A mortgage scam hatched in Manhattan strip clubs and operated out of a Garden City office fell apart Wednesday with the indictment of 13 people -- including seven Long Islanders - for defrauding lending banks out of more than $100 million, prosecutors said.

A group of attorneys, bank employees and real estate appraisers participated in the scheme - persuading banks to lend money that was supposed to help people buy financially distressed properties in the metropolitan area, investigators said.

Instead, the money went into the scammers' pockets.

The indictments grew out of a 10-month investigation by Manhattan District Attorney Robert Morgenthau's office into transactions that occurred between 2004 and 2009. Principals met at strip clubs, the indictment said.

The charges ranged from enterprise corruption to grand larceny to conspiracy. Twelve other people already have pleaded guilty in the case.

Two of those indicted - Aaron Hand of Oyster Bay Cove and Eugene Culbreath of Valley Stream -- served as kingpins of the plan, investigators said. Matthew McDermott of Merrick, Kathleen Scanlon of Baldwin, Jeffrey Phelan of Smithtown, Allyson Hinds of Middle Island and Marc Zirogiannis of Levittown also were indicted. The defendants could not be reached for comment.

"These defendants were able to get away with this conduct for four years because the mortgage industry simply passed the defective loans to the secondary markets with little motivation to scrutinize the actual risks," Morgenthau said. "Industry regulators paid little or no attention."

Investigators said the scam's goal was to steal money in the form of mortgage loan proceeds funded by banks and lending firms such as Countrywide Home Loans, New Century Mortgage, SunTrust Mortgage, Saxon Mortgage Corp., Bank of America and Wells Fargo Bank. Bank representatives could not be reached.

Under the alleged scheme, AFG Financial Group Inc. of Garden City, which was also indicted, identified 19 financially distressed properties, including some in Nassau and Suffolk, and offered help to the owners. Morgenthau said the 19 properties involved transactions of more than $12 million but that the entire scam amounted to more than $100 million. The investigation is ongoing.

The Garden City operation would recruit people for $5,000 to act as phony buyers for the properties, investigators said. Banks and mortgage companies would provide mortgages for the phony sales after unknowingly receiving false financial documents.

The sellers of the properties never saw the money - instead, the scammers took it, leaving them and the banks in the lurch, investigators said.

The defendants each face up to 25 years in prison on the enterprise corruption charges.

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