure to 
verify and document 
$15,600 in cash reserves required for the purchase of the property, the 
failure to verify and adequately document 
$16,000 in gift funds, and the failure to adequately 
analyze the borrower's credit. HUD 4155.1. 
75. These failures were material and bore upon the likelihood that the borrower would 
make mortgage payments. 
76. The loan first went into default on July 
1, 2008. 
77. As a result, HUD has paid an FHA insurance claim of$343,993.00 plus costs. 
21 

D. North Long Beach Avenue Property 
78. FHA case number 374-4648725 involves a mortgage for a property on North 
Long Beach Avenue in Freeport, 
New York (the "North Long Beach Avenue Property"). 
Movtady served as the underwriter on this loan that contained multiple deficiencies. Movtady on 
behalf 
of Golden First underwrote the mortgage, reviewed and approved it for FHA insurance, 
and falsely certified that the loan complied with HUD due diligence rules. The mortgage closed 
on or about October 
3, 2007. 
79. Deficiencies in the underwriting included an improper calculation of the 
borrower's monthly income, failure to adequately evaluate the borrower's previous mortgage 
payment history, and failure to explain adequately the borrower's previous late payments. 
HUD 
4155.1. 
80. These failures were material and bore upon the likelihood that the borrower would 
make mortgage payments. 
81. The loan first went into default on April 
1, 2008. 
82. As a result, HUD has paid a loss mitigation claim of$875.00 on this loan, and 
HUD faces additional exposure of over $200,000 on the loan. 
E. East 53rd Street Property 
83. FHA case number 374-4685938 involves a mortgage for a property on East 53rd 
Street in Brooklyn, New 
York (the "East 53rd Street Prope1iy"). The loan contained multiple 
deficiencies. An underwriter employed by Golden First underwrote the mortgage, reviewed and 
approved it for FHA insurance, and falsely certified that the loan complied with 
HUD due 
diligence rules. The mortgage closed on or about January 9, 
2008. 
22 

84. Deficiencies in the underwriting included, among others, an inadequate 
verification 
of cash reserves, an invalid gift of equity, inconsistent statements regarding the gift, 
and a failure to verity the authenticity 
of faxed employment documents. HUD 4155.1. 
85. These failures were material and bore upon the likelihood that the borrower would 
make mortgage payments. 
86. The loan first went into default on December 1, 2008. 
87. As a result, HUD has paid an FHA insurance claim of$ 226,656.00 plus costs. 
F. 
Grace Avenue Property 
88. FHA case number 374-4680585 involves a mortgage for a property on Grace 
Avenue in Bronx, New 
York (the "Grace Avenue Property"). The loan contained multiple 
deficiencies. 
An underwriter employed by Golden First underwrote the mortgage, reviewed and 
approved it for FHA insurance, and falsely certified that the loan complied with HUD due 
diligence rules. The mortgage closed on or about January 
9, 2008. The mortgage closed on or 
about January 
3, 2008. 
89. Deficiencies in the underwriting included, among others, failure to verify the 
authenticity 
of faxed employment documents, failure to adequately evaluate the borrower's 
previous mortgage payment history, and failing to explain adequately the borrower's previous 
late payments. HUD 4155.1. 
90. These failures were material and bore upon the likelihood that the borrower would 
make mortgage payments. 
91. The loan first went into default on May 
1, 2008. 
23 

92. As a result, HUD has paid a loss mitigation claim of $875.00 on this loan, and 
HUD faces additional exposure of over $250,000 on the loan. 
IV. THE FALSE ANNUAL AND LOAN-LEVEL CERTIFICATIONS BY GOLDEN 
FIRST AND MOVT ADY HAVE CAUSED HUD TO PAY MILLIONS OF 
DOLLARS IN INSURANCE CLAIMS THUS FAR 
93. The false certifications and representations both on annual basis and on individual 
loans by Golden First and Movtady regarding purported compliance with 
HUD underwriting 
requirements permitted Golden First to close nearly 1,512loans with FHA insurance since July 
30, 2007. HUD would not have made a financial commitment to pay such mortgage insurance 
claims absent Golden First's and Movtady's false certifications. 
94. Had Golden First and Movtady not submitted a false annual certification in 
2008, 
Golden First would not have been able to maintain its Direct Endorsement Lender status and 
continue endorsing loans for FHA insurance. 
95. Golden First's and Movtady's false loan-level certifications, as illustrated in the 
examples set forth in the previous section 
of this Complaint, were material and bore upon the 
likelihood that borrowers would make mortgage payments. 
96. Golden First and Movtady knew that the certifications 
of compliance with HUD 
rules were false, and thus acted intentionally, knowingly, recklessly and/or negligently in 
executing and submitting the false certifications 
to HUD. 
97. In addition, Golden First's and Movtady's false certifications, as well as their 
failure 
to conduct due diligence in accordance with HUD rules, violated their duty of care to 
HUD. 
24 

98. As of June 1, 2012, HUD has paid $12,379,186 in claims and approximately 
$583,000 in loss mitigation payments for loans closed since July 30, 2007. 
99. Further, HUD may potentially pay millions of dollars on defaulted loans that have 
not yet been submitted 
as claims to HUD. Many ofthose future claims will arise out of FHA 
mortgage insurance provided by HUD based on Golden First and Movtady's false certifications 
of due diligence. 
100. The costs relating to FHA insurance claims paid by HUD to date and the costs 
relating to FHA insurance claims expected to be paid 
by HUD are the direct result of Golden 
First's and Movtady's false annual and loan-level certifications. 
FIRST CLAIM 
Violations of the False Claims Act 
(31 U.S.C. § 3729(a)(1) (2006), and, as amended, 31 U.S.C. § 3729(a)(l)(A)) 
Causing False Claims 
101. The Government incorporates by reference each ofthe preceding paragraphs as if 
fully set forth in this paragraph. 
102. The Government seeks relief against Golden First and Movtady under Section 
3729(a)(l) 
ofthe False Claims Act, 31 U.S.C. § 3729(a)(1) (2006), and, as amended, Section 
3729(a)(l)(A) 
ofthe False Claims Act, 31 U.S.C. § 3729(a)(l)(A). 
103. As set forth above, Golden First and Movtady knowingly, or acting with 
deliberate ignorance and/or with reckless disregard for the truth, presented and/or caused to be 
presented, to an officer or employee 
of the Government, false and fraudulent claims for payment 
or approval in connection with its endorsement ofFHA-insured mortgages, by: 
25 

a. Submitting a false annual certification and making false representations to 
HUD with respect to Golden First's qualifications for Direct Endorsement 
Lender status; and/or 
b. Submitting false loan-level certifications to HUD in endorsing mortgages 
for FHA insurance. 
104. The Government paid insurance claims, and incurred losses, relating to FHA-
insured mortgages wrongfully endorsed by Golden First because 
of Golden First's and 
Movtady's wrongful conduct. 
105. By reason ofthe false claims of Golden First and Movtady, the Govemment has 
been damaged 
in a substantial amount, and is entitled to treble damages of at least $38,887,470 
and civil penalties in the amount 
of at least $5,269,000. 
SECOND CLAIM 
Violations of the False Claims Act 
(31 U.S.C. § 3729(a)(2) (2006), and, as amended, 31 U.S.C. § 3729(a)(l)(B)) 
Use 
of False Statements 
106. The Govemment incorporates by reference paragraphs 1 through 100 as if fully 
set forth in this paragraph. 
107. The Government seeks relief against Golden First and Movtady under Section 
3729(a)(2) 
ofthe False Claims Act, 31 U.S.C. § 3729(a)(1) (2006), and, as amended, Section 
3729(a)(l)(B) ofthe False Claims Act, 31 U.S.C. § 3729(a)(1)(B). 
108. As set forth above, Golden First and Movtady knowingly, or acting in deliberate 
ignorance and/or with reckless disregard 
of the truth, made, used, or caused to be made or used, 
false records and/or statements material to false or fraudulent claims in connection with Golden 
26 

