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Loan scheme’s target is defrauding blacks

October 16, 2007

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Frederick C. Lee Jr., founder of Financial Independence Group, markets himself as a self-made black man trying to help other blacks make it rich. However, he has enriched only some of his top lieutenants while using a network of associates to feed a mortgage loan scheme that recently has run afoul of regulators in two states.

Since I began writing columns on his operations two months ago, Lee and his Financial Independence Group have been ordered to stop all mortgage-related activity in Maryland. He already had been ordered to stop originating loans in Georgia.

My reports have prompted a dozen former associates to come forward with their stories. They provide an inside look into how Lee has fashioned his mortgage brokering scheme. It's a tale of suspect business activities, multiple company names, and false relationships with other financial institutions.

Neither Lee nor his attorney would respond to telephone calls or e-mails requesting comment for this column.

The men and women I interviewed who eventually left the organization said they didn't at first question Lee and his behavior because they were transfixed by the potential prosperity he offered them. They said they believed that Lee wanted to help blacks achieve financial security.

Now they feel deceived.

During recruitment presentations, prospects are pumped up with stories of how others have made lots of money. Top performers are rewarded in front of the audience.

In their quest for borrowers, Lee's troops are deployed into black communities to sell a particular type of mortgage that some real estate experts say is inappropriate for most people. The product they tout is a payment option, adjustable-rate mortgage. It allows homeowners to choose the kind of payment to make each month - either a minimum payment, principal and interest, or interest-only. With a minimum payment, a borrower could face "negative amortization," which means that the unpaid interest is added to the mortgage balance.

Under Lee's direction, borrowers are encouraged to make the minimum payment and then put the difference into investments, such as individual stocks or mutual funds. Homeowners are left to figure out for themselves how to invest the money.

But Lee doesn't just lead black borrowers astray by pushing inappropriate mortgages. He attaches fees and prepayment penalties to the loans that would be classified as predatory by many consumer advocacy groups.

Lee began operating as Financial Independence Group shortly after the Georgia Department of Banking and Finance issued a series of final cease and desist orders for several of his Duluth-based mortgage loan businesses.

Over the years, he has operated as Debt Elimination Group, Debt Management Consultants and The Processing Center.

Six days after the Maryland Division of Financial Regulation ordered Lee and Financial Independence Group to stop all mortgage-related business in the state, a new company called CashFlo Strategies LLC was registered in Delaware.

Lee's business now is operating as CashFlo Strategies, according to company documents I saw.

What I found was a suspect company pushing loans with unjustified high fees that put blacks deeper in debt while making only a few select black folks wealthy.

Building wealth in the black community, or any community, should come with integrity. It should come without harming anyone. It should come by being straight up with people.

It should come by following the law. I don't see race in this story. It's about the color red.

This series has been about how people, whatever their color, shouldn't ignore red flags because they're too focused on green lucre.

What's shameful is Lee's behavior - and those who go along with him.

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