CA AG Busts Another Ponzi Scheme. Yeah!

By
Real Estate Agent with 1st Action Real Estate

attorney general

And the beat goes on - or maybe I should say the beatings continue. Always good to see miscreants get their come-uppance. Unfortunately for more than a thousand people the come-uppance comes up too late to save their 'investment' and, in some cases, their retirement.

It's precisely this variability that makes this type of fraud so difficult to prevent. Although the two articles I posted earlier also involved Ponzi schemes and affinity fraud, the crimes are as different as night & day. In one, people with Hispanic surnames convinced other people with Hispanic surnames they could get them into homes they couldn't afford - sometimes multiple homes at once - and made money off them. In the second case, African Americans took gross advantage of other African Americans by promising returns of up to 50% a month for investing in a scheme to help others avoid default. 

In this case we have rich white dudes taking advantage of other (formerly) rich folks in a scheme that is pretty sophisticated. Of course if it's going to be based out of Irvine and the perps live in Coto de Caza you know it's going to be an upscale scam. No use wasting that opportunity just to scam a few million when your are surrounded by 'fat mooches'. This caliber investor would be less likely to be suckered in by a two-bit scam so you tailor the scam to the client and -viola - $52 million to spend on vacations, Beemers, airplanes, etc. Hey, if you're going to go - go large eh? 

Hopefully they'll be going large for the next decade in the Greybars Hotel & Spa with a close companion named Bubba.

News Release

January 23, 2009
For Immediate Release
Contact: Scott Gerber or Christine Gasparac, (916) 324-5500

Attorney General Brown Files Criminal Charges in $52 Million Ponzi Scheme

FOR IMMEDIATE RELEASE
January 23, 2009
Contact: Christine Gasparac or Scott Gerber (916) 324-5500 or Special Agent Supervisor Randall Hew (323) 855-4743

Attorney General Brown Files Criminal Charges in $52 Million Ponzi Scheme

ORANGE COUNTY – Attorney General Edmund G. Brown Jr. yesterday filed 89 criminal charges against 6 men who “callously conned” more than a thousand people, including retired senior citizens, out of $52 million through sham real estate projects, using the investors’ money to buy planes, expensive cars and lavish vacations.

“These six men callously conned hundreds of people into investing $52 million into a company that they treated as their personal bank account,” Attorney General Brown said. “They fraudulently took investors’ money and spent it on an array of luxury items, relying on a Ponzi scheme to keep investors at bay.”

From 2001 to February 2006, Irvine-based Carolina Development Company peddled $52 million worth of stock to more than a thousand investors. The company claimed the proceeds would be used to buy and develop luxury resorts and upscale communities adjacent to golf courses designed by Arnold Palmer, Jack Nicklaus, and Greg Norman. Investors bought anywhere from $15,000 to $1 million in stock, including senior citizens who invested their retirement funds. The company bought some land, but did nothing to develop it, despite its claim that 85% of the $52 million invested would be used for land acquisition and development.

To persuade investors to buy shares of Carolina Development Company, the defendants claimed that Arnold Palmer had partnered with them. The defendants promised that investors would reap huge dividends and assured those who invested a minimum of $100,000 that their investment would be secured by deeds to specific parcels of land. None of these claims were true.

The defendants diverted more than $24 million for extravagant bonuses, personal medical bills, airplanes, fancy meals, BMWs, concert tickets and luxury vacations. To keep investors at bay, the defendants engaged in a Ponzi scheme, paying some investors “returns” on their investment using money from the new investors.

Department of Justice agents served arrest warrants against the following six defendants, who were charged with grand theft and securities fraud in Orange County Superior Court:

Lambert Vander Tuig, 50, of Santa Margarita, currently held in the Orange County Sheriff’s Department.

Jonathan Carman, 45, of Laguna Hills, currently held in the Orange County Sheriff’s Department.

Mark Sostak, 50, of Ladera Ranch, currently held in the Orange County Sheriff’s Department. Bail is set at $4.5 million.

Scott Yard, 47, of Costa Mesa, remains at large.

Soren Svendsen, 43, of Coto De Caza, is currently being held in the Orange County Sheriff’s Department. Bail is set at $2.2 million.

Robert Waldman, 48, is scheduled to turn himself in to authorities.

On Wednesday, representatives of the Attorney General’s Office obtained arrest warrants from Orange County Superior Court Judge Selim Franklin.

These criminal charges were preceded by civil actions brought by the U.S. Securities and Exchange Commission (SEC). The SEC in 2007 won a $29.2 million judgment against Lambert Vander Tuig, the president of the company, and a $2.1 million judgment against Jonathan Carman, vice president of the company.

If convicted, defendants Vander Tuig and Carman could receive sentences in excess of 10 years in state prison. The remaining defendants would be subject to lesser prison sentences.

The criminal complaint and affidavit are attached.