First's maintenance of its Direct Endorsement Lender status and/or Golden First's endorsement 
of FHA-insured mortgages. 
109. The Government paid insurance claims, and incurred losses, relating to FHA-
insured mortgages wrongfully endorsed by Golden First because 
of Golden First's and 
Movtady's wrongful conduct. 
110. By reason ofthe false records and/or statements of Golden First and Movtady, the 
Government has been damaged in a substantial amount, and is entitled to treble damages 
of at 
least $38,887,470 and civil penalties in the amount 
of at  least $5,269,000 
THIRD CLAIM 
Violations of FIRREA 
(12 U.S.C. § 1833a) 
False Certifications to 
HUD 
111. The Government incorporates by reference paragraphs 1 through 100, as if fully 
set forth in this paragraph. 
112. Golden First and Movtady submitted, and caused to be submitted, false loan-level 
certifications, and false statements to 
HUD, in violation of 18 U.S.C. §§ 1005
2 
& 1014 (as 
amended), 
3 
with the intent to defraud or deceive HUD into endorsing loans that were ineligible 
for FHA insurance, and 
to defraud or deceive FHA into paying insurance claims for loans that 
were not eligible for FHA insurance. 
2 
Golden First's and Movtady's violations of the fourth paragraph of 18 U.S.C. § 1005 provide 
the basis for the Government's allegations ofFIRRBA violations based upon that predicate 
statute. 
3 
With respect to Golden First's and Movtady's violations of 18 U.S.C. § 1014, the Government 
only asserts claims based upon false statements and records made after July 
30, 2008. 
27 

113. Golden First and Movtady submitted and caused to be submitted a false annual 
certification, signed on or about September 15, 2008, and false statements to HUD, in violation 
of 18 U.S.C. §§ 1005 & 1014 (as amended), with the intent to defraud or deceive HUD into 
continuing to allow Golden First to remain a Direct Endorsement Lender and to endorse loans 
that were ineligible for FHA insurance, and to defraud or deceive FHA into paying insurance 
claims for loans that were not eligible for FHA insurance. 
114. Accordingly, Golden First and Movtady are liable for civil penalties to the 
maximum amount authorized under 
12 U.S.C. § 1833a. 
FOURTH CLAIM 
Gross Negligence 
115. The Government incorporates by reference paragraphs 1 through 100 as iffully 
set forth in this paragraph. 
116. Golden First and Movtady owed the Government a duty of reasonable care and a 
duty to conduct due diligence. 
117. As set forth above, Golden First and Movtady breached their duties to the 
Government. 
118. As set forth above, Golden First and Movtady recklessly disregarded their duties 
to the Government. 
119. As a result 
of the gross negligence of Golden First and Movtady, the Government 
has paid insurance claims, and incurred losses, relating to FHA-insured mortgages endorsed by 
Golden First. 
28 

120. As a result of the gross negligence of Golden First and Movtady, the Government 
will pay future insurance claims, and incur future losses, relating to FHA-insured mortgages 
endorsed by Golden First. 
121. By 
vhiue ofthe above, the Government is entitled to compensatory and punitive 
damages, in an amount to be determined at trial. 
FIFTH CLAIM 
Negligence 
122. The Government incorporates by reference paragraphs 1 through 1 00 as if fully 
set forth in this paragraph. 
123. Golden First and Movtady owed the Government a duty 
of reasonable care and a 
duty to conduct due diligence. 
124. As set forth above, Golden First and Movtady breached their duties to the 
Government. 
125. As a result 
of the negligence of Golden First and Movtady, the Government has 
paid insurance claims, and incurred losses, relating to FHA-insured mortgages endorsed by 
Golden First. 
126. As a result of the negligence of Golden First and Movtady, the Government will 
pay future insurance claims, and incur future losses, relating to FHA-insured mortgages endorsed 
by Golden First. 
127. By virtue 
of the above, the Government is  entitled to compensatory damages, in 
an amount 
to be determined at trial. 
29 

SIXTH CLAIM 
Breach of Fiduciary Duty 
128. The Government incorporates by reference paragraphs 1 through 100 as iffully 
set forth in this paragraph. 
129. Golden First and Movtady were fiduciaries 
of the Government, and owed the 
Government fiduciary duties. 
130. As fiduciaries, Golden First and Movtady had a duty to act for, and give advice to, 
the Government for the benefit 
of the Government as to whether mortgages should be insured by 
FHA under the Direct Endorsement Lender program. 
131. As fiduciaries, Golden First and Movtady had the obligation to act in the utmost 
good faith, candor, honesty, integrity, fairness, undivided loyalty, and fidelity in their dealings 
with the Government. 
132. As fiduciaries, Golden First and Movtady had a duty to refrain from taking 
advantage 
of the Government by misrepresentations, to make full and fair disclosures to the 
Government 
of all material facts, and to take on the affirmative duty of employing reasonable 
care to avoid misleading the Government. 
133. As fiduciaries, Golden First and Movtady had a duty to exercise sound judgment, 
prudence, and due diligence on behalf 
of the Government in endorsing mortgages for FHA 
msurance. 
134. As set forth above, Golden First and Movtady breached their fiduciary duties 
to 
the Government. 
30 

135. As a result of the breach of the fiduciary duties of Golden First and Movtady to 
the Government, the Government has paid insurance claims, and incurred losses, relating to 
FHA-insured mortgages endorsed by Golden First. 
136. As a result 
of the breach of the fiduciary duties of Golden First and Movtady to 
the Government, the Government 
will pay future insurance claims, and incur future losses, 
relating to FHA-insured mortgages endorsed by Golden First. 
137. By virtue 
ofthe above, the Government is  entitled to compensatory damages, in 
an amount to be determined at trial. 
31 

WHEREFORE, the Government respectfully requests that judgment be entered in its 
favor and against Golden First and Movtady 
as follows: 
a. On Counts One and Two (FCA), a judgment against Golden First and 
Movtady for treble damages and civil penalties to the maximum amount 
allowed 
by law; 
b. On Count Three (FIRREA), a judgment against Golden First and Movtady 
imposing civil penalties up to the maximum amount allowed by law; 
c. On Counts Four (Gross Negligence), Five (Negligence) and Six (Breach 
of Fiduciary Duty), a judgment against Golden First and Movtady for 
compensatory damages in an amount to be determined at trial; 
d. For an award of costs pursuant to 31 U.S.C. § 3729(a); and 
e. For an award of any such further relief as is  proper. 
Dated: New York, New York 
April 4, 2013 
By: 
PREET BHARARA 
United States Attorney for the 
Southern District 
ofNew York 
Attorney for the United States 
;J ~·r: -
(.::;( ;?--'~/\.. h (~e.:~ " 
LARA K. ESHKENAZI 
LAWRENCE 
H. FOGELMAN 
Assistant United States Attorneys 
86 Chambers Street, Third Floor 
New York, New York 1 
0007 
Telephone No. (212) 637-2800 
Facsimile No. (212) 637-2730 
Lara.Eshkenazi@usdoj .gov 
Lawrence.Fogelman@usdoj .gov 
32 

PREET BHARARA · 
United States Attorney for the 
Southern District of New York 
By: LARA K. ESHKENAZI 

LAWRENCE H. FOGELMAN 
Assistant United States Attorneys 
86 Chambers Street, Third Floor 
New York, New York 10007 
Telephone No. (212) 637-2800 
Facsimile No. (212) 637-2730 
Lara.Eshkenazi@usdoj .gov 
Lawrence.Fogelman@usdoj .gov 

UNITED STATES DISTRICT COURT 
SOUTHERN DISTRICT OF NEW YORK 

UNITED STATES OF AMERICA, 

Plaintiff, 

-against-

·DAVID MOVTADY and GOLDEN FIRST 
MORTGAGE CORP., 

Defendants. 

