Two-time congressional candidate Adam Taff pleaded not guilty Wednesday to charges he illegally used campaign contributions to set up a fraudulent home mortgage.

Taff’s co-defendant and former employer, John D. Myers, also pleaded not guilty to one count of wire fraud.

Both declined to meet with reporters before or after the 15-minute hearing.

U.S. Magistrate Judge James P. O’Hara reminded Myers and Taff they had the right to remain silent.

“You ought to be careful what you say and to whom you say it,” O’Hara said.

About 10 news reporters attended the hearing.

If convicted of wire fraud, Taff, 40, and Myers, 48, each could be sentenced to up to 30 years in prison and fined up to $1 million. Taff could be sentenced to an additional five years and face an additional $250,000 in fines, if convicted of misusing funds donated to his congressional campaign.

The charges stem from a grand jury indictment last month, alleging Taff and Myers hatched a scheme in which Taff would appear to have made a $300,000 down payment on a $1.2 million home in Lake Quivira that he had agreed to buy from Myers.

According to the indictment, Taff withdrew $300,000 from his campaign’s accounts at Metcalf State Bank on Feb. 10, 2004, and applied it toward a bank check payable to Myers and Myers’ wife.

At the time, Myers was founder and chairman of Myers National Mortgage Co.

• Lawmaker fined for soliciting funds (08-19-05)
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Taff, who worked for Myers’ company, was a Republican candidate for the U.S. House of Representatives from the 3rd District, which includes Johnson and Wyandotte counties and part of Douglas County.

Prosecutors allege Taff and Myers met with a title agent in Overland Park, acted as if the $300,000 check was a down payment from Taff to Myers, and had the agent fax a false closing statement to a mortgage company, showing that the money was going to Myers.

Records, however, show that Taff, acting with Myers’ consent, returned the $300,000 to his campaign accounts.

Records also show that on Feb. 10, 2004, Metcalf State Bank president and chief executive officer Jon Stewart was serving as Taff’s campaign treasurer. Stewart resigned his treasurer’s position Feb. 12, 2004 – two days after Taff allegedly returned the $300,000 to his campaign accounts and roughly six months before the state’s primary election.

When asked if his resignation was in response to Taff’s alleged actions, Stewart replied: “Really, I’m not in a position to comment on that. I can tell you that I did resign as treasurer. That’s a fact.”

Records show Stewart was replaced by Kimberly Stewart, a certified public account. Jon and Kimberly Stewart are not related.

Journal-World attempts to reach Kimberly Stewart for comment were unsuccessful.

Taff also is accused of rigging his loan application with NovaStar mortgage company, claiming his campaign accounts as personal assets and a monthly income of $15,000 when it actually was approximately $6,500 a month.

The arrangement appears to have allowed Taff and Myers to dupe NovaStar into thinking Taff qualified for a loan when, allegedly, he did not.

Real estate records show the allegedly $1.2 million home had last sold previous to the Taff deal in August 2000 for $250,000. Originally priced at $309,000, it had been on the market for 136 days before the 2000 sale.

County records show the five-bedroom, five-and-a-half-bathroom, 3,925-square-foot home had an appraised value of $816,600 in July 2005. It’s unclear whether the increase in appraised value was because of substantial improvements. The house was built in 1955.

NovaStar spokesman Mike Enos declined comment on the mortgage company’s loan to Taff.

“But generally speaking,” he said, “a mortgage lender makes a loan to an individual based on what’s called a loan-to-value ratio – the bigger the down payment, the lower the risk; the lower the risk, the lower the payments.”

Much of the information used in a mortgage loan application, he said, is provided by the buyer and appraisers.

“If someone (borrower) says they’re putting down ‘X’ down payment, when they’re really putting ‘Y,’ that’s fraudulent representation,” Enos said.

A hearing on motions filed by attorneys representing Myers and Taff – J. R. Hobbs and James Eisenbrandt, respectively – is set for Oct. 17.

Assistant U.S. Atty. Leon Patton said he expected the trial to last four to five days.

Taff, a former fighter pilot viewed as a GOP moderate, lost to incumbent Democratic Congressman Dennis Moore in the 2002 general election. He ran again in 2004, losing to conservative Kris Kobach in the Aug. 3, 2004, primary. Kobach lost to Moore in the 2004 general election.