FBI Charges Two With $110 Million Real Estate Ponzi Scheme

Authorities unveiled criminal charges against two men on charges they masterminded a real estate Ponzi scheme that swindled victims out of more than $110 million.  Michael Stewart, 66, of Phoenix, and John Packard, 63, of Long Beach, California, were arrested earlier this week after a grand jury returned a 16-count indictment charging each of the men with 11 counts of mail fraud, three counts of bank fraud, and two counts of bankruptcy fraud.  If convicted of all charges, the men face hundreds of years in prison and millions of dollars in criminal penalties.  

The men 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. 

As property values began slowdown and eventual collapse in 2007, 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, indicating that it 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 charges also accuse Steward and Packard of bankruptcy fraud for their alleged transfer of hundreds of thousands of dollars in PPA funds to the mens' personal bank accounts for their use and to pay their personal attorneys, and thus out of the reach of their creditors.

The Securities and Exchange Commission previously brought civil fraud charges against the pair in May 2012. 

A copy of the SEC's complaint is below:

comp22365 2