business

In a secret plea deal, the developer of the 123-unit Sexton Lofts condominiums in downtown Minneapolis has admitted to defrauding lenders in a $2.5 million mortgage fraud scheme, federal prosecutors said Friday.

The guilty plea by Brett A. Thielen, 40, of Savage -- made 15 months ago -- was disclosed on the same day officials unsealed an indictment against two other men in the alleged fraud.

The government contends Thielen and others engaged in mortgage flipping, in which 13 condos were purchased at market rates and resold at inflated prices to unqualified buyers, using false appraisals to defraud lenders.

While the U.S. attorney's office would not comment on why Thielen's plea was kept secret, cases often are sealed during investigations involving other suspects.

Thielen was the principal owner of JJT Development, which controlled 50 percent of Sexton Lofts LLC , the company that redeveloped the 85-year-old commercial building at 521 S. 7th St. in 2005.

He pleaded guilty in December 2008 in U.S. District Court to mortgage fraud and illegal monetary transfers related to flipping units at the Sexton from September 2006 to April 2007. At the time, the fraudulent sales represented about one-quarter of the units sold in the complex.

Thielen is awaiting sentencing.

The two other men charged Friday in the Sexton mortgage fraud are Gerald James Greenfield, 64, of Bloomington, and Nicholas Ryan Delon Smith, 30, of Prior Lake. Their charges are related to the same 13 condos.

According to the charges, the fraudulent transactions began with Thielen providing cash to buyers who purchased units at near the true market value. The buyers transferred the titles to Thielen, who then resold the units for 30 percent to 80 percent more on the same day or soon after the original sales. The higher resale prices were based on false appraisals and income information for the new buyers. Thielen split the profits with others in the scheme, the charges said.

Thielen also laundered proceeds from the scheme by arranging to have funds wired to a lawyer in Australia, who then wired the money back to Thielen and others in the fraud. The Australian lawyer also wired money on Thielen's behalf to buy $700,000 worth of stock in two companies, DigitalTown Inc. of Burnsville and Espre Solutions Inc. of Plano, Texas.

Court documents released Friday don't say how much Thielen profited from the fraud, but an affidavit filed in 2008 said he arranged to have more than $2 million transferred to the Australian lawyer.

The fraud allegations are not the only troubles to hit the Sexton. It went into foreclosure in the fall of 2007. Condo owners sued the developers for failing to complete the project, including building a parking ramp that was included in the price of some units. Thielen and the other development partners also sued each other for a variety of alleged financial misdeeds.

In the indictment, Greenfield and Smith were charged with multiple counts, including mortgage fraud by wire and conspiracy to commit money laundering. Smith was the owner of two mortgage brokerage companies that handled some of the transactions.

Australia connection alleged

The indictment alleged the two men conspired with an unnamed co-conspirator in Australia in the fraudulent transactions. Smith and the Australian then disbursed the proceeds from those sales to a real estate agent who was part of the scheme. The agent then paid funds back to the others, the indictment said. Later in the scheme, the fraudulent profits allegedly were disbursed differently without going through the real estate agent.

Buyers were told by Smith and Greenfield that they would be paid for buying the units and would not be responsible for paying off the mortgages, the indictment said.

The indictment said Greenfield also laundered about $1.4 million in proceeds by wiring funds to the Australian.

One person already has been convicted of mail fraud and conspiracy for his role in mortgage fraud at the Sexton. As part of a guilty plea, Joseph Huebl, 30, agreed to cooperate with an investigation by the U.S. attorney's office. He was sentenced in August to 30 days in prison and three years of supervised release.

jwalsh@startribune.com • 612-673-7428 sfeyder@startibune.com • 612-673-1723