SANTA ANA, Calif. (CN) - Two owners of a Southern California real estate firm accused of running a $110 million Ponzi scam were arrested Thursday, federal prosecutors said.
Michael Stewart, 66, of Phoenix, and John Packard, 63, of Long Beach, were named in a 16-count indictment returned by a federal grand jury in January. Each faces 11 counts of mail fraud, three counts of bank fraud, and two counts of bankruptcy fraud.
They founded Pacific Property Assets, with offices in Long Beach and Irvine, in 1999. As owners and co-chief executives, they bought, rehabbed, refinanced, operated and/or resold property in Southern California, the U.S. Attorney's Office said in a statement announcing their arrest.
Though their apartment rental business did not make money, the soaring real estate market enabled them to refinance at higher and higher prices, make Ponzi payments with their so-called equity, and pay themselves annual salaries of $400,000 to $700,000 the U.S. attorney said.
They bought more than 100 properties in 10 years and took tens of millions of dollars from investors. But when the market crashed, so did their de facto business plan, according to the U.S. attorney. They kept raking in money from new investors, though, and used the new money to pay off earlier investors, prosecutors said.
Sic semper Ponzi schemes.
Their business filed for bankruptcy in June 2009, owing 647 private investors more than $91 million, and banks a bit more than that.
"In the bankruptcy proceeding, the private investors received nothing, while banks lost an estimated $24 million," according to the U.S. attorney's statement.
If they are convicted of all 16 counts, they each face up to 320 years in prison and millions of dollars in fines.
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