New York prosecutors on Wednesday said 13 people and a mortgage origination company have been indicted on charges of running a multimillion-dollar real-estate fraud that cheated lenders through sham sales.

The defendants include employees at the Long Island, New York-based mortgage company AFG Financial Group Inc, several attorneys and other defendants, according to Manhattan District Attorney Robert Morgenthau.

The scheme ran from 2004 until this year, though most of the activity occurred from mid-2005 to 2007 at the height of the U.S. home lending boom, Morgenthau said.

This is a major oversight by federal oversight bodies, said Morgenthau. If there was any legitimate side (to the company), it was by accident.

The indictment charges the defendants with 19 fraudulent mortgage transactions totaling more than $12 million, but Morgenthau said the scheme probably involved more than $100 million.

Lawyers for the defendants could not immediately be reached for comment.

Another dozen defendants who also participated in the purported scheme have already waived indictment and pleaded guilty, Morgenthau's office said.

The investigation is continuing, and Morgenthau said the size of the scheme could eventually total $200 million.

One lawyer accused of engaging in fraudulent transactions was involved in transactions adding up to more than $100 million, Morgenthau said.

Lenders who were victimized in transactions made by that one lawyer included New Century Mortgage Corp, WaMu/Long Beach Mortgage Co, Countrywide Financial, First Franklin Financial Corp and Mortgage Network USA Inc.

Morgenthau said AFG located distressed residential properties throughout the New York City area, and engaged in a fraudulent scheme to steal millions from lending banks using phony sales.

Money would be put up by banks and straw buyers, but the money would not be repaid and the homes would be foreclosed.

One of the morals of this case is, there's no free lunch. People with distressed mortgages wanted to be bailed out, Morgenthau said of the victims.

New York Mortgage