Long Beach man sentenced to 30 months in prison in multi-million dollar fraud case

SANTA ANA >> A co-owner of a now-defunct Southe Califoia real estate investment firm was sentenced today to 30 months in federal prison for his guilty plea to participating in a fraudulent scheme that caused investors to lose as much as $169 million.

John Packard, 66, of Long Beach, and his business partner and co- defendant Michael J. Stewart were ordered by U.S. District Judge Cormac J. Caey to pay $9,234,914 in restitution to 120 victims, said Thom Mrozek, the public affairs officer of the U.S. Attoey’s Office.

Stewart, a San Clemente resident, received a 14-year prison sentence from Caey on Feb. 29.

Packard pleaded guilty to one count of mail fraud in 2014, admitting that he and Stewart bilked investors in Pacific Property Assets, according to Mrozek.

Packard and Stewart created the firm, which had offices in Long Beach and Irvine, in 1999 to purchase, renovate, operate and resell or refinance apartment complexes in Southe Califoia and Arizona.

Typically, PPA financed property acquisitions through mortgages, and it raised money from private investors to pay for renovations to the properties. After several years, PPA usually refinanced, but sometimes sold, each property, Mrozek said.

Although PPA’s apartment rental operations were not profitable, 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, Mrozek said.

In its 10 years of operations, PPA acquired more than 100 real estate properties and raised tens of millions of dollars from hundreds of investors.

By the end of 2007, when the real estate market began to decline and credit became scarce, PPA’s business model was no longer feasible.

To keep PPA afloat, from early 2008 through April 2009, Stewart and Packard raised more than $34 million from new investors, many of them retired persons who were investing their retirement funds in the company, Mrozek said.

A 74-year-old investor testified at 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, Mrozek said.

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The defendants used those new funds to pay earlier investors, mortgage lenders, other company expenses, and Stewart and Packard themselves — including their aual salaries of $750,000 and hundreds of thousands of dollars in additional compensation, Mrozek said.

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, Mrozek said.

In the last investor offering in early 2009 — which PPA called the Opportunity Fund — investors were told that their funds would be used to purchase new real estate properties, Mrozek said.

However, none of the more than $9 million raised as part of this offering was used for that purpose. Instead, the money was used to pay earlier investors and banks, to pay Stewart and Packard, and to pay PPA’s bankruptcy attoey, Mrozek said.

“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. Attoey 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 and a group of related companies filed for bankruptcy in June 2009. When the bankruptcy was filed, PPA stated that it owed 647 private investors more than $91 million, and it owed banks approximately $100 million, Mrozek said.

The 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, “peies on the dollar” through the bankruptcy process, Mrozek said.