NU Online News Service, May 26, 4:01 p.m. EDT

The president of a defunct New York title insurance company was arrested today on charges he misappropriated up to $5 million in client and escrow monies, federal and state authorities announced.

Charged with insurance fraud and wire fraud was Brian H. Madden, 55, of Greenlawn, N.Y., who was president of Liberty Title Agency and also operated Skyline Title and GNY Liberty Abstract.

According to a sealed complaint that was issued last week before his arrest, Mr. Madden ran his operation "much like a 'Ponzi' scheme, in which new investors' funds are used to pay off old investors…"

"Madden's scheme essentially relied on new funds from clients to pay off debts owed on behalf of other clients, or to sustain Liberty Title's operations despite Madden's significant draws from the Liberty Title," according to FBI Special Agent Aimee M. Funasaki.

Liberty closed down last month after several contracts with underwriters were terminated when accounting and financial irregularities were discovered at the firm, Agent Funasaki noted.

Since 2006, Mr. Madden "unilaterally took cash draws approaching $1.5 million a year or more, and since January 2008 alone he took "cash draws of approximately $2.2 million from Liberty Title," Agent Funasaki said in a deposition.

The agent mentioned that prior to the arrest, she had obtained Mr. Madden's bookkeeping records, bank account records and e-mails, interviewed witnesses, and found he had transferred money from Liberty Title into his account and accounts belonging to his wife and daughter.

Mr. Madden's arrest was announced by Lev L. Dassin, acting U.S. Attorney for the Southern District of New York in Manhattan; Joseph M Demarest Jr., assistant director in charge of the FBI New York Field Office; and New York Insurance Superintendent Eric Dinallo.

According to Mr. Dassin's statement, Mr. Madden last year was making cash draws of $300,000 or more a month despite the deteriorating real estate market throughout 2008.

As an example of Mr. Madden's stealing-from-Peter-to-pay-Paul operation, it was mentioned that he received funds from a major unnamed New York City developer to pay $2.1 million in mortgage real estate taxes for the transaction and to record the transaction.

After bouncing one check, "Liberty Title used escrow funds misappropriated from another of its clients, as well as escrow funds entrusted to GNY Liberty Abstract, to pay a portion of the tax due on the transaction," said Mr. Dassin's announcement.

It was also discovered that Liberty Title had allegedly failed to record in a timely manner more than 35 real estate transactions despite being paid for them.

On the wire fraud charge, Mr. Madden faces up to 20 years in prison, a $1 million maximum fine or twice the gain or loss from his scheme, and up to 10 years for insurance fraud and a $250,000 fine or twice the pecuniary gain or loss.

After appearing before U.S. Magistrate Frank Maas Mr. Madden was released on his own recognizance.

Special Reports /

Title Insurance President Arrested For Ponzi Scheme Operation

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