ECF Case 

Jury Trial Demanded 

The United States of America (the "Government"), by its attorney, Preet Bharara, United 

States Attorney for the Southern District ofNew York, brings this action against David Movtady 

("Movtady") and Golden First Mortgage Corporation ("Golden First"), alleging upon 

information and belief as follows: 

INTRODUCTION 

1. This is a civil mortgage fraud lawsuit brought by the United States against 

Movtady and Golden First. Golden First, by and through its owner, president and operator 

Movtady, participated in a mortgage insurance program of the Federal Housing Administration 

("FHA") of the Department of Housing and Urban Development ("HUD") known as the Direct 

Endorsement Lender program. Golden First and Movtady systematically violated their 



underwriting and quality control obligations, costing the United States millions of dollars of 

losses on defaulted loans. The Government brings this action seeking damages and civil 

penalties under the False Claims Act, 31 U.S.C. §§ 3729 et seq., the Financial Institutions 

Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), 12 U.S.C. § 1833a, and the 

common law. 

2. Golden First was a Direct Endorsement Lender from 1989 until 2010. The Direct 

Endorsement Lender program grants participating lenders the authority to endorse mortgages 

that are qualified for FHA insurance. Since joining the program, Golden First has endorsed 

thousands of FHA loans, resulting in nearly $707 million in principal obligations since 2002. 

3. Golden First has had extraordinarily high default rates over the past decade. 

More than 60% of Golden First's loans since 2002 have resulted in defaults. Its default rate 

climbed to over 75% in 2008. Moreover, its early payment default rate- the rate of mortgages 

that defaulted within six months after closing- climbed to more than 30% in 2008. In other 

words, borrowers defaulted shortly after closing on nearly one out of every three loans 

underwritten by Golden First in 2008. Indeed, of those loans that closed in 2008, approximately 

60% defaulted within one year. 

4. These defaults were not happenstance, but rather resulted from Movtady's and 

Golden First's intentionally fraudulent practices. Movtady signed and submitted to BUD a false 

annual certification in order to obtain and maintain Golden First's Direct Endorsement Lender 

status. Specifically, Movtady falsely represented that Golden First "conform[ed] to all HUD­

FHA regulations necessary to maintain its BUD-FHA approval," when in fact Movtady and 

Golden First failed to meet the following three basic FHA requirements for Direct Endorsement 

Lenders: 1) implementation of a quality control program independent ofthe lender's business 

2 



units; 2) notification to HUD within 60 days ofthe initial discovery of findings of fraud or other 

serious violations; and 3) review of all loans that went into default within the first six payments. 

5. Further, on a loan by loan basis, Golden First and Movtady repeatedly lied to 

HUD to obtain approval of mortgages through the Direct Endorsement Lender program that 

should never have been approved. These mortgages were not eligible for FHA insurance under 

HUD rules. Notwithstanding the mortgages' ineligibility, underwriters at Golden First endorsed 

the mortgages by falsely certifying that they had conducted the due diligence required by HUD 

rules when, in fact, they had not. By endorsing ineligible mortgages and falsely certifying 

compliance with HUD rules, Golden First wrongfully obtained approval of these ineligible 

mortgages for FHA insurance. 

6. Specifically, Golden First, and in some instances Movtady, falsely certified as to 

each particular loan that "this mortgage is eligible for HUD mortgage insurance under the Direct 

Endorsement program." The Office of the Inspector General ofHUD ("HUD-OIG") reviewed a 

sample of26 loans from 2007 and 2008 and found material underwriting violations in all of 

them. Indeed, 22 out of the 26 loans reviewed contained false documentation, such as fabricated 

paystubs, employment verifications, W-2s, deposit verifications and escrow letters. Each loan 

had multiple violations of HUD guidelines and material underwriting deficiencies such as the 

failure to verify gift funds, analyze the borrower's credit, and verify the authenticity of faxed 

verifications of deposits and employment. 

7. FHA has paid more than $12 million in insurance claims on loans underwritten by 

Golden First since July 2007. In addition, millions of dollars in defaulted loan obligations on 

loans underwritten by Golden First and Movtady have not yet been submitted as claims to HUD. 

3 



----------------

FHA will likely pay FHA insurance claims on a substantial number of these additional loans in 

the future. 

JURISDICTION AND VENUE 

8. This Court has jurisdiction pursuant to 31 U.S. C. § 3730(a), 28 U.S.C. §§ 1331 

and 1345, and the Court's general equitable jurisdiction. 

9. Venue is appropriate in this judicial district pursuant to 12 U.S.C. § 1833a, 31 

U.S.C. § 3732(a) and 28 U.S.C. §§ 1391 (b)(l) and (c) because Defendants transact significant 

business within this district. 

PARTIES 

10. Plaintiff is the United States of America. 

11. Defendant Golden First is a mortgage lender headquartered in New York and is 

owned and operated by Movtady. Golden First participated in HUD's Direct Endorsement 

Lending program from 1989 until 201 0. Although Golden First appears to have stopped 

underwriting mortgages in 2010, Golden First is currently listed as an active corporate entity in 

the New York Department of State Division of Corporations database. Since 2002, Golden First 

has originated thousands of loans with a total principal amount of approximately $707 million. 

12. Defendant Movtady has been the owner, president and operator of Golden First 

since 1979. He was responsible for certifying to HUDon an annual basis that Golden First 

"conform[ed] to all HUD-FHA regulations necessary to maintain its HUD-FHA approval." 

Movtady also underwrote individual loans and certified that those mortgages were eligible for 

HUD mortgage insurance. 

4 



FACTUAL BACKGROUND 

I. THE FHA MORTGAGE INSURANCE PROGRAM 

A. Background 

13. FHA, a part ofHUD, is the largest mortgage insurer in the world, insuring 

approximately one third of all new residential mortgages in the United States. Pursuant to the 

National Housing Act of 1934, FHA offers various mortgage insurance programs. Through 

these programs, FHA insures approved lenders ("mortgagees") against losses on mortgage loans 

made to buyers of single-family housing. FHA mortgage insurance encourages lenders to make 

loans to creditworthy borrowers who nevertheless might not meet conventional underwriting 

requirements. Under HUD's mortgage insurance programs, if a homeowner defaults on a loan 

and the mortgage holder forecloses on the property, HUD will pay the mortgage holder the 

balance of the loan and assume ownership and possession of the property. HUD also incurs 

expenses in managing and marketing the foreclosed-upon property until it is resold. FHA 

mortgage insurance makes mortgage loans valuable in the secondary markets, as FHA loans are 

expected to have met HUD requirements and because they are secured by the full faith and credit 

of the United States. 

14. BUD's Direct Endorsement Lending program is one of the FHA-insured 

mortgage programs. A Direct Endorsement Lender is authorized to underwrite mortgage loans, 

decide whether the borrower represents an acceptable credit risk for HUD, and certify loans for 

FHA mortgage insurance without prior HUD review or approval. To qualify for FHA mortgage 

insurance, a mortgage must meet all of the applicable HUD requirements (e.g., income, credit 

history, valuation of property, etc.). 

15. HUD relies on the expertise and knowledge of Direct Endorsement Lenders in 

5 



providing FHA insurance and relies on their decisions. A Direct Endorsement Lender is 

therefore obligated to act with the utmost good faith, honesty, fairness, undivided loyalty, and 

fidelity in dealings with HUD. The duty of good faith also requires a Direct Endorsement 

Lender to make full and fair disclosures to HUD of all material facts and to take on the 

affirmative duty of employing reasonable care to avoid misleading HUD in all circumstances. 

16. A Direct Endorsement Lender is responsible for all aspects of the mortgage 

application, the property analysis, and the underwriting of the mortgage. The underwriter must 

"evaluate [each] mortgagor's credit characteristics, adequacy and stability of income to meet the 

periodic payments under the mortgage and all other obligations, and the adequacy of the 

mortgagor's available assets to close the transaction, and render an underwriting decision in 

accordance with applicable regulations, policies and procedures." 24 C.P.R. § 203.5(d). In 

addition, the underwriter must "have [each] property appraised in accordance with [the] 

standards and requirements" prescribed by HUD. 24 C.P.R. § 203.5(e). 

