The "vapor money" conspiracy that didn't work
RMJon23
"Sometime in the last few years, Johnson and Heineman began reading
about mortgage elimination programs on the Internet. Such schemes
aren't just a way to make money; they're a longtime staple for
conspiracy theorists who claim the American monetary system is based on
a massive fraud perpetrated by a cabal of bankers. The godfather of
this movement is G. Edward Griffin, the founder of American Media, a
Southern California company that distributes books and videos about
conspiracies ranging from the banking system, to the September 11
attacks, to the secret society Skull & Bones. In the early 1990s,
Griffin published The Creature from Jekyll Island, the movement's
bible, in which he claimed that ever since the United States replaced
the gold standard with paper money, the country has been plagued by
inflation, while banking elites print money out of thin air to secretly
enrich themselves."]
http://www.eastbayexpress.com/Issues/2006-04-05/news/feature_print.html
>From eastbayexpress.com
Originally published by East Bay Express 2006-04-05
Dirty Deeds
The Dorean Group promised hundreds of homeowners that their mortgages
would go away. Guess what? They didn't.
By Chris Thompson
When Kurt Johnson and Dale Scott Heineman set up the Dorean Group in
late 2003, they promised homeowners that just by filing a few simple
documents with the county they could completely wipe out hundreds of
thousands of dollars in debt. Their theory was a gumbo of paranoid
conspiracies and self-help gibberish based on an idea known as "vapor
money."
According to this fantasy, which has a cult following, all
electronically transferred money is inherently fraudulent, the Federal
Reserve Bank is controlled by a secret bankers' cabal, and gold and
silver are the only legal tender recognized by the Constitution. In
spite of the delusional quality of this argument, hundreds of
homeowners paid the two men millions of dollars to help eliminate their
mortgage debt.
Johnson and Heineman allegedly amassed a fraudulent fortune from
homeowners and lending institutions, depositing some of the funds in
offshore accounts, according to documents assembled by the Federal
Bureau of Investigation. On the blog where he has railed for months
about his fight with the feds, Johnson himself estimated that he and
Heineman made close to $5 million through their Union City operation.
Even while he was a fugitive from the law, Johnson published rambling,
almost-daily manifestos defending his scheme and declaring himself a
servant of the Lord working to thwart the agents of darkness.
Federal law enforcement officials, some of the agents of darkness
Johnson had in mind, say the two men presided over one of the most
ambitious national real-estate frauds in years. The officials claim
that the Dorean Group concocted an arcane, almost delusional racket to
fraudulently erase the mortgages of up to 574 homes around the country,
defrauding lenders of more than $94 million. Johnson and Heineman have
been charged with 68 counts of conspiracy, bank fraud, mail fraud, and
contempt of court. After six months in custody, the men are finally
approaching their day in court. And if a recent preliminary hearing is
any indication, it should be a colorful affair.
On February 17, in the Oakland courtroom of U.S. District Judge Lowell
Jensen, Johnson and Heineman were dressed in blue jumpsuits with
"Alameda County Jail" stenciled on the backs. Heineman, a skinny young
man who looked to be in his thirties, wore his hair in long, curly
brown locks; Johnson was fortyish, stocky, and bald. The men had
decided to represent themselves, and the judge was about to schedule a
hearing to make sure they understood how complicated that would be.
That's when Heineman declared that his and Johnson's purpose in court
was to expose the sinister secrets of American justice.
As Johnson stood quietly to the side, Heineman claimed that Jensen's
court was a "supercilious, Machiavellian" star chamber that carried out
the orders of a mysterious, extralegal cabal. Judge Jensen, however,
still had a chance to reclaim his honor if he would open his heart to
"Christ Jesus."
Jensen briefly humored Heineman. "I think it's a matter of individual
choice," he said. "We're here on a matter of civil law, under civil
authority."
"The agency exists for you to administer justice under righteousness,"
Heineman retorted.
As Jensen soldiered onward, and outlined the next step in the trial,
Heineman had another point to make. "You also mentioned that we're
human beings, and I wanted to verify that," he said. The government, he
explained, had declared its intent to prosecute the fictitious entity
known as the Dorean Group, as well as Heineman and Johnson. Yet
Heineman and Johnson weren't fictitious entities, but human beings.
Heineman suggested the government, in some kind of grand existential
blunder, had indicted two abstractions. "I don't believe the flesh and
blood human beings standing here are being tried or indicted," he
concluded.