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  1. Cathy Worrilow 01/23/2009 01:28 PM
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Anonymous
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Anonymous

With $52,000,000 for bail, its unlikely Vandertuig and Carmen will make it out.  Considering this is Vandertuigs second or third time, much more time needs to be added to his jail sentence.

Jan 23, 2009 01:08 PM #7
Rainer
9,203
Cathy Worrilow
Farm & Home Real Estate & Auction - Mulberry, TN

I am glad to see the government really taking some action now. Unfortunately it is too late for the investors. I would love to see some action now on fradulant mortgage brokers and their associates. There are particular ones that I know of that have pulled scams on customers for years, by having their own appraisers go in and under appraise properties and take the customers for a ride on deposits and fees. I know because my husband was a victim of this about 2 years ago. His appraisal fees started out at 1600, then went to 1800, then to 2200, 2400 and finally 3400. He had already sunk 2800 when the appraisal was done, and it came back at only 195000. When he had purchased the place about a year earlier it was appraised at 250000.  He could not get this new company to answer him, nor the brokerage. Two weeks later he got a new appraisal for 1800 and it came back 325000. Wow, land prices changed that fast, NOT!! Hes been to the BBB, done mediation and still never heard back from anyone from either company. Needless to say, they still operate today.

I hate that the investors for these scam artists have lost their life savings, but hopefully something will be put in place to stop this from ever happening again. How hard is it to set up a small task force to oversee these so called "new finance company ventures" and those who are running them?

I would love to see people like this be stripped of everything and left behind bars!

Jan 23, 2009 01:27 PM #8
Rainmaker
156,802
George Bennett
Inactive - Port Orford, OR
Inactive Principal Broker, GRI

Thanks for the post Gene. Charging these people should put an end to the ponzi scheme but bringing them to justice, getting a conviction, and recovering all that remains of the funds invested by their victims will take a lot more work. I hope these crooks spend a long long time in jail.

Jan 23, 2009 01:35 PM #9
Rainmaker
24,803
Craig & Sue Guffin
Coldwell Banker Monsees Realty - Sedalia, MO
Sedalia Mo Real Estate

Thats is a shame. No matter who is doing it. 6 business men or 535. Thanks for the post.

Jan 23, 2009 02:08 PM #10
Rainmaker
582,897
Susan Neal
RE/MAX Gold, Fair Oaks - Fair Oaks, CA
Fair Oaks CA & Sacramento Area Real Estate Broker

Hi Gene, I don't know how arrogant you have to be to think that such a scheme won't catch up to you sooner or later. Unfortunately, it usually does so later, after a number of people have lost their savings.  I like your tag line - we can be at least a part of the solution, if the public will let us.

Jan 23, 2009 02:13 PM #11
Rainer
79,340
Keahi Pelayo
KU Realty - Honolulu, HI

If it is too good to be true, it probably is.

Aloha,

Keahi

Jan 23, 2009 02:15 PM #12
Rainmaker
1,286,410
Carla Muss-Jacobs, Principal Broker/Owner
BuyersAgentPortland.com | (503) 810-7192 Portland Metro Exclusive Buyers Agent | 100% Buyer Representation ~ 100% o... - Portland, OR
Buyer Focused ~ Buyer Results

I've been trying to tell my son (who will turn 22 in March) that the secret of money IS NOT how you make it.  That's the easy part . . .

How to KEEP IT is the secret to personal wealth!

Your posting is a case in point. 

What bothers me is this; Why aren't there more arrests? 

They fingered Martha Stewart for a mere $100,000 in 'Insider Trading' and she served time.  I'm not hearing about anyone getting their three hots and a cot punishment. 

The crime is that no one is being held 'accountable" (sorry bad pun) for these deceptions.  So a tip of the hat to Mr. Brown.  I hope he's setting the example.

Jan 23, 2009 02:42 PM #13
Rainmaker
728,754
Debbie Walsh
Keller Williams Realty - Middletown, NY
Hudson Valley NY Real Estate 845.928.8000

I think Keahi said it best.  If it is too good to be true....I think if the penalties were stiffer for crimes of this nature maybe they wouldn't be so abundant.  It makes me so angry, the things that people get away with and barely a slap on the wrist it seems sometimes. 

Jan 23, 2009 02:44 PM #14
Ambassador
601,696
Roland Woodworth
Keller Williams Realty - Clarksville, TN
Short Sale and Foreclosure Resource- SFR - Clarksv

This is such a SAD situation that people even risk this type practice..

Jan 23, 2009 03:02 PM #15
Rainer
51,006
Omega Omega
Omega - Glendale, CA

Hey Big Gene!

Great post - Thanks for sharing!!!!!

Cheers

Jan 23, 2009 03:55 PM #16
Ambassador
883,569
Lane Bailey
Century 21 Results Realty - Suwanee, GA
Realtor & Car Guy

You know... these are all small potatoes.  There is another Ponzi scheme going right now that is 70 years old, and is on the hook for TRILLIONS of dollars.  It will collapse in just a few years.  A lot of people call it Social Security. 

