SACRAMENTO — Federal prosecutors announced 18 indictments Thursday in a pot cultivation and mortgage fraud scheme that purchased homes from Modesto to Sacramento and converted them into bustling "grow houses" for tens of thousands of marijuana plants.
Nine people are in custody. Authorities are searching for as many as nine indicted suspects who may have fled from the Bay Area to China.
The individuals were charged with orchestrating bogus real estate transactions to buy 51 houses in the Central Valley, then establishing indoor pot-growing operations using sophisticated lighting and irrigation and stealing thousands of dollars worth of electricity.
"They came into our cookie-cutter residential neighborhoods and created cookie-cutter marijuana factories," said Gordon Taylor, assistant special agent for the Drug Enforcement Administration in Sacramento.
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The indictments stemmed from the discovery of massive indoor growing operations in 2006 and 2007 in Elk Grove, Sacramento, Stockton, Lathrop, Tracy, Modesto and Mountain House.
Three people were indicted on charges of conspiracy to manufacture marijuana in connection with pot operations at 15 houses in Elk Grove and six in Sacramento.
One suspect, Guo Ying "Ivan" Lu, 29, of Milpitas, is in custody. Two others, Siming Zhu, 32, and Dennis Hou Huan Yang, 28, both of San Francisco, remain at large.
These indictments follow 17 previous actions in the case. Fifteen people pleaded guilty in those earlier indictments and two fled after authorities seized 24,200 marijuana plants from the indoor growing operations. The high-grade pot was worth $96 million and its potency "was the highest we've ever seen in this area," Taylor said.
With the new indictments, authorities said they climbed the ladder of an intricate organized crime operation based in San Francisco.
One of the newly-indicted suspects sought, Dickson Wing Kei Hung, 35, is a real estate agent from San Francisco. He was indicted for marijuana conspiracy and mail fraud for allegedly setting up phony mortgage loans to buy houses for the operations.
U.S. Attorney Larry Brown said the scheme began to unravel in late 2006 when neighbors began noticing unkempt lawns and strange activity at houses where no one was living.
"They chose to set up their operations in the Central Valley due to lower housing costs," Brown said. "They chose unwisely. What they failed to anticipate were residents who keep a watchful eye on their neighborhoods."
Scott O'Briant, a special agent in charge of criminal investigations for the Internal Revenue Service, said the organization defrauded mortgage lenders to obtain $15 million in residential mortgages based on "straw buyers" and false credit information.
He said Hung and associates recruited "individuals with good credit ratings" to sign mortgage loan applications for homes they never intended to occupy. But the loan applications were augmented with bogus employment and exaggerated salary information, he said.
Some buyers "knew they were being used to grow marijuana. But others had no idea," he said. None of the people who posed as buyers have been charged to date, O'Briant said.
Three people indicted for allegedly orchestrating the mortgage fraud scheme were in custody Thursday: Ngai Chung Hung, 28, of San Francisco, Wayne Rong Zhi Feng, 29, of Oakland and Wing Chou Chan, 27, of San Francisco.
Hung and Karen N. Lee, 29, of San Francisco were still at large.