In court, Heineman and Johnson seemed like colorful fanatics, but as
mortgage-elimination gurus, countless otherwise normal American
families went along with them anyway. They convinced hundreds of
homeowners that they could wipe out their mortgages with just a few
signatures on some fancy legal paperwork. Such is the superheated
housing market that hundreds of formerly law-abiding citizens were
offered an allegedly illegal scam to defraud their banks and said yes,
even though some will certainly lose their homes as a result.
Thanks to the surreal housing market, and an explosion of new forms of
credit, real-estate fraud has become a quiet epidemic. The FBI recorded
more than 21,000 cases of fraud last year - 600 percent more than in
1999 - but since two-thirds of the nation's mortgage lenders didn't
report the cases they discovered, the real number may be as high as
60,000. At least $1 billion was stolen from borrowers and lenders in
2005, and just this month the Mortgage Bankers Association urged
Congress to commit millions of dollars to a new effort to prosecute
mortgage fraud.
But there's more to the story than greedy crooks and unsophisticated
borrowers. As the housing market reaches unprecedented levels, members
of the middle-class "ownership society" so celebrated by a certain
president are choosing to become crooks. When homes were worth
$100,000, there wasn't as much incentive to welch on the mortgage. Now
that East Bay homes are worth about five times that amount, more
homeowners are tempted to imperil their futures on even the most
transparent cons.
"We're seeing more real-estate fraud because we're seeing more
real-estate activity," says Rachel Dollar, a Marin County attorney and
specialist in mortgage-fraud litigation. "More and more borrowers are
experiencing payment stress, and that's when it happens."
Hundreds of Americans did business with the Dorean Group. No one knows
how many lost their homes or ruined their credit as a result. No one
knows how many marriages were destroyed by the stress. But the Dorean
Group isn't the country's only "mortgage elimination" business. A
Google search can find countless other groups promising that electronic
debt is illegal, and that they will help you erase it for a fee. If the
housing market cools, and interest rates rise, thousands of homeowners
who gambled on risky interest-only loans may feel pressured to fall
prey to such schemes.
Very little is known publicly about Kurt Johnson. He tried to call this
newspaper once from his Utah jail cell, but did not respond to further
requests for comment forwarded through his father, a South Bay
physician.
Kurt Johnson was born roughly 43 years ago in Trenton, New Jersey, but
his father declines to disclose anything else about his son's
background. Johnson freely admits that in the early 1990s, he was
sentenced to almost six years in prison for securities fraud. He was
paroled after two years, according to the Sacramento Bee.
Sometime in the last few years, Johnson and Heineman began reading
about mortgage elimination programs on the Internet. Such schemes
aren't just a way to make money; they're a longtime staple for
conspiracy theorists who claim the American monetary system is based on
a massive fraud perpetrated by a cabal of bankers. The godfather of
this movement is G. Edward Griffin, the founder of American Media, a
Southern California company that distributes books and videos about
conspiracies ranging from the banking system, to the September 11
attacks, to the secret society Skull & Bones. In the early 1990s,
Griffin published The Creature from Jekyll Island, the movement's
bible, in which he claimed that ever since the United States replaced
the gold standard with paper money, the country has been plagued by
inflation, while banking elites print money out of thin air to secretly
enrich themselves.
"I don't think anybody in the movement is doing it because they're
trying to get something for nothing," says Scot Runyon, spokesman for
the mortgage elimination business Li-Bo Enterprises. "They just know
they're in a system that's not working for anybody except those who
know you can turn money out of thin air. ... You ever see the movie The
Matrix? Go back and look at it a couple times. That movie is a lot
deeper than most people think."
Like many other such businesses, Johnson and Heineman created the
Dorean Group to invalidate hundreds of mortgages based on this theory.
Homeowners gave the two men a fee ranging from $1,500-$4,500 and signed
their property over to them. Dorean representatives then sent the
lending institution a document, according to the federal indictment,
demanding that the lender prove "to the unilateral satisfaction of the
Dorean Group" that the loan was not based on fraud. Failure to respond
within ten days, the document added, constituted tacit assent that the
loan was fraudulent and invalid. After ten days, the indictment said,
Johnson or Heineman filed documents with the county government stating
that the debt on the property had been wiped out. Sometimes, they used
the supposedly debt-free property as collateral to take out a second
mortgage, proceeds of which they split with their client. In theory,
they could invalidate the second loan with the same process and borrow
more money against the property in perpetuity.
Johnson and Heineman even used their theory to sue lending institutions
to force them to acknowledge their loans were fraudulent. In January
2005, federal judge William Alsup categorically rejected their claims,
calling their operation "an elaborate Internet scam" and fining their
lawyer Thomas Spielbauer $10,000.
