A California man will plead guilty to mail fraud charges in what prosecutors alleged was a massive $110 million Ponzi scheme that duped unsuspecting investors who thought their funds would be used to flip real estate. John Packard, 64, pleaded guilty today to a single count of mail fraud before a California federal judge. Packard faces up to twenty years in federal prison at a May 18, 2015 sentencing, although his ultimate sentence will likely be lower based on federal sentencing guidelines.
Packard and Michael J. Stewart owned and operated Pacific Property Assets ("PPA"), a company they formed in 1999. The two used PPA to purchase, refurbish, and eventually resell apartment complexes in Southern California and Arizona, financing the acquisitions through mortgages and raising money from potential investors to fund property renovations. While the operation generally was not profitable, PPA was able to benefit from a booming real estate market and skyrocketing property values to raise cash by constantly refinancing the properties. From 1999 to 2009, PPA acquired more than 100 properties and raised tens of millions of dollars from investors.
However, as property values began to stagnate in 2007 in what would eventually lead to the economic meltdown, PPA was facing large debt payments to its mortgage lenders and private investors. The men allegedly misrepresented PPA's financial condition, and continued to raise tens of millions of dollars from investors that were used to make payments to lenders and investors, and even Steward and Packard themselves. Eventually, PPA and several other related companies filed bankruptcy in June 2009, with court records showing that the companies owed approximately $90 million to hundreds of investors and approximately $100 million to various banks. After going through the bankruptcy process, private investors received nothing, while banks lost at least $24 million.
The men were arrested earlier this year after a grand jury indicted them on 11 counts of mail fraud, three counts of bank fraud, and two counts of bankruptcy fraud. The bankruptcy charges stemmed from the pair's alleged transfer of hundreds of thousands of dollars in PPA funds to personal bank accounts for their use and to pay their personal attorneys, and thus out of the reach of their creditors.
While Packard has pleaded guilty, Stewart has pleaded not guilty and remains on schedule for an April 2015 trial date.
The indictment is below (h/t to Compliancebuilding.com)