By Ken Alltucker
Enquirer staff writer

Three more Cincinnati real estate investors Monday admitted their role in a growing mortgage fraud that cost lenders at least $7.4 million in bad loans on homes in Cincinnati's poor and working-class neighborhoods.

Roger Pepples, 59; John Todd Killinger, 35; and Rodger Randall, 51, waived grand jury indictment and pleaded guilty in U.S. District Court to charges of conspiracy and knowingly signing and submitting false statements on a mortgage loan application. Killinger and Pepples also pleaded guilty to charges of income tax evasion.

The charge of submitting a false mortgage loan application carries the toughest penalty with a maximum 30-year prison term, $1 million fine and five years of supervised release. Conspiracy and income tax evasion each have a potential five-year prison term, supervised release, fines and other costs.

But federal prosecutors have the option of recommending a lighter sentence based on plea deals struck with the three investors. Pepples, Killinger and Randall have agreed to cooperate with the federal government's ongoing investigation of real estate flipping.

Flipping is an illegal buy-low, sell-high mortgage scam.

So far, nine real estate investors and title agents have been charged by federal prosecutors based on an investigation by the Internal Revenue Service's criminal investigation division, the U.S. Postal Inspection Service and the Federal Bureau of Investigation.

While it's legal to buy a house on the cheap and sell it at a higher price, federal prosecutors say illegal flipping involves some element of fraud such as an inflated property appraisal, false bank statements or phony pay verification.

Pepples' mortgage swindle of $2.5 million was the largest of any Cincinnati-area investor named so far in the investigation. Federal investigators calculate the loss based on the amount a bank or mortgage lender stands to lose even after reclaiming a house and selling it at sheriff's auction.

Prosecutors contend that Pepples, a retired Cincinnati Public Schools math and gym teacher, primarily acted as a seller of several flipped properties from January 2000 through July 2003. These quick-turn deals typically involved an inflated property appraisal and sham down payment.

The prosecutors also say Pepples "willfully evaded" more than $106,000 in income taxes in 2000, 2001 and 2002. He received payoffs from the fraudulent loan deals either directly or through two companies he controlled, Timeco Investments and Vogel Properties.

When asked by U.S. District Judge Susan Dlott whether he admitted his role in the charges, Pepples bowed his head slightly and said, "Guilty, Your Honor."

Pepples, Killinger and Randall each declined to comment after Monday's court hearing. Each will face sentencing after probation officers complete a presentencing report.

Killinger acted both as a buyer and seller of flipped properties that cost lenders an estimated loss of $1.9 million.

For example, Killinger struck a deal in August 2001 to buy two homes in East Price Hill for $95,000 apiece. The homes were purchased by investor David Lockwood less than one month earlier for $40,000 each.

Killinger signed closing documents indicating that he brought a down payment of about $12,000 for each home when in fact he provided no money at all, according to prosecutors. Killinger also evaded income taxes in 2000 and 2001 by failing to report income he received directly or through three shell companies he controlled, Pioneer Construction, Maverick Investments Inc. and Crown Home Development Inc.

Randall was the least active of the three investors as measured by total estimated loss to lenders of more than $289,000.

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E-mail kalltucker@enquirer.com