A Long Beach man was sentenced Monday to 30 months in federal prison after pleading guilty to participating in a real estate fraud scheme during the Great Recession that caused hundreds of investors to collectively lose about $169 million—including a widow who invested nearly all of her retirement savings.
John Packard, 66, was sentenced by U.S. District Judge Cormac J. Carney after previously pleading guilty to one count of mail fraud in 2014, according to the U.S. Attorney’s Office.
His business partner and co-defendant, Michael J. Stewart of San Clemente, was handed a 14-year prison sentence from Carney on Feb. 29. Both men were ordered to collectively pay $9,234,914 in restitution to 120 victims, officials stated.
Packard previously admitted that he and Stewart defrauded investors in Pacific Property Assets (PPA), which had offices in Long Beach and Irvine, according to officials.
“Packard and Stewart created PPA in 1999 to purchase, renovate, operate and resell or refinance apartment complexes in Southern California and Arizona,” a release stated. “Typically, PPA financed property acquisitions through mortgages, and it raised money from private investors to pay for renovations to the properties.”
Officials stated PPA usually refinanced, but sometimes sold, each property after several years.
Despite PPA’s unprofitable apartment rental operations, it was able to raise cash through refinancing and selling properties.
“As real estate values were generally increasing until approximately 2007, the properties were refinanced at ever-higher values, which enabled PPA to use the extra refinancing proceeds to not only pay off the original mortgages, but also to make payments on other loans, make payments to investors, and to pay Stewart and Packard.”
PPA acquired over 100 real estate properties and raised tens of millions of dollars from hundreds of investors in its 10 years of operations, officials stated.
When the real estate market began to decline and credit became scarce, around the end of 2007, PPA’s business model was no longer feasible, according to officials.
From early 2008 through April 2009, both men raised more than $34 million dollars from new investors to keep PPA afloat.
Many of the investors were elderly and retired persons who were investing their retirement funds in the company, officials stated. One of those investors—a 74-year-old widow—said during her testimony in Stewart’s trial that in early 2009, shortly after her husband died, Stewart’s staff persuaded her to invest virtually all her retirement savings in PPA.
With those new funds the defendants paid earlier investors, mortgage lenders, other company expenses, and themselves—including their annual salaries of $750,000 and hundreds of thousands of dollars in additional compensation, according to officials.
“Packard testified at Stewart’s trial that, in 2008, he and Stewart knew that PPA was dependent on these investor loans to make its monthly debt payments and continue operating, and the company was unable to raise money through other means,” officials stated.
In PPA’s last investor offering in early 2009—called Opportunity Fund—investors were told their funds would be used to purchase new real estate properties. In reality, of the more than $9 million raised as part of this offering none of it was used for that purpose. The money was instead used to pay earlier investors and banks, to pay the defendants, and to pay PPA’s bankruptcy attorney, officials stated.
“Mr. Packard and Mr. Stewart deliberately and repeatedly misled hundreds of victims who entrusted their retirement funds—and in some cases, their life savings—to PPA, with disastrous results,” said U.S. Attorney Eileen M. Decker. “These defendants concealed the weak financial condition of the company, which resulted in the victims losing their investments and their ability to retire with confidence.”
PPA filed for bankruptcy in June 2009, along with a group of related companies, officials stated. At the time the bankruptcy was filed, PPA stated it owed 647 private investors more than $91 million, and owed banks about $100 million. A Chapter 11 trustee appointed in the bankruptcy case later estimated the total investor losses at $169 million, and predicted that investors would receive, at best, “pennies on the dollar” through the bankruptcy process, a release stated.
The Federal Bureau of Investigation, with the help from the U.S. Trustee’s Office, investigated the case.
Stephanie Rivera covers immigration and the north, west and central parts of Long Beach. Reach her at [email protected] or on Twitter at @StephRivera88.
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