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Defense attorney says fraud suit soils reputations; plaintiffs rally in frustration
By: CHRIS BAGLEY - Staff Writer | ∞
A lawsuit alleging mortgage fraud on the part of three Murrieta-area men was dropped this week, another was filed, and a hearing on federal subpoenas was put off Thursday, illustrating a time-honored maxim about the wheels of justice.
In two federal courthouses and in Riverside County Superior Court this year, nearly a dozen civil cases have centered on allegations that James Duncan, Hendrix Montecastro and Maurice McLeod took clients' money for sham investments and squeezed tens of millions of dollars out of phantom home equity, leaving the clients on the brink of foreclosure and bankruptcy.
Cases have been filed, dismissed and filed anew. In one instance, a low-key government investigation intended for one court ended up being filed by the agency in a second, federal court and then as evidence for the defendants in a third, state court.
In the latest development, two Rialto women withdrew their lawsuit against the men late Wednesday because it relied on a federal racketeering law that was amended in 1995 to exclude certain types of investments. The two women and three dozen other investors are suing Duncan, Montecastro and McLeod in state court.
In one such case, McLeod attorney Paul Runes asked a judge to block evidence that he said had been gathered and submitted inappropriately for a procedural hearing Wednesday. Runes, whose request is pending, said the evidence was part of a strategy by the plaintiffs' attorney to tar the defendants outside of standard court procedures.
"I've been slogging my way through the system," Runes said in an interview. "Somebody has been abiding by the rules and somebody hasn't. My clients were getting hurt, and they are members of the community."
Plaintiffs' attorney Richard Ackerman said Runes is more worried about the evidence than the way it was filed. The case cleared a procedural hurdle on Wednesday, when the judge gave the defendants 20 days to file a formal response.
The plaintiffs allege that Duncan and several of his business partners roped them into a fraudulent investment scheme that left them with mortgages and other debts totaling as much as $10 million each.
Most of that debt stems from mortgages on houses the clients bought in western Murrieta's Copper Canyon neighborhood and near the SCGA golf course in eastern Murrieta. They allege that Montecastro and his Murrieta mortgage brokerage, Stonewood Consulting Inc., arranged inflated appraisals on the houses and pocketed extra cash from the deals.
Lenders have seized dozens of houses from Stonewood clients who defaulted on mortgages, according to a database used by local real estate agents. The California Department of Real Estate has revoked Montecastro's and Stonewood's real estate licenses.
Ackerman, who represents plaintiffs in three parallel lawsuits, filed a fourth lawsuit in state court Monday, on behalf of a dozen Tucson-area investors. Some said Murrieta-area real estate deals had left them hundreds of thousands of dollars in debt; several also said they invested money with Duncan after taking cash advances on credit cards that he and McLeod arranged for them.
Runes said the lawsuits lack merit, pointing to the withdrawal of the Rialto plaintiffs' case as evidence. Anna Richter, whose investment house in Murrieta fell into foreclosure earlier this year, said she isn't discouraged for her prospects in her two remaining lawsuits.
"This is a huge roller coaster and every one of us suffers with depression on a daily basis," she said.
Two pairs of plaintiffs represented by attorneys in Del Mar and Ontario withdrew their lawsuits in recent weeks. An attorney for Montecastro said the move is a recognition that Montecastro and the others did nothing wrong. Ackerman said he believes the plaintiffs simply didn't have enough cash to cover the attorneys' fees. Those attorneys declined to comment.
Both Ackerman and Runes have said they expect the lawsuits to drag well into next year, barring an unexpected settlement. Operating under a severe backlog, Riverside County's courts are giving priority to criminal cases, and relatively simple civil cases can take a year or more to reach trial. In order to speed one case along this week, Ackerman and Runes agreed to have an attorney sworn in as a temporary judge Wednesday to hear the procedural motion.
The U.S. Securities and Exchange Commission, which was conducting a non-public investigation of Duncan and companies run by the other men, brought the matter to federal court last month, saying they were stalling by failing to respond to subpoenas. A hearing on the matter was scheduled for Thursday morning but was postponed. SEC attorneys declined to comment. William Sauls, who represented the men before the commission, hasn't returned numerous phone calls seeking comment.
Meanwhile, Runes cited the SEC investigation earlier this month in arguing that McLeod and another defendant in state court should be allowed to delay Ackerman's requests for documents. Producing the documents would hurt the men's ability to defend against possible criminal charges. None have been filed against any of the men.