17. Mortgagees must employ underwriters who can detect warning signs that may 

indicate irregularities, as well as detect fraud; in addition, underwriting decisions must be 

performed with due diligence in a prudent manner. HUD Handbook 4000.4 REV -1, ~ 2-4(C)(5); 

see also HUD Handbook 4155.2 ~ 2.A.4.b. The lender must also maintain a compliant 

compensation system for its staff, an essential element of which is the prohibition on paying 

commissions to underwriters. HUD Handbook 4060.1 REV-2, ~ 2-9(A). 

B. Underwriting and Due Diligence Requirements 

18. HUD relies on Direct Endorsement Lenders to conduct due diligence on Direct 

Endorsement loans. The purposes of due diligence include: (1) determining a borrower's ability 

and willingness to repay a mortgage debt, thus limiting the probability of default and collection 

6 



difficulties, see 24 C.F.R. § 203.5(d), and (2) examining a property offered as security for the 

loan to determine if it provides sufficient collateral, see 24 C.F.R. § 203.5(e)(3). Due diligence 

thus requires an evaluation of, among other things, a borrower's credit history, capacity to pay, 

cash to close, and collateral. In all cases, a Direct Endorsement Lender owes HUD the duty, as 

prescribed by federal regulation, to "exercise the same level of care which it would exercise in 

obtaining and verifying information for a loan in which the mortgagee would be entirely 

dependent on the property as security to protect its investment." 24 C.F.R. § 203.5(c). 

19. HUD has set specific rules for due diligence predicated on sound underwriting 

principles. In particular, HUD requires Direct Endorsement Lenders to be familiar with, and to 

comply with, governing HUD Handbooks and Mortgagee Letters, which provide detailed 

processing instructions to Direct Endorsement Lenders. These materials specify the minimum 

due diligence with which Direct Endorsement Lenders must comply. 

20. With respect to ensuring that borrowers have sufficient credit, a Direct 

Endorsement Lender must comply with governing HUD Handbooks, such as HUD 4155.1, 

Mortgage Credit Analysis for Mortgage Insurance on One-to-Four-Family Properties, to 

evaluate a borrower's credit. The rules set forth in HUD 4155.1 exist to ensure that a Direct 

Endorsement Lender sufficiently evaluates whether a borrower has the ability and willingness to 

repay the mortgage debt. 

21. To properly evaluate a borrower's credit history, a Direct Endorsement Lender 

must, at a minimum, obtain and review credit histories; analyze debt obligations; reject 

documentation transmitted by unknown or interested parties; inspect documents for proof of 

authenticity; obtain adequate explanations for collections, judgments, recent debts and recent 

credit inquiries; establish income stability and make income projections; obtain explanations for 

7 



any gaps in employment; document any gift funds; calculate debt and income ratios and compare 

those ratios to the fixed ratios set by HUD rules; and consider and document any compensating 

factors permitting deviations from those fixed ratios. See id 

22. With respect to appraising the mortgaged property (i.e., collateral for the loan), a 

Direct Endorsement Lender must ensure that an appraisal and its related documentation satisfy 

the requirements in governing HUD Handbooks, such as HUD 4150.2, Valuation Analysis for 

Home Mortgage Insurance. The rules set forth in HUD 4150.2 exist to ensure that a Direct 

Endorsement Lender obtains an accurate appraisal that properly determines the value of the 

property for HUD's mortgage insurance purposes. 

C. Quality Control Prerequisites for Direct Endorsement Lenders 

23. Furthermore, to maintain HUD-FHA approval, a Direct Endorsement Lender 

must implement and maintain a quality control program continuously throughout its participation 

in the Direct Endorsement Lender program. HUD requires the quality control department to be 

independent of mortgage origination and servicing functions. See HUD Handbook 4060.1 REV-

1, ~ 6-3(B); HUD Handbook 4060.1 REV-2, ~ 7-3(B); HUD Handbook 4700.2 REV-1, ~ 6-l(A). 

To comply with HUD's quality control requirements, a lender's quality control program must 

(among other things): (a) review a prescribed sample of all closed loan files to ensure they were 

underwritten in accordance with HUD guidelines; and (b) conduct a full review of "all loans 

going into default within the first six payments," which HUD defines as "early payment 

defaults." HUD Handbook 4060.1 REV-1, ~~ 6-6(C), 6-6(D); HUD Handbook 4060.1 REV-2, 

~~ 7-6(C), 7-6(D); HUD Handbook 4700.2 REV-1, ~~ 6-l(B), 6-l(D). HUD has warned lenders 

that failure to comply with HUD's quality control requirements may result in the withdrawal of 

Direct Endorsement Lender status. 

8 



24. Under HUD's rules, a lender must report to HUD (along with the supporting 

documentation) "[s]erious deficiencies, patterns of non-compliance, or fraud uncovered by 

mortgagees" during the "normal course of business and by quality control staff during 

reviews/audits ofFHA loans" within 60 days ofthe initial discovery. HUD Handbook 4060.1 

REV-1, CHG-1, ~~ 6-13, 6-3(J); see also HUD Handbook 4060.1 REV-2, ~ 7-3(J) (requiring 

Direct Endorsement Lenders to "immediately" report findings of "fraud or other serious 

violations" affecting an FHA loan); HUD Handbook 4060.1 REV-2, ~ 2-23 ("Mortgagees are 

required to repmi to HUD any fraud, illegal acts, irregularities or unethical practices."). 1 Upon 

making such findings, the lender must also expand the scope of the quality control review both 

by increasing the number of files reviewed and conducting a more in-depth review of the 

selected files. 

25. Until2005, HUD's rules instructed Direct Endorsement Lenders to make the 

required self-reports of loans with serious deficiencies, patterns of noncompliance, or fraud in 

writing to HUD through the Quality Assurance Division of the HUD Homeownership Centers 

("HOCs") having jurisdiction. In May 2005, HUD issued Mortgagee Letter 2005-26, which 

notified lenders that going forward they would have to participate in electronic reporting through 

HUD's online Neighbo~hoocl'Watch system. That new method became mandatory at the end of 

November 2005, and required mortgagees "to report serious deficiencies, patterns of 

noncompliance, or suspected fraud, to HUD in a unifonn, automated fashion" and in lieu of 

written reports to the various individual HOCs. 

1 Prior to November 2003, lenders were required to self-report to HUD loans affected by 
"significant discrepancies," such as "any violation of law or regulation, false statements or 
program abuses by the mortgagee, its employees, or any other party to the transaction." HUD 
Handbook 4060.1 REV -1, ~ 6-1 (H). 

9 



26. In addition to reporting loans affected by fraud or other serious violations to 

HUD, the lender is required to take corrective action in response to its findings. In particular, 

quality control review findings must "be reported to the mortgagee's senior management within 

one month of completion ofthe initial report" and "[m]anagement must take prompt action to 

deal appropriately with any material findings. The final report or an addendum must identify the 

actions being taken, the timetable for their completion, and any planned follow-up activities." 

HUD Handbook 4060.1 REV-2, 'U 7-3(1); see also HUD Handbook 4060.1 REV-1, 'U 6-3(I); 

HUD Handbook 4700.2 REV-1, 'U 6-l(F). Appropriate action by management includes 

following up with underwriters responsible for material findings to ensure that they are properly 

trained and diligently reviewing each file before endorsing it for FHA mortgage insurance. 

D. Direct Endorsement Lender Certifications 

1. Annual Certifications 

27. To obtain and maintain Direct Endorsement Lender status, a Direct Endorsement 

Lender must submit an mmual certification to HUD. 

28. The Direct Endorsement Lender must make the following annual certification, in 

sum and substance: 

I know or am in the position to know, whether the operations of the above 
named mortgagee conform to HUD-FHA regulations, handbooks, and 
policies. I certify that to the best of my knowledge, the above named 
mortgagee conforms to all HUD-FHA regulations necessary to maintain 
its HUD-FHA approval, and that the above-named mortgagee is fully 
responsible for all actions of its employees including those of its HUD­
FHA approved branch offices. 

29. The mmual certification requires compliance with the basic eligibility 

requirements for Direct Endorsement Lenders, which include compliance with the mandatory 

HUD rules concerning quality control described above. 

10 



30. A truthful annual certification is a condition ofHUD's decision to insure loans 

originated by Direct Endorsement Lenders and to pay insurance claims submitted to HUD on 

such loans. 

