A former Lexington police officer pleaded not guilty in federal court Tuesday to charges that he took part in a conspiracy to defraud mortgage companies of more than $2 million.
Barry Buchignani, 51, of Lexington, was indicted last month on charges of conspiracy to commit wire fraud and conspiracy to make false statements. He was arraigned Tuesday in U.S. District Court in Lexington.
The indictment charges that Buchignani, a retired police officer and son of former Fayette County Sheriff Harold Buchignani, gave lending institutions false information about the prices of six homes he planned to buy, getting loans larger than the prices of the houses.
The indictment results from a four-year investigation, according to a news release from U.S. Attorney Kerry B. Harvey. The FBI and the Lexingon police department investigated the case.
The alleged fraud, conducted from 2004 to 2006, involved about $2.5 million in loans to Buchignani, the news release said.
But court documents indicate that a cast of characters — including a home builder, lawyer, tax preparer, real estate agent and mortgage professionals — helped pull off the scam. Buchignani was allegedly one of six home buyers who participated, according to court documents.
Buchignani, lawyer Kim Allen Clay, contractor James Davis, mortgage broker Warren Reid and others are accused of falsifying information on loan applications to get loans for more than the price of the homes, according to the news release.
Buchignani's attorney, James G. Thomas, declined to comment on the case Tuesday night.
According to the indictment, the scheme worked like this:
Buchignani, who is disabled, operated BCI Inc., a small home-remodeling and construction company in Lexington.
He and Davis, owner of Jerrico Builders, The Alpha & Omega Group and Motor City Enterprises, agreed to use the extra money from the loans and their construction experience to improve the homes, often by finishing the basements. They planned to hold the homes for a while, sometimes renting them to defray mortgage payment costs, and then resell them at a profit.
Buchignani submitted fraudulent loan applications containing false information about his "employment, income, assets, financial liabilities, down payments, marital status, and his intentions to occupy the properties as his primary residence," the indictment states. The applications also didn't alert lenders that he already had bought other "debt-laden houses."
The real estate contracts provided to lenders gave inflated figures for sales prices on the homes, and fake tax returns were submitted to the lenders to inflate Buchignani's income. His bank account was pumped up with money Davis supplied him for that purpose, the indictment alleges.
Clay, who owned and operated Universal Title Service in Lexington, helped by falsifying loan closing documents and routing the extra money from lenders to one of Davis' companies at closing. Davis then made payments to Buchignani, the indictment alleges.
Clay and Davis also used Universal Title Service's escrow account to provide "working capital to the mortgage fraud conspiracy" and to create "false money trails for bogus down payments," the indictment says.
Reid, who operated Premiere Mortgage and Statewide Mortgage in Lexington, was unlicensed but was still working as a loan officer. The indictment says he prepared or reviewed some of Buchignani's loan applications "to ensure the falsely reported debt and income levels of each fraudulent application met lender requirements."
Reid recently pleaded guilty in connection with the conspiracy but has not been sentenced, according to Harvey.
Reid's plea agreement says misrepresentations he and another mortgage professional helped buyers make on loan applications "misled the lenders and got otherwise unqualified buyers approved for loans" in cases in which the buyer already had too much debt or didn't have enough income to justify the loan.
Davis, the home builder, also pleaded guilty recently but has not been sentenced, Harvey said.
Clay pleaded guilty to fraud charges in 2007, and he was sentenced to 18 months in prison and was ordered to pay restitution of $417,849.
Aamir Saadiq, who acted as a home buyer, pleaded guilty in April 2008 in a related case. He was sentenced to three years' probation and ordered to pay $112,500 in restitution.
Saadiq's plea agreement said he gave false information in seeking loans on properties in Lexington and Richmond. Among other things, he claimed his income was higher than it was and listed a bank-account balance pumped up — temporarily — with money from others.
As an illustration of the scope of the fraud, Clay's plea agreement says his company handled more than 50 real-estate closings in 2004 and 2005 in which misrepresentations were made to lenders.
Reid's plea agreement mentions several people who are not listed in the federal court computer system as having been charged.
Kyle Edelen, spokesman for the U.S. attorney's office in Lexington, said he could neither confirm nor deny whether more charges will be brought as part of the case.
Buchignani could face up to 20 years in prison if convicted. He is scheduled to be tried beginning Nov. 2. His indictment asks for a monetary judgment of $576,577, the amount he allegedly received from the scheme.
Sherelle Roberts, spokeswoman for the Lexington police department, declined to release the dates of Buchignani's employment with the city Tuesday afternoon, saying an open records request would be necessary for release of that information.
During his career as a Lexington police officer, Buchignani was suspended on more than one occasion for unbecoming conduct, insubordination and incompetence.
In 1993, he was suspended for 90 days for having sex with a 16-year-old girl he met while on duty.
He received a six-month unpaid suspension in 1997 for making a questionable arrest of a local baseball player and for taking an exotic dancer he had arrested earlier in the evening to his home after she had been released from jail.