A federal judge sentenced a California man to a fourteen-year prison term for operating a real estate Ponzi scheme that duped family and friends of nearly $3 million. James Berghuis, 42, received the sentence from U.S. District Judge William B. Shubb, who factored in Berghuis' lack of "conscience" in fashioning his sentence. Berghuis chose to stand trial on the charges last year, which resulted in a federal jury convicting him on four counts of mail fraud, four counts of wire fraud and one count of laundering money. Berghuis could have potentially faced decades in prison.
From 2005 to 2007, Berghuis used his company, Berghuis National Lending Inc. ("BNLI") to solicit potential investors to take out home equity loans in order to invest in hard-money loans, real estate parcels, or the purchase of real estate franchises. Investors were assured that the investment was safe, and some were offered a deed of trust purportedly giving them a second position on the asset underlying their particular investment. In total, Berghuis raised millions of dollars from family members, friends, and acquaintances.
However, Berghuis did not use investor funds as promised; instead, he diverted funds for his own personal use and paid out fictitious returns to existing investors. In one situation, Berghuis signed over a $200,000 check he had received from a new investor to a car dealership to take possession of a top-of-the-line Mercedes sports car. Meanwhile, when funds began to run out, investors received various excuses as to why Berghuis could not make the promised payments; many investors ultimately lost their houses or were saddled with significant mortgages as a result of Berghuis' encouragement to use home equity money for the investment.