Developer Bob Morgan pleads guilty in bank fraud case, could avoid jail

Embattled developer Robert "Bob" Morgan pleaded guilty to wire fraud conspiracy Tuesday morning, possibly bringing to an end a mortgage fraud investigation that prosecutors had once portrayed as one of the nation's largest.

The plea agreement to a single felony calls for no jail time. However U.S. District Judge Elizabeth Wolford can reject the plea at sentencing, which is scheduled for July 22.

In the plea, Morgan admitted to a conspiracy in which he and at least one other person submitted inaccurate loan information to secure money from ESL Federal Credit Union for the construction of Ellison Heights Apartments in 2016.

The investigation of what was alleged to have been a $500 million fraud portended lengthy jail sentences for the alleged conspirators, including Morgan, who was paralyzed after he was shot in 1991 during the robbery of his family's seafood business.

But, from its early days the investigation was fraught with missteps by federal investigators and prosecutors, whose instances of mishandling of evidence were so numerous and egregious that even Wolford questioned in recent weeks whether the lapses were willful.

An evidentiary hearing was originally scheduled for early April at which authorities would have to explain the background of the evidentiary issues. Those issues included the belated discovery and examination of laptops seized during searches and the failure to reveal to defense lawyers the contents of a cellphone conversation that Morgan lawyers maintained was proof of his innocence.

At that hearing, prosecutors faced the likelihood of the airing of internal discussions about the criminal case and the slipshod maintenance of evidence. Joel Cohen, an attorney for Morgan, said prosecutors likely did not want to go forward with the hearing.

After the plea, Morgan declined comment.

"He's very happy to put this behind him," Cohen said. "... It's done significant damage to his business, but his business remains very strong."

Last week, three co-defendants of Morgan, including his son, Todd, pleaded guilty to misdemeanor bank larceny in plea agreements that included probation and no jail time. Robert Morgan was the sole remaining defendant charged in the allegations of bank and mortgage fraud.

More: Bob Morgan co-defendants plead guilty in bank and mortgage fraud case

Earlier pleas may be revisited

Three other men who worked with Morgan's development business earlier pleaded guilty to crimes and agreed to cooperate with prosecutors. Prosecutors may now need to revisit their pleas and proposed sentences, given the resolution Tuesday.

Prosecutors alleged that Morgan and business colleagues received upward of $500 million in bank loans through fraudulent loan applications. Until the criminal investigation, Morgan was one of the Rochester region's most prominent developers, known for attempts to bolster downtown, and also had a large network of apartment complexes in western New York and across the Northeast.

Wolford once dismissed the criminal case against Morgan and his co-defendants, but ruled that the prosecutors' questionable handling of evidence was not purposeful. Wolford often questioned whether the U.S. Attorney's Office had committed enough staff to the case, given the massive volume of digital evidence.

That dismissal allowed prosecutors to seek another indictment, and they did. But new allegations of intentional withholding of evidence arose with the new indictment, setting the stage for the planned hearing.

Morgan was also targeted by the federal Securities and Exchange Commission, which alleged he was on the cusp of a Ponzi scheme as he tried to repay developers who provided money for his projects. Morgan has since repaid almost $66 million to the investors, the total amount owed.

There has been no record that the investors had complained to the SEC.

Details of plea agreement

Morgan has repaid all of the loans that prosecutors alleged were garnered through inaccurate and falsified information, Cohen said. And the plea agreement calls for settlement of civil forfeiture proceedings against some Morgan-owned properties.

Defense lawyers and prosecutors still disagreed Tuesday on the extent of Morgan's illicit activities.

Prosecutors claimed that Morgan caused losses of more than $9.5 million through fraud and defrauded more than 20 individuals — allegations that apparently include alleged criminal activities beyond the ESL fraud. Morgan's lawyers maintained that those claims vastly overstated the criminal conduct.

That disagreement would be of consequence should federal sentencing guidelines, which are recommendations for a judge, be at issue at sentencing. The prosecution claims would result in a five-year sentence recommendation, while the defense instead would contend that the sentence should be no more than six months.

However, Morgan's plea is of a sort that Wolford can either accept or reject it, making the sentencing guidelines more of an academic exercise. Should she reject the plea agreement, Morgan could withdraw his guilty plea.

The U.S. Attorney's Office on Tuesday release a four-paragraph news release about Morgan's plea.

"In September 2016, Morgan, along with one or more co-conspirators, caused ESL Federal Credit Union to issue a construction loan based on inaccurate information regarding the construction contract price," the news release said. "Morgan saw and was aware of documents reflecting inaccurate information and agreed, along with one or more co-conspirators, for that information to be submitted to ESL to obtain a larger amount of the construction loan than what would have otherwise been supported by the actual figures."

Contact Gary Craig at gcraig@gannett.com or at 585-258-2479. Follow him on Twitter at gcraig1.

This article originally appeared on Rochester Democrat and Chronicle: Bob Morgan, accused of bank fraud, pleads guilty