Jan 23, 2009 04:17 PM #17
Ambassador
730,682
Christopher and Stephanie Somers - Realtors - Philadelphia Real Estate
Realtor / Owner - RE/MAX Access - Philadelphia, PA

Wow - it is crazy.  It is amazing that people fall for this.  I hope the criminals get prosecuted to the fullest exent... awful.

Jan 23, 2009 04:30 PM #18
Rainer
178,939
Mark MacKenzie
Phoenix, AZ

Lane:  Well said.  There seems to be a lot of this going around.  Some people call them bubbles, other people call them Ponzi Schemes, and others call them banks.  I'm not sure exactly where the line is drawn between all of them.

Jan 23, 2009 05:50 PM #19
Rainmaker
385,286
John Walters
Frank Rubi Real Estate - Slidell, LA
Licensed in Louisiana

Gene good to know that criminals aren't restricted to one race or income group.  Everyone beware.

Jan 23, 2009 08:18 PM #20
Rainmaker
225,023
Gene Wunderlich
1st Action Real Estate - Murrieta, CA
Realtor & Legislative Liaison

Lane - That is an absolutely correct assessment of that institution and defines what a Ponzi is by paying off yesterdays investors with today and tomorrows investors. Of course if you're the government you don't refer to it as a Ponzi nor do you refer to the money you mint to cover your losses as counterfeiting. There are perks to being a government.

Bob - That is the heart of the problem. First of all our overburdened law enforcement personnel have to catch them. Our own DA has told us how tough it is because these crimes are all so different and so sophisticated it's not like finding a drug dealer or murderer - those are simple. Then assuming they do catch them before the perps skeedaddle, there is a loooong prosecution phase with loads of time and money being spent by the prosecutor to try to convince a jury something wrong actually happened. Finally, if they do get a conviction the sentences are almost laughably light. If they get 10 years, they'll be out in 1 /3 that time at most. And it's damn difficult to recover assets that have already been spent or squirreled away so these guys are back on the streets in a couple years still living large and ready to pull the same trick in a new area. The odds are in their favor

That's why it's so critical for Realtors to be on the front line of defense against this stuff and call it out when we see it and workl with our law enforcement torecognize it. 20 of you read this today and are better informed than we were yesterday. That's progress. Thanks.

Jan 23, 2009 09:02 PM #21
Rainmaker
225,023
Gene Wunderlich
1st Action Real Estate - Murrieta, CA
Realtor & Legislative Liaison

Lenn - Love that line. I've been using a similar one for years - a sucker born every minute and 10 grifters born to fleece him. same concept - same result. Some people are just born victims, others just take a little convincing. After all, right now there are only two kinds of real estate market, those where fraud schemes have flourished and those where it soon will.

Jan 23, 2009 10:08 PM #22
Rainmaker
448,331
TIM MONCRIEF
Bartlett Real Estate Group, llc - Austin, TX
$44,530,000 2013 Production (breg)

The schemes continue to increase through the tough times. We just lost a realtor in town with a guaranteed return program on buying lease properties. And we wonder why socialists are sick of capitalism.

Jan 24, 2009 12:44 AM #23
Rainmaker
280,993
Jerry Murphy
Long Real Estate - Anthem, AZ
Anthem AZ Real Estate

Arrgggh! I hate hearing more stories like this.  It only deteriorates American's confidence in our economic system.  But at heart we're all to blame.  We as a society need to get out of the get rich quick mentality.  The old adage, "if sounds too good to be true it probably is" needs to be screamed from the mountain tops.  And people like these guys, Bernie Madoff, John Thain, and numerous others need to be locked up for a VERY long time.  In my opinion they are far worse than the two bit burglar that holds up a convenience store. That burglar only affects one person.  These white collar criminals affects hundreds, sometimes thousands of peoples lives.  And they erode the foundation of our economy.  Thank you for the post and best of luck in 2009.

Jan 24, 2009 10:44 AM #24
Rainmaker
84,067
Simon Mills
Mills Realty - Toluca Lake, CA

50% a month...come on...if it is too good to be true then it simply is too good to be true.  I'm glad to see that these guys are stopped, but the preying on ethnic groups by their own kind is a real problem that I've seen happen over and over again.  This is a real problem that needs attention.

Jan 24, 2009 05:23 PM #25
Rainmaker
325,145
Esko Kiuru
Bethesda, MD

Gene,

Looks like Madoff juniors are on it again. Ponzi started something that is never going to die because there unfortunately always will be enough people who'll buy into this kind of stuff.

 

Jan 24, 2009 05:38 PM #26
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Rainmaker
225,023

Gene Wunderlich

Realtor & Legislative Liaison
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