BY JOHN KREROWICZ
jkrerowicz@kenoshanews.com

Two Kenosha County residents and three others have been indicted on 24 counts of federal wire fraud and money laundering charges in a scheme to allegedly steal mortgage funds.

The defendants are Patricia Lynn Kay, 47, of Kenosha; Michael Pembroke, 45, of Twin Lakes; John F. Hochrek Jr., 48, of Spring Grove, Ill., and Robert Farrell, 29, and alleged leader of the group Paul J. Zaleski, 60, both formerly of Richmond, Ill.

Pembroke and Kay are each charged with five counts of wire fraud and one count of money laundering. If convicted, the defendants face a maximum penalty of 20 years in prison for each wire fraud offense and 30 years in prison for each money laundering offense.

A 9:30 a.m. Thursday initial appearance for Pembroke, Hochrek and Kay is set before Judge William E. Callahan Jr. in federal court in Milwaukee. Zaleski and Farrell have been arrested in California and are awaiting return to Wisconsin.

Advertisement

The scheme involved more than $14 million in mortgage loans from 13 lenders to buy some 51 residential properties in southeastern Wisconsin and northern Illinois between 2004 and 2006.

More than $2 million of that money allegedly was sent to three fake companies controlled by Kay, Pembroke and Zaleski. The defendants then reportedly took the money for personal use.

The properties involved included five in Salem, four in Trevor, two each in Sivler Lake and Twin Lakes, and one each in Kenosha and Wheatland. Not all incidents involving the 51 properties were charged.

Assistant U.S. Attorney Carol L. Kraft, who is prosecuting, believed a number of these kinds of scams are surfacing because they have resulted in numerous foreclosures that eventually catch the eye of investigators.

However, she believed more prevalent now were scammers promising to help people who can’t afford their mortgages. The scammers charge people fees but do not do what’s promised.

The indictment alleged:

Zaleski was owner of First Security Financial, a mortgage brokerage company with offices in Kenosha and Antioch, Ill. Kay worked at First Security.

Pembroke indicated he was a home remodeling contractor doing business as Dayco Home Improvement. Farrell was a mortgage loan originator with First Security. Hockrek was a real estate agent with Premier Realty Partners in Illinois and an appraiser doing business as Tri-County Appraisals in Wisconsin and Illinois.

Farrell and Zaleski reportedly wrote fraudulent applications to obtain mortgage money. They used the loans to buy properties in their names and the names of at least 10 people who thought they were part of an investment group. Their names were used on at least 40 real estate purchases.

Zaleski and other defendants would agree with a seller on a purchase price for property but then determine a second, larger amount as a contract price. The price difference was to be sent by the seller to one of the three fake companies. The sellers had been told that the price difference was for renovations to the property.

Zaleski told the investor/buyers that he and Pembroke would renovate the properties, re-sell them and everyone would share in the profits. The two men apparently made no improvements or paid any of the mortgages, meaning the investor/buyers whose names were on the paperwork had to deal with the resulting foreclosures.

Zaleski used Hochrek and others to create an inflated property value in order to justify the higher, contract prices.