SoCal Real Estate CEO|Looking at 220 Years

LOS ANGELES (CN) - A Southern California real estate CEO faces 220 years in prison for 11 counts of mail fraud that bankrupted his company and cost investors $169 million.

A federal jury on Friday convicted Michael J. Stewart, 68, of San Clemente, after a 9-day trial.

Stewart owned and ran Pacific Property Assets, with offices in Long Beach and Irvine. His co-defendant John Packard pleaded guilty in November to one count of mail fraud and faces up to 20 years in prison at his Nov. 9 sentencing.

Stewart created Pacific Property Assets in 1999 to buy, sell, finance, renovate, operate and resell apartment complexes in Southern California and Arizona.

In the runup of property prices before the financial crash, he refinanced properties at ever-higher values, and used the money to run his business and pay himself, Packard and his investors, even though his rental business was not making money. When the real estate market collapsed, Stewart had more than 100 properties on his hands and his "financial model" no longer worked, the U.S. Attorney's Office said in a statement announcing the verdict.

In May 2008 his controller told Stewart he was losing $2 million a month and could expect to keep losing it. But he and Packard failed to disclose that to new investors from whom they took $34 million from early 2008 through 2009, prosecutors said.

Many of their victims were old people. Stewart and Packard used their money to pacify earlier investors and creditors, and to pay themselves $750,000 annual salaries and "hundreds of thousands of dollars in additional compensation," according to the U.S. attorney.

In his last gasp in early 2009, Stewart raked in $9 million for his Opportunity Fund, none of which was used to buy properties, as he promised, but to pay himself and Packard and earlier investors - and their bankruptcy attorney.

When the company filed for bankruptcy in June 2009, it stated that it owed 647 investors more than $91 million and it owed banks $100 million. The Chapter 11 trustee estimated the losses at $169 million.

Stewart will stay in jail until he is sentenced on Nov. 2.

According to the U.S. attorney: "As Stewart told prospective investors, from 2004 to 2007, PPA was named three times to Inc. magazine's list of the fastest-growing privately held companies in the United States, was a regional finalist in Ernst & Young's Entrepreneur of the Year Program, and was listed by the Orange County Business Journal as one of fastest-growing businesses in Orange County."

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