Spielbauer declined to comment for this story. But Judge Alsup wrote,
"The court here has seen the scam at work. Greater bad faith would be
hard to imagine."
Johnson and Heineman's legal rationale may be difficult to comprehend,
but the pain and anxiety their "clients" have gone through is all too
real. From Alaska to Florida, credit collection officials are knocking
on doors and threatening to seize the homes of families who trusted the
wrong people.
Doreen Bunnell knows she did something stupid. Bunnell spent years
making the drive from Stanislaus County to Silicon Valley, where she
worked a number of blue-collar gigs. She slept at her father's house,
worked twelve-hour shifts, and returned to the Salida home she'd
dedicated her life to financing. Then in 2002, she lost her job, and
the bills started mounting. Someone told her about the Dorean Group.
"There is now a PROVEN legal and moral way of eliminating your mortgage
while adding $50K to your pocket," the company claimed on its Web site.
Bunnell signed the title to her property over to Dorean, and in August
2004, she was allegedly told her that debt was gone and she could stop
making her mortgage payments. "I asked if properties were getting
cleared, and they said, 'On a regular basis,'" Bunnell recalls. "They
said when this is over, I'm gonna come out way ahead, and 'we're
looking out for you,' blah blah blah. I was sort of brainwashed."
Then came the threats from Bunnell's lenders. Then came the foreclosure
process. Then came the man from the Stanislaus County District
Attorney's office. That's when Bunnell realized the Dorean Group was
the subject of a criminal investigation. Far from clearing out her
debts, she had gotten so far behind in her mortgage she would almost
certainly lose her home.
Bunnell tried to sell her house or refinance her loan. But the Dorean
Group still held title to the property, and they allegedly refused to
release her title unless she paid them $5,000. She filed for bankruptcy
in October. She went on food stamps and antidepressants, and took a
part-time job distributing food samples at Costco. A few months ago,
she says, she thought about killing herself. "At one point, well, I
didn't want to be here no more," she says. "Let's put it that way."
Now she spends most of her time waiting for the day she must surrender
her house. Bankruptcy court officials recently promised to help get her
title back, so she could at least get a piece of the equity. But her
life as she knew it is over. "It was my mistake, and I'm paying for
it," she says. "I lost everything. I sold most of my furniture just to
pay for bankruptcy. ... I've been packing to move little by little,
just selling what I can to support myself. ... The only time I can
bring myself to be happy is if I'm around people, and that's why I like
handing out samples at Costco. I don't have to think about this till I
get home."
Remarkably enough, though, some clients still believe in Johnson's
scheme - even after the trouble they got in. Gayle Marie Bradshaw
works as a colonic hydrotherapist in Sacramento. She swears the banking
cabals have perpetrated a secret plot to control our money, and
believes that the Dorean Group's technique would be rock-solid if only
they ironed out some technical details. "Bank cartels set up the IRS
and the Federal Reserve, and took the ability to print money out of the
hands of Congress, and now it's private banking that does it," Bradshaw
says. "We're paying interest on money that we should be able to create
ourselves."
Last year, however, Bradshaw had considerably less confidence in the
Dorean way. "I was more scared now than ever," she wrote in notes to
herself on September 13, 2004. "I am losing my home, and the DA's
coming to my house." After a Dorean employee told her to stop paying
her mortgage, Bradshaw was swamped with contacts from creditors; a
collection agency called her four to eight times a day, she wrote, even
calling her neighbors and asking them to bang on her door. A terrified
Bradshaw finally got a lawyer, who called Kurt Johnson in an effort to
get Bradshaw's title back. Johnson reluctantly agreed. "I regret that
it is too scary for you," Bradshaw recalled Johnson telling her. "I do
not fear the investigators or the nonsense of the banks, so I will
remain in the fight."
Bradshaw eventually agreed to pay a higher monthly payment to make up
her arrears, and her creditors let her keep her house. She still thinks
they're frauds, but she knows when she is licked. "I'll never try this
again," she says. "No matter how corrupt something is, I'm not big
enough to buck the system. And the politicians are too corrupt. The
banking system is too big. Our worlds are controlled by the banking
system."
The Dorean Group made a lot of money in a matter of months, but the
cops got hip to its scheme just as fast. In August 2004, agents in the
San Francisco office of the FBI got a call from some South Carolina
counterparts, who first learned of the racket from a local bank.
