Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: FRIDAY, February 8, 1991                   TAG: 9102080578
SECTION: VIRGINIA                    PAGE: B3   EDITION: METRO 
SOURCE: DAVID M. POOLE STAFF WRITER
DATELINE:                                 LENGTH: Medium

MORTGAGE BROKER DENIES LOANS WERE FRAUDULENT

Hess told creditors at a U.S. Bankruptcy Court hearing that there was nothing fraudulent about the loans because all participants - including the banks - were fully informed of what he was doing.

"He said he didn't defraud anybody because everyone was in on it," said Hess' attorney, Jonathan Apgar.

U.S. Attorney Morgan Scott, who was not at Thursday's hearing, said his office would review a tape of Hess' testimony as part of its investigation.

Federal authorities are investigating possible bank fraud and mail violations involving several banks and real estate developments in the Roanoke Valley and at Smith Mountain Lake.

Scott said strawman loans would violate federal banking laws if their purpose was to conceal the true borrower's identity from a bank's loan committee or from federal regulators.

Hess' testimony came as a surprise. He had refused to answer creditors' questions in December, claiming his answers might incriminate him.

Apgar said Hess changed his mind after a monthlong stay at the Veterans Administration Medical Center in Salem for treatment of respiratory problems. "He decided it would be best if the truth came out," Apgar said.

Hess appeared at Thursday's hearing in a wheelchair and breathed with the aid of an oxygen tank.

Apgar provided the following details of the creditors meeting Thursday at the Poff Building:

Hess acknowledged he obtained financing through several dozen "strawmen" who agreed to take out loans - typically no more than $30,000 - at local banks.

The "strawmen" turned the money over to Hess with the understanding Hess would be responsible for the payments. In return, Hess paid the strawmen a fee for their service.

Hess said strawman loans were obtained at several local banks, most notably at First Virginia Bank.

The financing scheme fell apart in 1989 when Hess fell behind on the loan payments. The banks took legal action against the strawmen, who were legally responsible for the loans.

At least three strawmen have sued Hess, claiming the loan broker defrauded and put them on the verge of financial ruin.