2. Loan Application Certifications 

31. A Direct Endorsement Lender must also submit a certification to FHA for each 

loan for which it seeks FHA insurance ("loan-level certifications"). 

32. A Direct Endorsement Lender may use an FHA-approved automated underwriting 

system to review loan applications. The automated underwriting system processes information 

entered by the Direct Endorsement Lender and rates loans as either an "accept"/"approve" or a 

"refer" I" caution." 

33. In cases where a Direct Endorsement Lender uses an FHA-approved automated 

underwriting system, and the system rates a loan as an "accept" or "approve," the Direct 

Endorsement Lender must make the following certification, in sum and substance: 

This mortgage was rated as an "accept" or "approve" by FHA's Total 
Mortgage Scorecard. As such, the undersigned representative of the 
mortgagee certifies to the integrity of the data supplied by the lender used 
to determine the quality of the loan, that Direct Endorsement Underwriter 
reviewed the appraisal (if applicable) and further certifies that this 
mortgage is eligible for HUD mortgage insurance under the Direct 
Endorsement program. I hereby make all certifications required by this 
mortgage as set forth in HUD Handbook 4000.4. 

34. In cases where a Direct Endorsement Lender uses an FHA-approved automated 

underwriting system, and the system rates a loan as "refer" or "caution," or in cases where a 

Direct Endorsement Lender does not use an FHA-approved automated underwriting system, the 

underwriter must make the following certification, in sum and substance: 

This mortgage was rated as a "refer" or "caution" by FHA's Total 
Mortgage Scorecard, and/or was manually underwritten by a Direct 

11 



Endorsement underwriter. As such, the undersigned Direct Endorsement 
Underwriter certifies that I have personally reviewed the appraisal report 
(if applicable), credit application, and all associated documents and have 
used due diligence in underwriting this mortgage. I find that this 
mortgage is eligible for HUD mortgage insurance under the Direct 
Endorsement program and I hereby make all certifications required for this 
mortgage as set forth in HUD Handbook 4000.4. 

35. The certifications in HUD Handbook 4000.4, incorporated by reference in the 

certifications above, include the certification that the mortgage complies with HUD underwriting 

requirements contained in all outstanding HUD Handbooks and Mortgagee Letters. 

36. Absent a truthful loan application certification, a Direct Endorsement Lender is 

not entitled to endorse a particular loan for FHA insurance. 

II. GOLDEN FIRST AND MOVTADY LIED ABOUT COMPLIANCE WITH HUD'S 
RULES AND REGULATIONS REGARDING QUALITY CONTROL TO 
MAINTAIN GOLDEN FIRST'S DIRECT ENDORSEMENT LENDER STATUS 

3 7. Golden First and Movtady failed to comply with HUD rules and regulations 

regarding required quality control procedures, even though those procedures were mandatory for 

Golden First's maintenance of its Direct Endorsement Lender status. Instead, Golden First and 

Movtady maintained Golden First's Direct Endorsement Lender status by making false 

representations to HUD about Golden First's purported compliance with HUD rules and 

regulations regarding quality control. In reality, Golden First's quality control procedures 

egregiously violated HUD rules and regulations. 

38. From 1989 through 2010, Golden First was required to file annual certifications 

with HUD to obtain and maintain its Direct Endorsement Lender status. 

39. On September 15, 2008, for example, Movtady signed an annual certification 

stating: "I know, or am in the position to know, whether the operations of the above named 

12 



mortgagee conform to HUD-FHA regulations, handbooks, and policies. I certify that to the best 

of my knowledge, the above named mortgagee conforms to all HUD-FHA regulations necessary 

to maintain its HUD-FHA approval." 

40. Golden First and Movtady knew that Golden First did not have a quality control 

plan that conformed to HUD rules when Movtady signed the annual certification in 2008. 

Golden First and Movtady thus: (i) intentionally lied to HUD, (ii) consciously avoided learning 

whether the certification was true or false, (iii) recklessly disregarded whether the certification 

was true or false; and/or (iv) were negligent in determining whether the certification was true or 

false. 

41. Contrary to the representations required to be made in annual certifications 

necessary to maintaining Golden First's Direct Endorsement Lender status, such as 'the 

certification signed by Movtady in 2008, Golden First and Movtady failed to implement and 

maintain basic quality control requirements. Golden First and Movtady's quality control 

violations were not technical or innocent, but knowing, material, and substantial. 

42. In order to obtain and maintain Direct Endorsement Lender status, a lender is 

required to continuously implement a quality control program that is independent of its business 

operations. Independence ensures that the quality control department brings its own judgment to 

bear in assessing the validity of loans previously made, without pressure to make the facts look 

rosier than the reality and without concern for meeting a targeted volume of business. 

43. Since at least 2002, Golden First failed to maintain a quality control program 

independent of its operations. To the contrary, Movtady and Golden First's business personnel 

systematically interfered with the quality control process by pressuring all employees of Golden 

First to increase production at the expense of quality control. 

13 



44. During certain periods oftime from 2002 unti12010, Golden First and Movtady 

failed to have any employees assigned to conduct quality control. In addition, even when 

Golden First did assign a small number of employees to conduct quality control, those 

employees consistently failed to promptly review and report to HUD findings of fraud and other 

serious violations, despite a HUD requirement that all such findings be reported within 60 days. 

45. A HUD audit conducted in 2005 examined loans dating back to 2002 and found 

material deficiencies in multiple loans stemming from Golden First's failure to have adequate 

controls to ensure that loans were processed in a manner consistent with HUD's requirements. 

HUD made two significant findings. First, HUD concluded that Golden First had improperly 

approved loans in 2002 and 2003 that did not qualify for FHA insurance. HUD found that "these 

deficiencies occurred because Golden First did not follow HUD regulations in the verification of 

the borrower's employment and/or sources of funds for the loans." Second, HUD concluded that 

Golden First had not implemented a quality control plan in accordance with HUD's 

requirements. Specifically, the HUD audit found, among other things, that Golden First did not 

ensure that: (1) loans defaulting within the first six months were reviewed, (2) quality control 

reviews were conducted in a timely manner, and (3) management responses and planned 

corrective action were adequately documented. 

46. Movtady responded to HUD's audit in 2005 as follows: "We changed our policy 

of conducting Quality Control in house to outsourcing Quality Control functions and providing 

an 'in house' Quality Control department to act as a liaison between our firm and the Quality 

Control company." 

47. Although Golden First did retain Magnet Portfolio Services ("Magnet") to 

perform a quality control review, Golden First continued to approve loans that did not meet HUD 

14 



requirements, and failed to take any corrective action in response to quality control summaries 

from Magnet. 

48. Magnet advised Golden First in 2007 and 2008, for example, of loans that it 

randomly selected to audit that did "not meet guidelines. Significant deviations from the 

guidelines were noted, with no apparent compensating factors to offset the overall risk." 

49. But even when Magnet identified loans with material deficiencies, quality control 

took a back seat to closing and selling loans. Golden First did not conduct any investigation or 

take any corrective action to address the significant problems in the loans identified by Magnet 

on loans that had already been sold. Moreover, in violation of HUD regulations, Golden First 

failed to self-report these loans to HUD. Indeed, Golden First never reported a single loan to 

HUD despite the serious deviations from the guidelines identified by Magnet. 

50. Forexample, Magnet graded at least 25 loans that closed between September 19, 

2007, and August 18, 2008, as having "significant deviations from the guidelines." Yet Golden 

First and Movtady nevertheless failed to report these bad loans to HUD. HUD paid more than a 

million dollars in claims and thousands of dollars for loss mitigation on just these 25 loans. 

51. In 2008, with a continuing lack of a compliant quality control process in place at 

Golden First, the loan origination process emphasized speed and volume, sacrificed quality, and 

created an atmosphere of fraud and sloppy underwriting. Underwriters were pressured to cut 

corners to keep up production. Three employees of Golden First were closing about 100-200 

loans per month- a rate that made it impossible to conduct adequate due diligence on each 

loan. 

