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Feds take action against real estate group
By: CHRIS BAGLEY - Staff Writer | ∞
MURRIETA ---- A federal agency alleged Wednesday that three Murrieta-area men sucked $11 million from 75 amateur investors they recruited through networks of church friends and military comrades and then left a trail of more than 100 foreclosed houses in their wake.
The complaint, filed in U.S. District Court in Riverside by the U.S. Securities and Exchange Commission, seeks a federal court order barring James Duncan, Hendrix Montecastro and Maurice McLeod from continuing to offer the sort of investments that it alleges to be fraud.
The agency generally doesn't file criminal charges, but an attorney for one of the men said the allegations left little doubt that other federal agencies would follow up with prosecutions.
The securities commission Wednesday also demanded in the complaint that the three men repay an unspecified sum to their investors and potentially to lenders, who were left holding $120 million in bad mortgages. Some of Murrieta's most upscale neighborhoods, including Bear Creek, Copper Canyon and Greer Ranch, are dotted with foreclosed homes that the three men and their clients bought and later abandoned.
Montecastro's mortgage brokerage, Stonewood Consulting Inc., which operated out of a house in Greer Ranch, helped clients buy at least 128 single-family homes, most of which were in Southwest County, from late 2004 to late 2006, according to records from a real estate listing service.
Virtually all have fallen into foreclosure.
"This has had huge implications to the market as far as foreclosures, which have affected property values, and the ability to get financing for legitimate buyers," said John Giardinelli, an attorney for the Southwest Riverside County Association of Realtors, a trade group that provided evidence to the securities commission and other federal and state agencies.
"This is hopefully going to send a message that the authorities mean business," Giardinelli said of the SEC action.
Paul Runes, a Carlsbad attorney who represents Duncan in a related case, said the buyers were fully aware of the risks of real estate investments. Runes said a series of lawsuits filed by some of the clients and the complaint filed by the federal agency are based on shaky evidence.
"We already believe that the government has acted improperly," Runes said.
Runes declined to elaborate on that allegation but noted that the clients' Temecula attorney, Richard Ackerman, has "amended" ---- refiled or restated ---- the initial lawsuit twice, with a third attempt now pending in Riverside Superior Court.
"Mr. Ackerman is on the verge of having his case dismissed," Runes said. "This is the fourth attempt to state a valid complaint."
A total of more than two dozen of Ackerman's clients allege that Montecastro's group duped them into taking out no-money-down subprime loans to buy multiple houses in and around Murrieta ---- as many as 10 each in the case of married couples. The buyers began to file lawsuits in early January 2007 after defaulting on the first of the mortgages.
Those buyers have alleged that Montecastro and Duncan promised to help them make payments on the mortgages, but suddenly backed out of that arrangement in late 2006.
The investment ring worked like this, according to the clients' lawsuits and the federal complaint that was filed Wednesday: The three men, their family members and their business partners recruited through churches in Murrieta, Rialto and Tucson, Ariz., and through Davis-Monthan Air Force Base near Tucson.
The SEC alleges that Duncan and the others offered clients investments in foreign currency and short-term loans for businesses but violated federal investment laws by failing to register the investments properly. The three men allegedly promised unusually high returns on the investments. The agency and Ackerman have called the operation a gigantic pyramid scheme that was destined to collapse because it relied on money from new investors to pay off existing investors. In many cases, the SEC charged Wednesday, clients in or approaching retirement were urged to liquidate retirement accounts to feed tens of thousands of dollars into the alleged pyramid.
Stonewood was a much larger source of funds for the alleged pyramid, according to allegations by the federal agency, the California Department of Real Estate and former clients. The company allegedly arranged appraisals 10 percent to 15 percent above the purchase prices and claimed the excess proceeds as commissions.
Montecastro and his father, Bayani "Bob" Montecastro, agreed to surrender their real estate licenses in July after the real estate department filed a complaint similar to the one from the SEC.
Meanwhile, Hendrix and Brandy Montecastro have been soliciting investors for DMM Investments and LKG LLC, an Atlanta-area investment firm, as recently as last month, according to e-mail exchanges and copies of application documents obtained by The Californian.
The pair did not respond to requests for comment. An attorney for Stonewood couldn't be reached Wednesday afternoon.
Ackerman acknowledged that the series of lawsuits he filed in Riverside County's congested civil courts haven't yielded any money from the defendants, but he hailed the complaint filed Wednesday.
"This has always been my goal: to get law enforcement involved," he said Wednesday. "My clients don't have the resources to take on these guys. With the U.S. government, it's a different story."
Contact staff writer Chris Bagley at (951) 676-4315, Ext. 5444, or cbagley@californian.com.
See also:
Wheels of justice grind slowly (July 27, 2007)
Feds probing investment ring (July 6, 2007)
State shuts down real estate player (June 30, 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)
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)
Real estate group guts neighborhoods (August 26, 2007)
More Stories
Resident of Murrieta wrote on Feb 28, 2008 6:45 AM:Unfortunately dirty transactions are still going on. Nothing is selling, but you have agents who continue to come up with "investors" and purchase property. Look into it SRCAR. They have just found another way of doing it so that there are not huge red flags. Another one of the latest scams, homes are being rented then aprox 1 year later title changes without the house being listed. Some agents show it as being sold prior to it being listed on the MLS only for appraisal purposes. Oh by the way these transactions were brought to the attention of the Southwest Rverside County Association (SRCAR) back in 2005 but at the time they did not beleive there were any violations being made (hmmm)
Good Luck! wrote on Feb 28, 2008 8:13 AM:Ya can't get blood from a turnip! This is simply a federal ploy to make its very expensive department look good, and in reality, they are a day late and a dollar short. ...the likelyhood of anyone ever seeing even a fraction of their money is nill. Stop wasting taxpayer money beating a dead horse and get to the next scam before it gets too far. Hint to future investors - if it sounds too good to be true, then it probably is!
Local Realtor wrote on Feb 28, 2008 11:02 AM:Unfortunately the local association has been working on this since 2004. The problem is lack of law enforcement from our DA, AG, FBI and others. Had law enforcement acted on documented cases at that time - like they do in other parts of the country, this scourge would have been stopped in it's tracks. Thanks to Chris Bagley and SRCAR for their efforts which at least have brought us this far.
Victimless crimes r ok wrote on Feb 28, 2008 12:21 PM:i buy 10 $500,000.00 dollar homes @120% finance thats $1,000,000.00 in reserve (CASH) rent these homes @ $1500.00 a month never make a payment on anything. collect rent for the 10 months on the 10 homes. thats another $150,000.00 (CASH). Who needs credit with $1,150,000.00 large sitting in your account. Oh and I'm the victim here. it's a den of theives and they all should get 3-hots and a cot.
JSten wrote on Feb 28, 2008 8:32 PM:Hmmm
It took the federal government until now to realize that something was fishy in California?
They took a lot less time to burn down the roof on Duke, Ted Stevens, and some others. Looks like they were watching the pennies while the dollars were rolling out of the piggy bank.
Taison wrote on Feb 29, 2008 8:37 AM:In the end, the lawyers win. Everyone else lose (include we taxpayers). This country is messed up. A lot of clean up need to be done.
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