California Real Estate Fraud Report

After pleading guilty to 112 felony counts, 68 year old Joseph Anthony Veltre was sentenced to 18 years in prison for running a Ponzi scheme that fleeced investors, many of them elderly, out of $2.6 million. He was ordered to repay that same sum in restitution.

Veltre ran his Ponzi scheme out of Sea View Financial and Allied Corporate Investments. He made hard money loans to borrowers wanting to take out second and third mortgages and promised high rates of return to his investors.

Read the full article in the OC Register.

A Long Beach man who perpetrated a Ponzi scheme that defrauded investors out of $33 million pleaded guilty in federal court to wire fraud.

Jon Weldon James operated companies in El Segundo under the names of J. W. James and Associates Inc. and the Cloaking Device Inc.  He had promised investors in meetings he held at restaurants that he would place their money in real estate investments. Instead, James “invested” in his wedding, purchasing a recording studio called On the Ball Entertainment but did little actual investing in real estate.

Read the full article on Southern California Public Radio.

Newly elected Santa Barbara County District Attorney Joyce Dudley has put one of her deputies, attorney Gordon Auchincloss, in charge of targeting real estate fraud and related crimes.

The Pacific Coast Business Times stated that it had questioned candidates for the Santa Barbara D.A. position during the recent election as to what they intended to do about mortgage fraud, elder financial abuse and other white-collar crimes, crimes that usually take a back seat to prosecutions of street criminals.

Read the full article in the Pacific Coast Business Times .

Ten months after admitting his responsibility in the Ponzi scheme perpetrated by Ponzi-king Bernard Madoff, his former finance chief was released on a $10 million bail.

Frank DiPascali, 53, left U.S. District Court in Manhattan. He had provided information to investigators that has led to the arrests of Bernard Madoff’s former auditor and two computer programmers (hmmm, computer programmers, really dangerous types).

U.S. District Judge Richard Sullivan has twice rejected bail packages that were acceptable to prosecutors, instead noting DiPascali’s “crucial” role in the fraud, which DiPascali admitted he had known about since the 1980s or early 1990s and presumably voluntarily participated in.

Read the full article from the Associated Press in Yahoo News.

A federal judge in San Francisco sentenced 63 year old Patricia Morgen to more than 15 years in prison for defrauding investors out of millions of dollars.

Morgen, who found Chicago Development and Planning, which had offices in Emeryville and Reno, was also ordered by U.S. District Court Judge Charles Breyer to make restitution of $9 million to her 400 victims, many of whom lost their life’s savings. The court-appointed receiver has only found about $620,000 from the ashes of Morgen’s company, as Morgen appeared to have operated a Ponzi scheme and spent the millions she stole on herself and some of her employees.

Read the full article in SF Gate, the San Francisco Chronicle.

Mary Elaine Perkins, owner of Carlton Financial Enterprises, Inc., has pleaded guilty to mail fraud after brazenly defrauding 90 investors out of $7 million in a real estate investment fraud scheme that was bound to be detected by authorities.

Perkins’ fraud was that she promised investors returns of 12% - 15% by using their money to make hard money loans to homeowners, using their properties as collateral instead of the homeowners’ credit scores. Instead, Perkins foreclosed on the borrowers’ homes in some cases and either sold their property to a company she owned or to members of her family. Apparently some of the early investors were repaid with monies she obtained from later investors, classic Ponzi scheme tactics.

Read the full article in the Los Angeles Times (LA Times).

Testimony has begun in a hearing for a real estate investment fraud case that investigators say was little more than a massive Ponzi scheme. Prosecutors hope to introduce enough evidence that Gary Armitage, of Healdsburg, and his two co-defendants ripped off more than 2,000 investors to the tune of $200 million.

Investors claimed that Armitage sold them investments without disclosing that the deals were put together by a convicted felon. Another common theme was that the investors were told that “there was no risk at all” because it was backed by real estate.

Read the full article in the PressDemocrat.

The Securities and Exchange Commission (SEC) has filed a complaint in federal court in Los Angeles charges that Diversity Capital, its Mexican affiliate Diversity Capital Bancorp de Mexico, Strong Capital Investments of Chula Vista and San Diego-based The Optimus Fund scammed churchgoing Latinos in Southern California counties out of more than $14 million in what was nothing more than a Ponzi scheme.

The SEC complaint in Los Angeles federal court alleges that none of the three men charged with securities fraud registered the securities they were selling, and none had registered themselves with the SEC as required.

Diversity Capital Investments is a Chula Vista firm that pitched monthly returns of 4 to 8.25 percent with low risk. Why did people fall for this?

The chief prosecutor, SEC attorney David van Havermaat, refers to these kind of Investment frauds as affinity scams because people of a certain background are targeted based on cultural, language or faith ties are commonly victims. [Note: another phrase for affinity scams is affinity fraud.] Says Van Havermaat,  “You’ve got someone who is trusted because they share some common characteristics with the victim, be it religion or ethnicity. Second, because of that trust, when the situation goes south, the victim is more likely to work things out with the ‘fraudster’ rather than go to the authorities.”

The victims in this sordid tale invested their life’s savings, insurance proceeds or in the case of one person, her real estate commission. As a result of the Ponzi scheme, many lost their homes and everything they owned.

Read the full article in the San Diego Tribune.

Here’s another cautionary tale to investors who think they can earn astronomical returns on their investments.

Luis Madrid and Richard Habib, both formerly of Corporate Funding Financial of America Inc., have pleaded guilty to conspiracy to commit mail fraud and wire fraud and filing a false tax return. Madrid was sentenced by U.S. District Judge Marily Huff to eight years in federal prison, while Habib received a sentence of three years, 10 months. The admitted to defrauding investors out of $50 million and $20 million respectively.

The two con men told the investors they could earn returns of from 14 to 96 percent per year on promissory notes from mortgages but in fact they were running a Ponzi scheme and pocketing the investors’ money.

Read the full article in San Diego 6.

Harry Markopolos’ much-awaited book on how he discovered and doggedly chased Bernie Madoff for ten years - is finally out.

Markopolos’ book is called No One Would Listen and is published by Wiley Publications. Lifting the veil on Madoff and his Ponzi scheme and occurring at the same time as the bursting of the real estate bubble, this book is a tale of a financial calamity unseen since the Great Depression.

A great story on Harry Markopolos, his hunt to bring down Madoff and his new book can be found in the New York Daily News. Monique Bryher posted a synopsis of Markopolos’ keynote speech at the July 2009 annual convention of the Association of Certified Fraud Examiners in Las Vegas.