52. Moreover, it was common practice for loan officers to pay Golden First 

employees hundreds of dollars in kickbacks to speed up the approval of loans. At least one 

15 



underwriter at Golden First accepted money to selectively speed up the approval of certain loans. 

That same underwriter barely reviewed loan applications, spending approximately 20 minutes to 

fully "underwrite" each loan and certify it for FHA insurance. 

53. From 2008 to 2009, HUD's Quality Assurance Division conducted multiple 

reviews of Golden First mortgages and found numerous material violations ofHUD underwriting 

guidelines, including falsified documents, further demonstrating that there was no compliant 

quality control process in place. 

54. Notwithstanding these findings by HUD, Golden First did not report a single 

mortgage to HUD that it had underwritten under the Direct Endorsement Lender program. That 

Golden First's and Movtady's failure to report even a single mortgage to HUD was intentional is 

supported by its default rate of more than 75% in 2008 alone, and by HUD's findings in an audit 

ofloans from 2007 and 2008 of false documentation in 22 ofthe 26 files reviewed, including of 

paystubs, employment verifications, W-2s, deposit verifications, and escrow letters. 

55. Golden First also continued to fail to review all early payment defaults as 

mandated by HUD rules, even after HUD specifically noted this failure during the 2005 audit. 

Nor did Golden First have a system in place to review all such defaults. Magnet did not conduct 

reviews of all of Golden First loans resulting in early payment defaults, nor did Golden First 

charge Magnet with this task. Rather, Magnet periodically provided a review of randomly 

selected loans. Thus, from 2002 through 2010, when it ceased operations, Golden First failed to 

comply with FHA's quality control requirement that it fully review each and every early 

payment default. 

56. In light of these material defects in Golden First's quality control program, 

Golden First and Movtady could not truthfully complete the annual certifications required to be 

16 



submitted to HUD to maintain Golden First's Direct Endorsement Lender status. For example, 

the annual certification signed by Movtady on behalf of Golden First in 2008 attesting to 

compliance with HUD's requirements for the fiscal year July 30, 2007, through July 30, 2008, 

for FHA approval was patently false. Without submission of this annual certification, Golden 

First would not have been able to continue to participate in the Direct Endorsement Lender 

program. 

HI. GOLDEN FIRST AND MOVTADY ABUSED GOLDEN FIRST'S DIRECT 
ENDORSEMENT LENDER STATUS TO ENDORSE 
MORTGAGES INELIGIBLE FOR FHA INSURANCE 

57. Golden First and Movtady abused the company's Direct Endorsement Lender 

status through the false statements of Golden First and Movtady regarding individual loans. In 

particular, as a Direct Endorsement Lender, Golden First regularly violated HUD rules, prudent 

underwriting practices, and Golden First's duties to HUD, by failing to conduct due diligence on 

mortgages that it reviewed and approved for FHA insurance, including mortgages underwritten 

by Movtady. Despite its repeated violations of HUD rules, Golden First, through its 

underwriters, falsely certified, on a loan-by-loan basis, that it had complied with HUD rules and 

that the mortgages it endorsed were eligible for FHA insurance under HUD rules. Movtady 

personally underwrote a number of loans on behalf of Golden First, and accordingly signed some 

of the false loan-level certifications. IfHUD had known that Golden First's mortgage eligibility 

certifications were false, HUD would not have permitted Golden First to endorse those loans for 

FHA insurance. 

58. For each mortgage, Golden First certified that it complied with all HUD rules, 

including HUD rules requiring due diligence. Movtady signed these certifications with regard to 

certain loans. For example, one of the individual loan certifications signed by Movtady 

17 



specifically stated: "the undersigned Direct Endorsement underwriter certifies that I have 

personally reviewed the appraisal report ... , credit application, and all associated documents and 

have used due diligence in underwriting this mortgage .... [T]his mortgage is eligible for HUD 

mortgage insurance under the Direct Endorsement program and I hereby make all certifications 

required for this mortgage as set forth in HUD Handbook 4000.4." 

59. Contrary to the certifications appearing on each mortgage endorsed by Golden 

First, Golden First and Movtady engaged in a pattern of failing to conduct due diligence in 

accordance with HUD rules and with sound and prudent underwriting principles. 

60. Violations ofHUD's underwriting and due-diligence requirements included a 

failure to verify the applicant's employment, the approval ofloans with unacceptable debt-to­

income ratios without compensating factors, inadequate documentation of assets and gift funds, 

and a failure to identify fabricated and falsified income and asset documentation. This pattern of 

false certifications is illustrated by the examples below. These examples were not isolated 

events, but rather provide a representative sample of Golden First and Movtady's fraudulent 

practices. 

A. Catherine Avenue Property 

61. FHA case number 061-2891167 involves a mortgage for a property on Catherine 

Avenue in Waterbury, Connecticut (the "Catherine Avenue Property"). Movtady falsely 

certified that the loan complied with HUD due diligence rules. In fact, this loan violated many 

HUD rules within HUD 4155.1, including: 1) the file lacked verification of rent, 2) the file 

contained documents that were faxed from an interested third party, 3) the file lacked 

documentation of purported gift funds, and 4) the file lacked verification of a source of a large 

deposit involved in this transaction. Nevertheless, Golden First through David Movtady 

18 



underwrote this mortgage, reviewed and approved it for FHA insurance, and certified that due 

diligence had been conducted on the mortgage application. The mortgage closed on or about 

October 10, 2005. 

62. One of the multiple HUD rules violated by Golden First and Movtady in 

approving the Catherine Avenue Property application was HUD 4155.1, Ch. 2, § 1 O(C). That 

rule provides that, in order to ensure that gift funds are not provided by a party to the sales 

transaction, the Direct Endorsement Lender must document gift funds with a gift letter, signed by 

the borrower, that specifies the amount of the gift and states that no repayment is required, and 

the Direct Endorsement Lender must document the transfer of the funds from the donor to the 

borrower. Contrary to this rule, Golden First and Movtady failed to adequately document the 

source and transfer ofthe gift funds. In violating HUD 4155.1, Ch. 2, § 10(C), Golden First and 

Movtady endorsed the application for the Catherine A venue Property without proof that the 

borrower closed with gift funds from a proper source rather than from, for instance, the seller. 

63. Golden First and Movtady likewise violated HUD 4155.1, Ch. 2, § 1 O(B) with 

regard to this loan. That rule requires that: "A verification of deposit (VOD), along with the 

most recent bank statement, may be used to verify savings and checking accounts. If there is a 

large increase in an account, or the account was opened recently, the lender must obtain a 

credible explanation of the source ofthose funds." The borrower's checking account transaction 

journal shows a $10,000 deposit- but Movtady, the underwriter, did not obtain a credible 

explanation for the source of those funds. 

64. Golden First's and Movtady's false certification on the application for the 

Catherine Avenue Property loan was material and bore upon the likelihood that the borrower 

would make mortgage payments. 

19 



65. The loan first went into default on March 1, 2007. 

66. As a result, HUD paid an FHA insurance claim on or about April 5, 2009 of 

$248,565.00 plus costs. 

B. Mountain View Drive Property 

67. FHA case number 061-2891150 involves a mortgage for a property on Mountain 

View Drive in East Hartford, Connecticut (the "Mountain View Drive Property"). Movtady on 

behalf of Golden First und~rwrote the mortgage, reviewed and approved it for FHA insurance, 

and falsely certified that the loan complied with HUD due diligence rules. The mortgage closed 

on or about September 2, 2005. 

68. Contrary to Movtady's certification, Golden First and Movtady did not comply 

with HUD rules in reviewing and approving the application for the Mountain View Drive 

Property and FHA insurance on the property. Instead, Gold~n First and Movtady violated 

multiple HUD rules, including HUD 4155.1, Ch. 2, § 3 (Band C), HUD 4155.1, Ch. 2, § 

4(C)(5), and HUD 4155.1, Ch. 2, § 12(B). 