According to an affidavit filed to support a search warrant for
Dorean's office, agents learned the details after they began
scrutinizing records that Johnson and Heineman had filed with county
governments. For example, Johnson offered banks a "bond" to get the
property out of debt, but in order to cash the bond, banking officials
had to sign a statement admitting that their loan was fraudulent all
along. The bond was supposedly underwritten by the First Mutual Trust
of Switzerland, but when federal agents investigated First Mutual, they
discovered its address belonged to a flower shop.
FBI investigators conducted surveillance of the Dorean Group's office,
interviewed victims, and talked with William Jeffries, a former cop who
acted as a broker for Dorean in South Carolina. Throughout 2004, FBI
agent Matthew Ernst alleged in an affidavit, hundreds of thousands of
dollars were deposited in a Bank of America checking account controlled
by Johnson and Heineman, and then transferred to a bank in Latvia, in
the former Soviet Union. Ernst concluded in his affidavit that Dorean's
operation was "permeated by fraud."
On February 1, 2005, the feds raided Dorean's Union City headquarters.
They seized every computer, financial record, and notarized document
they could find, as well as $178,000 from the company bank account. A
few weeks later, Dorean started fighting back. According to Alex Grab,
an attorney for Hannover Properties, the company that owns Dorean's
office complex, Johnson and Heineman filed documents in federal court,
listing both Judge Alsup and FBI agent Gordon McDonald as their
"fiduciaries." The documents asserted that if Alsup or McDonald did
anything contrary to the Dorean Group's economic interest, they would
be violating their fiduciary duties and owe Johnson and Heineman $10
million. "They look and sound legal if you're not a lawyer," Grab says.
Once Dorean's funds were frozen, it fell behind in its rent, and
Hannover sent out a three-day notice. "In response to that, they sent
what seems to be a pretty wacky document," Grab recalls. "It's a 'sight
draft.' It exists in banking lore. From what I understand, it's an
outdated equivalent of a cashier's check. So Hannover Properties got
this check for $60,000. It said, 'payable through Gordon C. McDonald,
fiduciary.' Of course, he's the FBI agent."
According to a source in the investigation, Dorean's officials even
bought a new truck and told the dealer to collect the money from their
fiduciary at the FBI. The salesman went so far as to show up at the
FBI's Concord office, looking for someone to pay him.
But by early last summer, time had run out for the men. A prosecutor in
Salt Lake County, Utah, had been preparing his own indictments and
issued a warrant for the arrest of Heineman and Johnson. Heineman was
taken into custody, but Johnson vanished. As cops searched the Bay Area
for him, Johnson's blog appeared on the Web. "I am currently a fugitive
as I write my first posting and my partner Scott remains in jail on a
fugitive warrant without bail," Johnson wrote. "This is the perfect
example of the government abusing its powers to protect the elitist
banker cartel."
>From then on, Johnson posted a note almost every day. On July 17, after
Judge Alsup issued a restraining order banning the Dorean Group from
eliminating mortgages, Johnson penned a long diatribe. "Judge Alsup is
a political hack," he wrote. "This type of man is a coward and needs to
lose the very office he has no respect for. ... Now he appears again
with a civil charge to put me out of business with the same old
rhetoric of criminal conduct as his basis. Come on judge, if you have
any nuts under that dress put your money where your mouth is. I will
even help you bring me to trial as a crook."
Johnson was arrested a few days later, and he and Heineman have spent
every day since then in custody. Johnson then began sending letters to
a "proxy," who would later post them for Johnson on his blog. In
September, Johnson announced that he was embarking upon a fast, and his
letters started getting weird. Complaints from his former clients
flooded in, but Johnson was unrepentant. "Some of you complain because
of your personal loss," he wrote in October. "Should I owe you endless
concern for the $1,500 that you paid me? Is that really your
expectation? I owe no one except myself; I will do all within my power
and skill set (which I am certain is greater than most) to advance a
truth that is more important than my life."
By November 6, Johnson had spent almost four months in jail. The Salt
Lake County District Attorney's office was preparing to drop the
charges, clearing the way for Johnson and Heineman to be extradited to
San Francisco to face federal charges. Johnson seemed more erratic than
ever. He had already filed a "notice and remedy contract" with his
public defender, David Mack, claiming that his name was a registered
trademark, and Mack's attempt to represent him in court would cost him
a $500,000 "copy write [sic] infringement fee." Finally, Johnson even
wrote a new chapter for the Bible, which he called the "Song of Kurt."
