TheBakersfieldCalifornian.com

Back in 2006, when David Crisp was a 26-year-old millionaire wearing a $50,000 Chanel watch that glittered with hundreds of diamonds, he told The Californian he planned to be a billionaire by 35.

"The odds say I won't," Crisp said. "That's why I like those odds."

Last week of course, Crisp, now 31, and former partner, Carl Cole, 63, sported less glamorous wristwear when federal marshals handcuffed them and eight others who feds say ran a "full-service mortgage fraud factory" in Bakersfield during the boom.

Sure, Crisp & Cole Real Estate, with its brashly flaunted excesses, was all about money. Fame and power too, perhaps.

But exactly how Crisp, Cole and their associates pulled off the scheme isn't particularly clear (or riveting) as described in the federal indictment unsealed Jan. 21.

Fortunately we have the past, full of details, to make some of the allegations clear.

Step one: Get loans

What we common folk refer to as lying, the feds call "material false statements and omissions on loan applications." It's something all 10 plaintiffs are accused of as part of the overall conspiracy charge.

It's also something locals saw dramatic examples of during Cole and Crisp's real estate license hearings in the summer of 2008.

Take Jennifer Crisp -- David's wife, and one of the 10 indicted -- who on one loan application claimed to be the chief operating officer at her father's CPA business. She never worked there, testimony revealed. On other loan papers, she supposedly owned a consulting business and was pulling in $25,500 a month, a civil lawsuit later alleged.

At least some of the CPA letters verifying her employment and income were forged with the name of her father's former business partner, evidence showed -- something the man had no clue about until regulators later contacted him.

Jennifer's father, Kevin Sluga, has since taken a plea deal admitting he prepared false CPA letters verifying bogus job and income information for about $12.6 million worth of loans.

Sluga was Crisp & Cole's corporate accountant and also prepared tax returns for Crisp, Cole and key employees. Sluga has since lost his CPA license. His wife, Leslie, and another daughter, Megan Balod, have also taken plea deals, as have two former Crisp & Cole loan officers. All five await sentencing and have agreed to help prosecutors.

Step two: Get more homes

The point of the phony loan docs was to get as many properties as possible.

Some buyers would file applications on two houses at once to hide from lenders how much debt they were taking on. Others filed false pay stubs, or "temporarily seeded a borrower's bank account" to create bogus deposit records, the indictment alleges.

A recurring falsehood was the claim a home would be the borrower's primary residence, something that allowed lower interest rates and 100 percent financing.

Again, the license hearings showed how far participants would go to claim primary residence.

In 2005, when David Crisp bought a home on Marazion Hill Court, the lender asked for an explanation because the move looked like a downgrade: the home was valued at $200,000 less than the family's existing home and was smaller, an underwriter testified.

In response, Crisp wrote a letter saying: "My wife and I fell in love with the floor plan."

The letter described a waterfall, courtyard and second floor for the kids that made the home a move up.

"I intend to leave my house" to my younger siblings and my mother, Crisp's letter finished. (He sold the home to his sister-in-law the following year and it was foreclosed on in 2007.)

The attorney for the state Department of Real Estate introduced evidence showing Crisp didn't really plan to live in the house because he'd already signed a lease agreement allowing the seller to stay there.

The DRE's accusation, filed in September 2007, listed transactions for 13 properties where fraud was allegedly documented. The federal indictment lists 19, some of them also in the DRE document. While the scope of Crisp & Cole's operations may never be nailed down, The Californian tracked the firm's deals for more than a year and tallied 144 troubled properties with loans totaling $83.7 million, most in the metro Bakersfield area. Almost all have since been foreclosed on or sold "short," where a lender agrees to let the property go for less than is owed on it.

Step three: Get commissions

Buying, selling and refinancing properties meant commissions for Crisp & Cole.

The company represented not only buyers and sellers -- sometimes both in the same transaction -- but also opened a mortgage brokerage that meant more commissions, the indictment notes.

For just the 13 properties in the Department of Real Estate's case, Crisp & Cole received some $488,000 in commissions while its mortgage arm, Tower Lending, got $120,000, the administrative law judge noted as an aggravating factor in his decision to revoke licenses.

Some homes were "flipped" among employees and family members to inflate the price and "skim more equity out of the property," the indictment says (see related graphic for examples).

Banks weren't the only victims.

Some were "unsuspecting innocent buyers" who picked up overpriced homes, feds say. And "whole neighborhoods/communities were negatively affected" by the scheme.

One tract rampant with Crisp & Cole fallout is Seven Oaks at Grand Island.

"I haven't had this (house) reappraised because I don't want to know" its present value, said homeowner Elaine Hull, after hearing about last week's arrests.

"But I know we'll never get (our money) back."

The Hulls bought their Ordsall Street home in 2006 -- a short, upscale street heavily hit by Crisp & Cole foreclosures -- and soon saw its value plummet.

Step four: Fail

This part isn't in the indictment.

But many wonder whether Crisp, Cole and their army of "straw buyers" -- people who owned homes in name only -- knew the houses were destined for foreclosure (and their credit for ruin).

Gary Crabtree, the Bakersfield appraiser who was one of the few in the real estate industry to publicly say there was fraud in the market, has one view.

"The straws I've talked to all told me this guy could sell refrigerators to Eskimos," Crabtree said of Crisp's smooth talk.

The straw buyers, some of them employees and family, some would-be investors drawn in by the hot market, were told similar tales, Crabtree said. Lend your name and credit and you'll get $5,000-$7,000. The house will be rented out. When it resells, you'll get half the profit.

"That's the common theme I got," Crabtree said.

Crisp and Cole, with their lavish marketing, fancy cars, expensive suits, bodyguards and leased jet, had created a monster.

"They had to continue to feed that monster," he said of the need to continually flip properties. "It's the Bernie Madoff thing."

David and Jennifer Crisp, Cole, Cole's son Caleb, and six former employees -- Sneha Mohammadi, Julie Farmer, Jayson Costa, Jeriel Salinas, Robinson Nguyen and Michael Munoz -- were named in the 56-count indictment. All have pleaded not guilty.