69. HUD 4155.1, Ch. 2, § 12(B) requires Direct Endorsement Lenders to determine if 

the total of the mortgage payment and all recurring charges exceeds 41 percent of the gross 

effective income. A ratio exceeding 41 percent may be acceptable only if"significant 

compensating factors" are documented and are recorded on the mortgage credit analysis 

worksheet. HUD 4155.1, Ch. 2, § 12(B). The ratios with regard to this application exceeded the 

ratios set by HUD guidelines. Golden First and Movtady, however, failed to indicate that any 

compensating factors, much less "significant compensating factors," supported approval ofthe 

loan application. In violating HUD 4155.1, Ch. 2, § 12(B), Golden First and Movtady had every 

reason to believe that the approved loan would default. 

2070. Golden First's and Movtady's false certification on the application for the 

Mountain View Drive Property was material and bore upon the likelihood that the borrower 

would make mortgage payments. 

71. The loan first went into default on October 1, 2007. 

72. As a result, HUD paid loss mitigation claims on October 1, 2010 and February 7, 

2011 totaling $176,766.00 plus costs. 

C. Wyona Street Property 

73. FHA case number 374-4637348 involves a mortgage for a property on Wyona 

Street in Brooklyn, New York (the "Wyona Property"). Movtady and another Golden First 

employee served as the underwriters on this loan that contained multiple deficiencies. Movtady 

on behalf of Golden First underwrote the mortgage, reviewed and approved it for FHA 

insurance, and falsely certified that the loan complied with HUD due diligence rules. The 

mortgage closed on or about September 19,2007. 

74. Deficiencies in the underwriting included, among other things, the failure to 

verify and document $15,600 in cash reserves required for the purchase of the property, the 

failure to verify and adequately document $16,000 in gift funds, and the failure to adequately 

analyze the borrower's credit. HUD 4155.1. 

75. These failures were material and bore upon the likelihood that the borrower would 

make mortgage payments. 

76. The loan first went into default on July 1, 2008. 

77. As a result, HUD has paid an FHA insurance claim of$343,993.00 plus costs. 

21 



D. North Long Beach Avenue Property 

78. FHA case number 374-4648725 involves a mortgage for a property on North 

Long Beach Avenue in Freeport, New York (the "North Long Beach Avenue Property"). 

Movtady served as the underwriter on this loan that contained multiple deficiencies. Movtady on 

behalf of Golden First underwrote the mortgage, reviewed and approved it for FHA insurance, 

and falsely certified that the loan complied with HUD due diligence rules. The mortgage closed 

on or about October 3, 2007. 

79. Deficiencies in the underwriting included an improper calculation of the 

borrower's monthly income, failure to adequately evaluate the borrower's previous mortgage 

payment history, and failure to explain adequately the borrower's previous late payments. HUD 

4155.1. 

80. These failures were material and bore upon the likelihood that the borrower would 

make mortgage payments. 

81. The loan first went into default on April 1, 2008. 

82. As a result, HUD has paid a loss mitigation claim of$875.00 on this loan, and 

HUD faces additional exposure of over $200,000 on the loan. 

E. East 53rd Street Property 

83. FHA case number 374-4685938 involves a mortgage for a property on East 53rd 

Street in Brooklyn, New York (the "East 53rd Street Prope1iy"). The loan contained multiple 

deficiencies. An underwriter employed by Golden First underwrote the mortgage, reviewed and 

approved it for FHA insurance, and falsely certified that the loan complied with HUD due 

diligence rules. The mortgage closed on or about January 9, 2008. 

22 



84. Deficiencies in the underwriting included, among others, an inadequate 

verification of cash reserves, an invalid gift of equity, inconsistent statements regarding the gift, 

and a failure to verity the authenticity of faxed employment documents. HUD 4155.1. 

85. These failures were material and bore upon the likelihood that the borrower would 

make mortgage payments. 

86. The loan first went into default on December 1, 2008. 

87. As a result, HUD has paid an FHA insurance claim of$ 226,656.00 plus costs. 

F. Grace Avenue Property 

88. FHA case number 374-4680585 involves a mortgage for a property on Grace 

Avenue in Bronx, New York (the "Grace Avenue Property"). The loan contained multiple 

deficiencies. An underwriter employed by Golden First underwrote the mortgage, reviewed and 

approved it for FHA insurance, and falsely certified that the loan complied with HUD due 

diligence rules. The mortgage closed on or about January 9, 2008. The mortgage closed on or 

about January 3, 2008. 

89. Deficiencies in the underwriting included, among others, failure to verify the 

authenticity of faxed employment documents, failure to adequately evaluate the borrower's 

previous mortgage payment history, and failing to explain adequately the borrower's previous 

late payments. HUD 4155.1. 

90. These failures were material and bore upon the likelihood that the borrower would 

make mortgage payments. 

91. The loan first went into default on May 1, 2008. 

23 



92. As a result, HUD has paid a loss mitigation claim of $875.00 on this loan, and 

HUD faces additional exposure of over $250,000 on the loan. 

IV. THE FALSE ANNUAL AND LOAN-LEVEL CERTIFICATIONS BY GOLDEN 
FIRST AND MOVT ADY HAVE CAUSED HUD TO PAY MILLIONS OF 
DOLLARS IN INSURANCE CLAIMS THUS FAR 

93. The false certifications and representations both on annual basis and on individual 

loans by Golden First and Movtady regarding purported compliance with HUD underwriting 

requirements permitted Golden First to close nearly 1,512loans with FHA insurance since July 

30, 2007. HUD would not have made a financial commitment to pay such mortgage insurance 

claims absent Golden First's and Movtady's false certifications. 

94. Had Golden First and Movtady not submitted a false annual certification in 2008, 

Golden First would not have been able to maintain its Direct Endorsement Lender status and 

continue endorsing loans for FHA insurance. 

95. Golden First's and Movtady's false loan-level certifications, as illustrated in the 

examples set forth in the previous section of this Complaint, were material and bore upon the 

likelihood that borrowers would make mortgage payments. 

96. Golden First and Movtady knew that the certifications of compliance with HUD 

rules were false, and thus acted intentionally, knowingly, recklessly and/or negligently in 

executing and submitting the false certifications to HUD. 

97. In addition, Golden First's and Movtady's false certifications, as well as their 

failure to conduct due diligence in accordance with HUD rules, violated their duty of care to 

HUD. 

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98. As of June 1, 2012, HUD has paid $12,379,186 in claims and approximately 

$583,000 in loss mitigation payments for loans closed since July 30, 2007. 

99. Further, HUD may potentially pay millions of dollars on defaulted loans that have 

not yet been submitted as claims to HUD. Many ofthose future claims will arise out of FHA 

mortgage insurance provided by HUD based on Golden First and Movtady's false certifications 

of due diligence. 

100. The costs relating to FHA insurance claims paid by HUD to date and the costs 

relating to FHA insurance claims expected to be paid by HUD are the direct result of Golden 

First's and Movtady's false annual and loan-level certifications. 

FIRST CLAIM 

Violations of the False Claims Act 
(31 U.S.C. § 3729(a)(1) (2006), and, as amended, 31 U.S.C. § 3729(a)(l)(A)) 

Causing False Claims 

101. The Government incorporates by reference each ofthe preceding paragraphs as if 

fully set forth in this paragraph. 

102. The Government seeks relief against Golden First and Movtady under Section 

3729(a)(l) ofthe False Claims Act, 31 U.S.C. § 3729(a)(1) (2006), and, as amended, Section 

3729(a)(l)(A) ofthe False Claims Act, 31 U.S.C. § 3729(a)(l)(A). 

103. As set forth above, Golden First and Movtady knowingly, or acting with 

deliberate ignorance and/or with reckless disregard for the truth, presented and/or caused to be 

presented, to an officer or employee of the Government, false and fraudulent claims for payment 

or approval in connection with its endorsement ofFHA-insured mortgages, by: 

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a. Submitting a false annual certification and making false representations to 

HUD with respect to Golden First's qualifications for Direct Endorsement 

Lender status; and/or 

b. Submitting false loan-level certifications to HUD in endorsing mortgages 

for FHA insurance. 

