Sunday, February 26, 2012

Naples, Florida: Man accused in house-flipping scheme lived well, far from blighted Cuyahoga County, Ohio, neighborhoods

Blaine Murphy is arraigned on illegal house flipping charges at the Cuyahoga County Justice Center on Feb. 2. Murphy is charged with illegally flipping about 250 houses in the greater Cleveland area.

NAPLES, Fla. -- People who knew Blaine Murphy in this snowbird retreat say they didn't know how he made money, but they saw how he spent it. He took off on European ski vacations, had a Lincoln stretch limo parked in the drive and bought a Cirrus four-seat aircraft to take flying lessons at the local airport.

"He went on these big trips. He'd say, 'I went skiing in Colorado, skiing in Switzerland.' " said Albert Voorthuis, a former neighbor. "I always wondered where the hell he got his money from."

Like others in the affluent Gulf Coast city, Voorthuis was surprised to learn from the local news of Murphy's Dec. 23 arrest on charges that he operated a criminal house-flipping enterprise in Ohio. Murphy and his company, Bryce Peters Financial Corp., are accused of using fake names to buy and sell foreclosed and lender-owned properties in Cuyahoga County, ignoring code violations, tax bills and housing court summonses. He's in the Cuyahoga County Jail.

Prosecutors contend the scheme involved 235 homes in Cuyahoga County and operated on a large enough scale to sink neighborhood housing values. The case is the first felony indictment against an individual behind one of many corporations that flip distressed properties in the Cleveland area. The prosecutor's office says the investigation could lead to more indictments.

"These are houses that caused blight in our community," Assistant County Prosecutor Michael Jackson said at Murphy's bond hearing. "Many were transferred in a condemned state."

The contrast between those boarded-up neighborhoods and Murphy's lush surroundings 1,200 miles south couldn't be sharper. The foreclosure crisis has ravaged Florida, as it has Cleveland. But you'd be hard pressed to find a blighted property in the manicured confines of Naples.

Properties are in such demand that even houses that fall into foreclosure are snapped up by eager buyers who otherwise couldn't afford to buy here, says Roger Jacobsen, the city code enforcement officer.

"I have not had to board up one house," says Jacobsen.

Murphy's single-story house on South Golf Drive is in an upper middle class neighborhood, a few minutes from white sandy beaches and luxury waterfront condos that run seven and eight figures. He had lived in a half-million-dollar condominium two blocks from the Gulf and moved into the house several years ago. The corner-lot house is owned by a corporation that shares Murphy's business address in Naples and which bought the house for $1.2 million in 2007.

On a recent visit, nobody answered the door. A two-seat Porsche ragtop was parked in the drive. Royal palms rustled in the breeze, while golfers ambled up to a putting green across the street.

From a window, one could see fine furnishings, a baby grand piano and art pieces arranged with museumlike meticulousness. Neighbors recalled how Murphy and Joseph Farina, who also lives at the house, remodeled the interior and turned the backyard into a landscaped oasis. A stone walkway, rock garden and a roofed patio bar flank an outdoor pool and spa. Neighbors said Murphy and Farina hosted weekend parties there.

"If you had the money the gentlemen put into that house, you'd be able to live on it the rest of your life," said one next-door neighbor, a 70-year-old retiree who did not want to give his last name.
Blaine Murphy's flipped houses

Patricia Adams, a retired school teacher who lives on the other side, said Farina told her the limousine parked in the driveway belonged to them, and they were looking for a driver. Farina wanted to know if Adams' handyman would be interested, she said.

"They didn't like to drive it because they like to drink," Adams said. "The limo is stored somewhere around town."

Farina declined to be interviewed for this story, as did other friends who visited Murphy in jail. A visitors' log shows that after Murphy's Dec. 23 arrest, Farina visited him in the Collier County jail 10 times before Murphy was extradited to Cleveland in late January.

Neighbors said Murphy was private, and his business activities were a mystery to them. They were also a mystery to authorities who chased a trail of aliases and post office boxes to find him.

The case against Murphy and Bryce Peters started when Cleveland Housing Court Judge Raymond Pianka went to Prosecutor Bill Mason about unregistered corporations that had failed to pay fines for repeated housing code violations. The prosecutor's office went to court to collect the fines and received a $9.5 million judgment against Bryce Peters Financial Corp. An investigation also found evidence that property deeds contained bogus signatures, making the property transfers illegal.

The FBI joined the chase after the prosecutor's office had difficulty finding the person behind Bryce Peters Financial Corp. That led authorities to Murphy.

Even a woman who worked for Murphy, and who turned prosecution witness in the felony case against him, told the FBI she had believed his name was Martin J. Franks, one of the aliases prosecutors said he used on property deeds.

The woman, identified by prosecutors as Carol Guy, worked for Murphy and Bryce Peters Financial Corp., from Rapid City, N.D. A Cleveland FBI agent said in an affidavit filed in the Collier County Circuit Court that Guy earned $1,600 a month as a contract employee to locate bulk properties to purchase and to help close deals.

Corporate investors such as Bryce Peters Financial Corp. saw opportunity in the subprime mortgage crisis and housing crash to scoop up properties at rock-bottom prices. County records show Bryce Peters bought and sold many for under $1,000. Prosecutors say Bryce Peters made the deals for quick profit without regard to housing violations, unpaid taxes or point-of-sale regulations. More than a dozen companies operate in the same manner, according to prosecutors and housing advocates.