"You, Lord, have hidden me away in the jails of my enemy," Johnson
wrote. "I was made the reproach of many. Unjustly I was accused of
evils. I suffered betrayals from all who claimed friend. .... Worthy is
the lamb to receive glory, honor and praise for his meditation,
undeserved, moves the heavens and moves my soul to adoration. He who
sets the path of lightning, tells the oceans where to cease, heard my
prayers and befriended me through His loving kindness. Great is thy
faithfulness and amazing Your grace, for who can separate me from Your
love? The Lord reigns forever and ever!"
The Dorean Group's adventure is reaching its final chapter. Johnson and
Heineman are scheduled to be tried before Judge William Alsup over the
next few months. If convicted, they face sentences of up to thirty
years in prison.
It's hard to know what to call the hundreds of homeowners who
participated in the Dorean Group's scheme. Some, like Gayle Bradshaw,
really believe in Johnson's vision of banking cabals, phony money, and
mysterious forces beyond our control. Some let their greed overwhelm
their basic common sense. Some are simply suckers who believe anything
if it comes with a notarized statement. But others were ordinary people
who got into a superheated housing market, binged on debt, watched the
mortgage payments empty their bank accounts, and panicked.
If market conditions change in the next few years, the ranks of this
last group are bound to swell. In the last quarter of 2005, the number
of mortgage default notices in California rose 19 percent, according to
the research firm DataQuick Information Systems. One of the factors
contributing to this spike is the huge growth in interest-only loans,
relatively high-risk instruments that offer low payments in the short
term but often ultimately depend upon homeowners being able to
refinance later. In 2005, 50.7 percent of East Bay homebuyers took out
such loans. If the housing market cools, many of these homeowners will
no longer be able to escape the interest-only trap by refinancing. And
if interest rates rise from the historically low levels at which they
have been hovering, mortgage payments around the country will follow.
More and more desperate borrowers will be susceptible to mortgage
elimination schemes. Honest citizens will be tempted by fraud.
Kenneth Sims typifies the members of this nebulous class, the hundreds
of borrowers whom some might call victims, others accomplices, and
others just plain stupid. Sims bought his three-bedroom Fresno house 22
years ago. Every day, he commuted to Sacramento, where he worked as a
material handler for an electricians' union until he was injured and
could no longer work. Roughly twelve months ago, an acquaintance told
him that the Dorean Group could free him from more than two decades of
mortgage payments. "I was told that I could get it canceled," he says.
"That appealed to me, right there."
Sims was a chump, just like the rest. He didn't check out the law; he
just signed over title to his property and mailed off the check. A few
months later, a Dorean Group representative sent word that everything
was taken care of, and he could stop paying his mortgage. But the bank
had other ideas, and threatened to foreclose on his house. Sims tried
to ask what to do, but the Dorean Group never gave him a phone number.
"They sent me letters in the mail," Sims recalls. "I couldn't contact
nobody, 'cause I didn't have the information to contact them. ... They
were supposed to do what they were going to do without us contacting
them."
Eventually, Sims realized he would have to make things right with his
bank. He refinanced his house to clear his back payments, and
essentially wiped out all the equity he had built up. After 21 years of
paying his mortgage, Sims owes almost as much as when he started. When
asked about how he feels about Johnson and Heineman, he snapped, "Don't
you feel like fightin' mad when a cat scratch you?"
Kenneth Sims was an ordinary homeowner who nearly destroyed his life as
a result of a few letters in the mail. Eventually, when the housing
market plateaus, thousands of homeowners around the country will face
the same choices that he did.
RMJon23
It's worked xtrmly well. Just not for these guys named in the article.
Just cui bono? from the vapor money con will take some digging.
"Economics is NOT a cold subject. Any more than the study of
spirochetes was without bearing on human happiness."
-Ez Pound, _Guide To Kulchur_, p.245
"Money is the Schrodinger's Cat of economics."
-Blake Williams, _The Homing Pigeons_, p.139
"Money is the football of economics."
-Silvio Gesell, _The Natural Economic Order_(?)
"It is striking how difficult our very language makes it to express the
critical difference between money and real wealth. Picture yourself
alone on a desert island with nothing to sustain yourself but a large
trunk filled with bundles of hundred dollar bills. The point becomes
immediately clear."
-David C. Korten, formerly a Reaganite, has since awakened,
http://www.futurenet.org/article.asp?id=885
"All the perplexities, confusion, and distress in America arise, not
from defects of their Constitution or confederation, not from want of
honor or virtue, so much as from downright ignorance of the nature of
coin, credit, and circulation."
-John Adams
"The kakotropic urge in economics is beyond anything a normal man can
believe without long experience. They fear the light as no bed-bug ever
feared it."
Pound, _GTK_, 250
[And there's our word for the day, kiddies!: "kakotropic." -rmjon23]