Some plaintiffs said they're growing impatient. More than a dozen of them rallied with their families in front of The Promenade in May. One created a Web site that depicts the FBI, Riverside County district attorney and California attorney general as three monkeys who hear, see and speak no evil.
Since the SEC investigation was made public, the Web site shows a gold star labeled "SEC."
"I feel damned vindicated," Richter said. "They can use their resources. Some of us are on the brink of financial devastation."
Contact staff writer Chris Bagley at (951) 676-4315, Ext. 2615, or cbagley@californian.com.
See also:
Feds probing investment ring (July 6, 2007)
State shuts down real estate player (June 30, 2007)
State agency targets mortgage brokerage (May 25, 2007)
Sixth lawsuit alleges money laundering (May 23, 2007)
New player emerges in fraud suits (Feb. 21, 2007)
Scope of alleged scam grows (Feb. 14, 2007)
Investors' legal battles span 5 years (Feb. 11, 2007)
Renters latest victims of alleged scam (Feb. 10, 2007)
Judge refuses to shut down brokerage (Jan. 19, 2007)
Real-estate investors bought on faith (Jan. 14, 2007)
High-ball offers raised flags in 2004 (Jan. 9, 2007)
Suit alleges massive mortgage scam (Jan. 6, 2007)
More Stories
Time to do the right thing wrote on Jul 27, 2007 7:11 AM:What a racket! So, Mr. Bagley when are you going to start writing about the North County real state scams. You know the ones that hung out at the swap meet and sold homes to people who could not afford them. These poor people had no valid jobs, valid legal residencies in many cases; no valid social's and they were purchasing homes from $500,000 to $ 800,000 with absolutely no verification of income, residencies or anything! Who facilitated these ventures? North County 501C3's come out come out where ever you are.
Chris Bagley -- Staff Writer wrote on Jul 27, 2007 9:13 AM:I write for the Californian, which covers southwestern Riverside County, not North County (San Diego).
The Heat Is On... wrote on Jul 27, 2007 2:23 PM:White collar crooks like Duncan, McLeod and Montecastro ought to be having lots of sleepless nights. The stock market just took a major hit due to all of the shakey real estate investments and shady mortgage transactions. There will be repercussions as more and more people demand somebody's head on a stick for the drop in the stock market. People's retirement and investments are tied into the stock market. Even if you have no ties to the real estate market and its current situation, you are taking a hit as this now takes down the entire stock market. While Duncan, McLeod and Montecastro might take some comfort in a couple of lawsuits being dropped, the heat is only going to get hotter with the feds involved. Real estate flipping and mortgage fraud have spread like cancer and is now taking down the rest of the economy. Heads are gonna roll. This reminds me of a great song from the 1980s, Glenn Fry's "The Heat Is On." White collar crooks should be singing this tune to themselves right now - "The heat is on, on the street. Inside your head, on every beat. And the beat's so loud, deep inside. The pressure's high, just to stay alive. 'Cause the heat is on..."
CPA wrote on Jul 27, 2007 3:41 PM:Unfortunately, law enforcement and the press are not up to speed on white collar and financial crime. They simply don't understand the basics, as this article indicates. They would rather cover purse snatching and bank robbery where they don't have to think much. When they need to do arithmetic, or analyze financial transactions the get all spacey. They fall for defense lawyers' "poor, poor pitiful me" stories and loose site of the enormous harm done by these kinds of crimes. Please Mr Bagley, do your homework and tell us what happened here. Your article failed to do that.
So much for Free Speech wrote on Jul 27, 2007 8:23 PM:What a racket! So, Mr. Bagley when are you going to start writing about the North County real state scams. You know the ones that hung out at the swap meet and sold homes to people who could not afford them. These poor people had no valid jobs, valid legal residencies in many cases; no valid social's and they were purchasing homes from $500,000 to $ 800,000 with absolutely no verification of income, residencies or anything! Who facilitated these ventures? North County 501C3's come out come out where ever you are.
JSten wrote on Jul 29, 2007 11:26 AM:Yeah Bagley! Write something about North County. You know, like the scams and stuff? I want some local entertainment for a change.
the good & bad wrote on Jul 29, 2007 2:45 PM:Who is rally going to win this case? The lawyers of course. They have nothing to lose but everything to gain! Lawyers love these types of cases where both parties want to fight for something that really in the end does NOT matter!!!Investors plaintiffs, consider it a loss and move on. Defendants don't make the same mistake twice. Make it right!
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