November 17, 2006
PRESS RELEASE

Federal Grand Jury returned a five count felony indictment against Albany, New York area man.

Glenn T. Suddaby, United States Attorney for the Northern District of New York, John F. Pikus, Special Agent in Charge of the Albany Division of the Federal Bureau of Investigation, and Ruth Ritzema, Special Agent in Charge of the Office of Inspector General, U.S. Department of Housing and Urban Development in Buffalo, announced that the federal grand jury in Albany today returned a five count felony indictment against Berne A. Watkins. Watkins is charged with one count of conspiring with Aaron R. Dare and others known and unknown to commit federal crimes, three counts of committing, causing or aiding and abetting the commission of interstate wire fraud, and one count of making, causing to be made, or aiding and abetting the making of false statements to obtain loans insured by the U.S. Department of Housing and Urban Development, all in connection with a scheme to obtain financing for the sale by Watkins and purchase by Dare of three multi-family residential housing projects, the Hinckel Brewery Apartments, located at 201 Park Avenue, in Albany, the Olde Franklin School Apartments, located at 1675 Avenue B, in Schenectady, and the Historic Pastures Village Apartments, consisting of approximately 39 residential buildings located in the Historic Pastures area of Albany

The charges against Watkins follow Monday's guilty pleas by Dare, who pled to one count of interstate wire fraud and one count of causing false statements to be made to obtain loans insured by the U.S. Department of Housing and Urban Development in connection with the financing scheme, as well as a separate charge of conspiring to commit interstate wire fraud in connection with a scheme to defraud private mortgage lenders involving false statements made to obtain loans for the purchase of various residential properties located in and about the City of Albany.

The allegations contained in Indictment returned by the federal grand jury against Watkins today include the following:

In or about late 2000 and 2001, Watkins met with Dare and others to discuss how Dare might purchase the Hinckel Brewery Apartments, the Olde Franklin School Apartments, and the Historic Pastures Village Apartments from Watkins, even though Dare and his companies did not have substantial equity or credit to put toward the purchase of said properties. Watkins, on behalf of companies that he owned and/or operated to run the properties, named Brandon, R.E., Inc., The Pastures of Albany, LLC, and Franklin School Properties, LLC, and Dare, on behalf of his company, Emerge Real Properties, LLC, executed a Sale-Purchase Agreement, dated as of June 19, 2001, whereby Watkins' companies agreed to sell and Dare's company agreed to buy the three properties for an inflated total purchase price of $8.5 million, with $1.8 million to be paid as a deposit made by Emerge and accepted by Watkins' companies in the form of a collateral assignment, and $700,000 to be paid in the form of an additional promissory note, subordinate to all operating costs, leaving $6 million of the stated total purchase price to be paid in cash or certified funds upon transfer of title at the closings.

Watkins caused to be executed on behalf of Sunward Electronics, Inc. (another company that he, together with his wife, owned and/or operated, which manufactured and sold electronic dog collars), a promissory note falsely representing in substance a debt that Sunward purportedly owed Emerge in the amount of $1.8 million. Dare executed on behalf of Emerge a "Collateral Assignment of Promissory Note Proceeds," which purported to assign the proceeds of this bogus promissory note to Watkins' companies, and Watkins caused to be executed an "Acceptance of Assignment" of the bogus promissory note as a purported cash down payment on the acquisition of the properties.

Watkins subsequently executed on behalf of Brandon R.E., Inc. a Contract Extension Notification, dated November 19, 2001, which extended the terms of the Sale-Purchase Agreement according to terms that specifically included the inflated total sales price for the properties of $8.5 million, toward which Watkins represented that he had accepted a collateral assignment of the $1.8 million note payable to Emerge as a cash down payment and agreed to an additional $700,000 promissory note from Emerge, both of which Watkins then and there knew to be bogus notes created for the purpose of falsely evidencing equity and credit to enable Dare to obtain financing to purchase the properties from the defendant. Dare executed on behalf of Emerge an additional promissory note, which was not provided to the lender, AMI Capital, Inc., of Bethesda, Maryland, or HUD, and which effectively canceled out the initial bogus $1.8 million promissory note. Dare also executed on behalf of Emerge a promissory note falsely representing in substance a debt that Emerge purportedly owed to Watkins' company, Brandon R.E., Inc., in the amount of $700,000, which bogus note was used as a credit toward the purchase of the properties. Notwithstanding the existence of a significant financial relationship between Watkins and Dare, Watkins caused to be executed and Dare executed Identity of Interest Disclosure Statements, which certified that there was no identity of interest between the purchaser and seller of the properties.

On or about November 27, 2001, Watkins and Dare closed on the purchases of the Hinckel Brewery Apartments and the Olde Franklin School Apartments, for which AMI's warehouse vendor in the State of Ohio transmitted by wire transfers to the State of New York approximately $2,414,020.62 and $766,073.38 for the purchases of the Hinckel Brewery Apartments and the Olde Franklin School Apartments, respectively. On or about August 29, 2002, Watkins and Dare closed on the purchase of the Historic Pastures Village Apartments, for which AMI's warehouse vendor in the State of Ohio transmitted by wire transfer to the State of New York approximately $3,678,886.42 for the purchases of the Historic Pastures Village Apartments.

After the payment of the existing indebtedness on the properties and other transactional expenses, Watkins and his companies realized a substantial profit from the sale of the properties, after which he planned to purchase other investment properties in a "like kind" exchange. Shortly after the closing on the third loan in August 2002, all three loans went into delinquent status and, eventually, defaulted. Pursuant to the terms of the loan agreements, HUD foreclosed on the properties and, following the sale thereof, suffered a total loss of approximately $1,952,200.

The charges contained in today's indictment carry a total statutory maximum of sixty-seven (67) years imprisonment, a fine of up to $1.25 million or twice the gain to any persons or loss to any victims resulting from the offenses, or both, a period of supervised release to follow any term of imprisonment, and mandatory restitution. Watkins is scheduled to be arraigned before United States Magistrate Judge Randolph F. Treece on Monday, November 20, 2006, at 2:00 p.m., in Albany. The investigation is continuing.

The case is being investigated by the Albany Division of the Federal Bureau of Investigation and the Office of Inspector General, U.S. Department of Housing and Urban Development. It is being prosecuted by the United States Attorney's Office for the Northern District of New York.

An Indictment is merely a formal charge that a defendant has committed a violation of the federal criminal laws, and every defendant is presumed innocent until, and unless, proven guilty.

CONTACT: Assistant U.S. Attorney Robert P. Storch
518-431-0247