There were tears and sniffles among the family of prominent local Realtor Ron K. Clarke in the crowded courtroom of U.S. District Judge Ted Stewart as he handed down a sentence on Thursday to Clarke, a key figure in an illegal property flipping scheme that resulted in inflated property tax valuations and multiple foreclosures in the upscale Riverbottoms area in Provo.

For his part in the scheme that resulted in more than $5 million in losses, Clarke was sentenced to 41 months in federal prison with no parole.

In Thursday’s sentencing, Clarke and Bradley Grant Kitchen, David R. Bolick, Steven Wells Cloward and Jeffery David Garrett were described by Stewart as “men of stature and status, success and privilege, that chose to follow their most greedy instincts to lie, cheat and steal.”

Stewart, in issuing their sentences, said the defendants are “part of a larger corruption in our society that has led to the current economic problems that confront this nation and the world.”

“The defendants are part of a conspiracy to steal large sums of money through lies and deception. They had no regard for the mortgage companies, exposed them at great risk. They had no regard for the people in the neighborhoods whose home values have been affected, and have suffered higher property taxes,” he said.

Prosecutors said each of the defendants, functioning in various roles as mortgage broker, appraiser, investor, escrow agent and others were integral to running a scheme that raked in millions of dollars by falsely inflating the value of several homes in the Riverbottoms area, recruiting straw buyers to dupe mortgage lenders into granting loans for amounts in excess of their fair market value, and then pocketing the difference.

In addition to the mortgage lenders’ losses, several hundred residents in the area also suffered collateral damage in the aftermath of the scam. About 180 residents appealed their property tax valuations in 2007 after the mortgage scam sent property valuations of some 550 homes in the Riverbottoms area up between 50 percent and 100 percent in just one year, according to the Utah County Assessor.

And the properties that were involved in the illegal property-flipping scheme are among several still blighting a neighborhood that is suffering from the housing downturn, the credit crunch and a glut of luxury homes. A number of those properties are either still vacant, for sale or have been sold in trustee sales or short sales.

The defendants all pleaded guilty last summer to various charges including mail fraud, wire fraud and conspiracy to commit mail and wire fraud.

On Thursday, Kitchen, whom prosecutors described as the “leader and driving force” in the scam, received the highest sentence among the five men — 51 months in federal prison. Bolick was sentenced to 41 months in prison, Steve Wells Cloward was sentenced to 33 months, while Jeffery David Garrett was sentenced to 12 months in prison.

They will begin serving their prison term starting June 1.

Kitchen, Bolick and Cloward are each jointly and severally liable to pay $5.5 million in restitution to three mortgage lenders — America’s Wholesale Lender, a division of Countrywide Home Loans in California; American Brokers Conduit, a division of American Home Financing in New York; and SunTrust Mortgage Co. of Atlanta, Ga.

Clarke, who was fined $22,000 by the Utah Real Estate Commission and had his Realtor’s license revoked in February, was ordered on Thursday to pay up to $5.4 million. Garrett was ordered to pay $100,000 in restitution.

In a public show of remorse, Clarke said he accepted full responsibility for what he did, and at one point even received a show of hands in support from friends and family as his lawyer, Fran Wikstrom, pled for a lower sentence for him.

“I crossed the line. I blame myself and humbly ask for forgiveness for what I’ve done. I deeply wounded my family, destroyed my career, devastated my reputation. For the rest of my life, I will live with that,” he said.

Clarke admitted to falsifying property sale values, in some cases by more than $1 million per transaction over the actual sale price on the Wasatch Front Multiple Listing Service, in order to create false comparables in the Riverbottoms area to help him sell neighboring homes at higher prices. A comparable is a completed sale that is used to establish fair market value for neighboring properties.

“Stealing is stealing regardless of the method,” U.S. District Judge Ted Stewart said in issuing the defendants’ sentence.

Through the fraudulent use of straw buyers, inflated appraisals and “flip” sales, each defendant deceived lenders into funding two consecutive purchases on the same property, sometimes only a day or two apart, prosecutors said.

Kitchen signed paperwork on behalf of Bolick’s company, Home Owners Group, for the original purchase of the homes at market value and the “flip” sale at artificially inflated values to straw buyers he recruited — Channel 2

sports anchor Dave Fox and Frank Spangler. He also falsified loan applications to mortgage brokers, which qualified straw buyers under false pretenses, misled the source of downpayments and owner occupancy, and concealed loan kickbacks to straw buyers.

Cloward then used the false comparables provided by Clarke to prepare false appraisals for the properties at twice the market value.

“With each false appraisal prepared and submitted, Cloward fulfilled a key role in the joint effort to reset the market in the Riverbottoms,” prosecutors said.

These inflated appraisals were then used to dupe America’s Wholesale Lender, American Broker’s Conduit and SunTrust into thinking that the value of the Riverbottoms properties was sufficient to protect their loan investments if the loans went into default.

He and Bolick used Paragon Investment Group LP as a financial conduit to receive illegal loan proceeds, fund other property acquisitions and business ventures, pay the defendants’ salaries and commissions and make mortgage payments on the Riverbottoms homes. But over time, these payments stopped, resulting in their foreclosure.

The Riverbottoms case is the first filed in federal court by the Utah Mortgage Fraud Task Force. The group, which comprises local, state and federal law enforcement officers and federal prosecutors, has filed actions in state court.

Fox, Mark Atkin and Verrell Blaisdell, who were connected to the illegal mortgage scheme, entered pleas in abeyance on communications fraud charges in 4th District Court in September 2007.

Court documents allege the men falsified home loan documents to make money on a quick resale. Fox and Atkin, in a plea bargain deal with prosecutors in September, promised to testify against the people involved in the scam, in exchange for their cases being dismissed. Fox’s case was dismissed after he met certain requirements including cooperating with the prosecutors.

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