Frank Ford of Neighborhood Progress Inc., a nonprofit Cleveland housing group, said the head of one company told him, "If we had to bring these properties up to code, our business model wouldn't work."

The cost to the community runs deep. The indictment said the scheme fueled a loss of property values in excess of $1 million. Bryce Peters also owed more than $1 million in delinquent taxes on Cuyahoga properties at the time of the indictment, while Cleveland has paid $324,000 to demolish 38 houses the company transferred, the prosecutor's office said. Bryce Peters and other absentee corporate landowners also suck up resources of the Cleveland Housing Court, which has on its "corporate docket" more than 1,600 cases in which companies have ignored orders to appear.

Bryce Peters has flipped hundreds of houses in Ohio, and similar numbers in Texas, Pennsylvania, Michigan and Missouri, prosecutors said.

Guy said she never met Murphy, but he called or e-mailed her daily, according to the affidavit.

"When Guy's father passed away she received flowers from Murphy," special agent Stacey Gwin said in the affidavit. "When Guy asked Franks who Murphy was, he was stumped for words and told Guy that Murphy was an investor in Bryce Peters Financial Corp."

Prosecutors accused Murphy of using the aliases Bryce Peters III and Martin J. Franks to forge deeds in the Cuyahoga County flipping scheme, which mostly involved houses in Cleveland, between 2005 and 2010. Most deeds were signed by Peters and witnessed by Franks. Guy told the FBI that the signatures were in Murphy's handwriting, the affidavit says. The state agreed not to prosecute Guy provided she cooperates with authorities.

The 16-count indictment against Murphy includes charges of engaging in a pattern of corrupt activity; money laundering; tampering with records; and conducting business without an Ohio license.

The indictment also says another associate named John Gullio, who witnessed documents, could face charges. But Jackson, the assistant prosecutor in Cuyahoga County, said in an interview that authorities are not certain who Gullio is, and the name could be another alias of Murphy's.

Murphy admitted to Guy his true identity when she quit the job in 2006, the FBI affidavit said. She returned to him boxes of records. But she apparently held some back, for which Murphy offered a briefcase of cash. The court record does not elaborate, and an FBI spokesman said the agency would not comment on a pending case.

Special agent Gwin, a white-collar crime investigator, filed the affidavit last month because Murphy's iPhone was held by the local sheriff's office, which had arrested Murphy on a fugitive warrant from Cuyahoga County. The FBI wanted to search the phone. The affidavit says the agency believed Murphy was still conducting business from jail.

At that time, detectives armed with a search warrant also visited Murphy's South Golf Drive house in Naples and took an Amazon Kindle, checkbooks, data storage devices, a PlayStation 3 and two envelopes containing $2,450, according to a Naples police report. They also seized a computer from Murphy's workout room.

Jackson, the lead prosecutor on the case, said Murphy also owns several high-priced cars and a yacht, which is believed to be docked in another state on the East Coast.

An online registry shows Murphy owns a 45-foot sailing yacht, "Big Blue," docked in Georgetown, Md. The entry for Murphy's boat links to the website of Ocean Horizons Maritime & Aviation LLC, a yacht and aircraft sales and brokerage company. Murphy identified Ocean Horizons as his employer when he was arrested.

Murphy had also bought an airplane to take flying lessons at Naples Municipal Airport.

Rex Gastgeiger, who operates RexAir Flight School and Maintenance Center, estimated Murphy dropped $200,000 on the Cirrus SR22, a top-quality aircraft he bought second hand. He described Murphy as a dedicated student in a business where many who start flying lessons never finish. Murphy showed up twice a week and displayed above-average skills in the cockpit, he said.

"He had a pleasant smile, a pleasant demeanor. He paid his bills," said Gastgeiger, who said he was saddened by news of Murphy's arrest.

"It was disheartening," he said. "When we read the article, we looked at each other and said, 'Can this be true?' "

Jackson said investigators are still unraveling Murphy's business interests. Murphy's name and a Naples business address show up in a number of Florida corporate filings. The records link Murphy or his business address to companies named Investment Servicing Center LLC, Airfleet Management One Inc. and Gibraltar Trust Servicing LLC, which is also listed as the owner of Murphy's South Golf Drive house.

A search of the business address on 5th Avenue, a fashionable shopping and restaurant district in Naples, leads to a small storefront occupied by Pack & Post -- a packing and shipping store. The proprietor said Murphy has a mailbox there.

The FBI found that the corporate address of Bryce Peters Financial Corp., which was licensed in Reno, Nevada, is also a post office box at a self-storage facility. Another address used by the company -- this one in Maple Shade, N.J. -- led the FBI to a post office box in a shopping plaza.

Law enforcement authorities in Naples, meanwhile, said they had no reason to suspect Murphy of engaging in any criminal activity there.

"He was low-key here," said City Manager William Moss, who lives catty-corner from Murphy's house.

Moss said he first learned of Murphy's arrest when he arrived home for lunch that day and saw news reporters roaming around. He said he didn't know Murphy. And he was reluctant to talk about him.

Naples residents have much to brag about -- the amenities, fine-art galleries and the recent Winter Wine Festival, a world-class fundraiser that costs $8,500 per couple just to get in (the top-selling lot was a private concert by Grammy-award winner LeAnn Rimes).

But the arrest of Blaine Murphy is not something people here are proud of.

"It's kind of embarrassing," the city manager said.

Plain Dealer researcher Jo Ellen Corrigan contributed to this story.

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