104. The Government paid insurance claims, and incurred losses, relating to FHA-

insured mortgages wrongfully endorsed by Golden First because of Golden First's and 

Movtady's wrongful conduct. 

105. By reason ofthe false claims of Golden First and Movtady, the Govemment has 

been damaged in a substantial amount, and is entitled to treble damages of at least $38,887,470 

and civil penalties in the amount of at least $5,269,000. 

SECOND CLAIM 

Violations of the False Claims Act 
(31 U.S.C. § 3729(a)(2) (2006), and, as amended, 31 U.S.C. § 3729(a)(l)(B)) 

Use of False Statements 

106. The Govemment incorporates by reference paragraphs 1 through 100 as if fully 

set forth in this paragraph. 

107. The Government seeks relief against Golden First and Movtady under Section 

3729(a)(2) ofthe False Claims Act, 31 U.S.C. § 3729(a)(1) (2006), and, as amended, Section 

3729(a)(l)(B) ofthe False Claims Act, 31 U.S.C. § 3729(a)(1)(B). 

108. As set forth above, Golden First and Movtady knowingly, or acting in deliberate 

ignorance and/or with reckless disregard of the truth, made, used, or caused to be made or used, 

false records and/or statements material to false or fraudulent claims in connection with Golden 

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First's maintenance of its Direct Endorsement Lender status and/or Golden First's endorsement 

of FHA-insured mortgages. 

109. The Government paid insurance claims, and incurred losses, relating to FHA-

insured mortgages wrongfully endorsed by Golden First because of Golden First's and 

Movtady's wrongful conduct. 

110. By reason ofthe false records and/or statements of Golden First and Movtady, the 

Government has been damaged in a substantial amount, and is entitled to treble damages of at 

least $38,887,470 and civil penalties in the amount of at least $5,269,000 

THIRD CLAIM 

Violations of FIRREA 
(12 U.S.C. § 1833a) 

False Certifications to HUD 

111. The Government incorporates by reference paragraphs 1 through 100, as if fully 

set forth in this paragraph. 

112. Golden First and Movtady submitted, and caused to be submitted, false loan-level 

certifications, and false statements to HUD, in violation of 18 U.S.C. §§ 10052 & 1014 (as 

amended), 3 with the intent to defraud or deceive HUD into endorsing loans that were ineligible 

for FHA insurance, and to defraud or deceive FHA into paying insurance claims for loans that 

were not eligible for FHA insurance. 

2 Golden First's and Movtady's violations of the fourth paragraph of 18 U.S.C. § 1005 provide 
the basis for the Government's allegations ofFIRRBA violations based upon that predicate 
statute. 

3 With respect to Golden First's and Movtady's violations of 18 U.S.C. § 1014, the Government 
only asserts claims based upon false statements and records made after July 30, 2008. 

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113. Golden First and Movtady submitted and caused to be submitted a false annual 

certification, signed on or about September 15, 2008, and false statements to HUD, in violation 

of 18 U.S.C. §§ 1005 & 1014 (as amended), with the intent to defraud or deceive HUD into 

continuing to allow Golden First to remain a Direct Endorsement Lender and to endorse loans 

that were ineligible for FHA insurance, and to defraud or deceive FHA into paying insurance 

claims for loans that were not eligible for FHA insurance. 

114. Accordingly, Golden First and Movtady are liable for civil penalties to the 

maximum amount authorized under 12 U.S.C. § 1833a. 

FOURTH CLAIM 

Gross Negligence 

115. The Government incorporates by reference paragraphs 1 through 100 as iffully 

set forth in this paragraph. 

116. Golden First and Movtady owed the Government a duty of reasonable care and a 

duty to conduct due diligence. 

117. As set forth above, Golden First and Movtady breached their duties to the 

Government. 

118. As set forth above, Golden First and Movtady recklessly disregarded their duties 

to the Government. 

119. As a result of the gross negligence of Golden First and Movtady, the Government 

has paid insurance claims, and incurred losses, relating to FHA-insured mortgages endorsed by 

Golden First. 

28 



120. As a result of the gross negligence of Golden First and Movtady, the Government 

will pay future insurance claims, and incur future losses, relating to FHA-insured mortgages 

endorsed by Golden First. 

121. By vhiue ofthe above, the Government is entitled to compensatory and punitive 

damages, in an amount to be determined at trial. 

FIFTH CLAIM 

Negligence 

122. The Government incorporates by reference paragraphs 1 through 1 00 as if fully 

set forth in this paragraph. 

123. Golden First and Movtady owed the Government a duty of reasonable care and a 

duty to conduct due diligence. 

124. As set forth above, Golden First and Movtady breached their duties to the 

Government. 

125. As a result of the negligence of Golden First and Movtady, the Government has 

paid insurance claims, and incurred losses, relating to FHA-insured mortgages endorsed by 

Golden First. 

126. As a result of the negligence of Golden First and Movtady, the Government will 

pay future insurance claims, and incur future losses, relating to FHA-insured mortgages endorsed 

by Golden First. 

127. By virtue of the above, the Government is entitled to compensatory damages, in 

an amount to be determined at trial. 

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SIXTH CLAIM 

Breach of Fiduciary Duty 

128. The Government incorporates by reference paragraphs 1 through 100 as iffully 

set forth in this paragraph. 

129. Golden First and Movtady were fiduciaries of the Government, and owed the 

Government fiduciary duties. 

130. As fiduciaries, Golden First and Movtady had a duty to act for, and give advice to, 

the Government for the benefit of the Government as to whether mortgages should be insured by 

FHA under the Direct Endorsement Lender program. 

131. As fiduciaries, Golden First and Movtady had the obligation to act in the utmost 

good faith, candor, honesty, integrity, fairness, undivided loyalty, and fidelity in their dealings 

with the Government. 

132. As fiduciaries, Golden First and Movtady had a duty to refrain from taking 

advantage of the Government by misrepresentations, to make full and fair disclosures to the 

Government of all material facts, and to take on the affirmative duty of employing reasonable 

care to avoid misleading the Government. 

133. As fiduciaries, Golden First and Movtady had a duty to exercise sound judgment, 

prudence, and due diligence on behalf of the Government in endorsing mortgages for FHA 

msurance. 

134. As set forth above, Golden First and Movtady breached their fiduciary duties to 

the Government. 

30 



135. As a result of the breach of the fiduciary duties of Golden First and Movtady to 

the Government, the Government has paid insurance claims, and incurred losses, relating to 

FHA-insured mortgages endorsed by Golden First. 

136. As a result of the breach of the fiduciary duties of Golden First and Movtady to 

the Government, the Government will pay future insurance claims, and incur future losses, 

relating to FHA-insured mortgages endorsed by Golden First. 

137. By virtue ofthe above, the Government is entitled to compensatory damages, in 

an amount to be determined at trial. 

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WHEREFORE, the Government respectfully requests that judgment be entered in its 

favor and against Golden First and Movtady as follows: 

a. On Counts One and Two (FCA), a judgment against Golden First and 

Movtady for treble damages and civil penalties to the maximum amount 

allowed by law; 

b. On Count Three (FIRREA), a judgment against Golden First and Movtady 

imposing civil penalties up to the maximum amount allowed by law; 

c. On Counts Four (Gross Negligence), Five (Negligence) and Six (Breach 

of Fiduciary Duty), a judgment against Golden First and Movtady for 

compensatory damages in an amount to be determined at trial; 

d. For an award of costs pursuant to 31 U.S.C. § 3729(a); and 

e. For an award of any such further relief as is proper. 

Dated: New York, New York 
April 4, 2013 

By: 

PREET BHARARA 
United States Attorney for the 
Southern District ofNew York 
Attorney for the United States 

;J ~·r: -
(.::;( ;?--'~/\.. h (~e.:~ " 
LARA K. ESHKENAZI 
LAWRENCE H. FOGELMAN 
Assistant United States Attorneys 
86 Chambers Street, Third Floor 
New York, New York 1 0007 
Telephone No. (212) 637-2800 
Facsimile No. (212) 637-2730 
Lara.Eshkenazi@usdoj .gov 
Lawrence.Fogelman@usdoj .gov 

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