Michael Stewart of Phoenix Accused in $110 Million Real Estate Ponzi Scheme

Categories: News
apartments-america-top.jpg
The website providing the cover of an alleged Ponzi scheme.


It might not be hard to believe, but it turns out that a real estate investment company wasn't really producing the 60 percent returns it advertised after the real estate bubble burst.

The Department of Justice alleges Michael Stewart, 66, of Phoenix and John Packard, 63, of Long Beach, California, perpetrated a Ponzi scheme that robbed private investors and banks of $110 million.

According to the DOJ, Stewart and Packard started Pacific Property Assets (PPA) in 1999 with the purpose of buying and selling (or refinancing) apartment complexes in Southern California and Arizona.

The feds say the operation never was profitable, but they did raise a decent amount of cash to pay the investors and themselves by refinancing, as the real estate values continued to climb in the 2000s.

According to the DOJ:
According to the indictment, 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. As the value of PPA's properties was falling, PPA could no longer raise money by refinancing its properties with increasingly large mortgages. Furthermore, PPA faced large debt payments to its mortgage lenders and private investors, while it was continuing to lose money in its business operations.

To keep PPA afloat, from late 2007 through April 2009, Stewart and Packard allegedly continued to raise tens of millions of dollars from new investors. The defendants are accused of using these new funds to pay earlier investors, mortgage lenders, other company expenses, and Stewart and Packard themselves . . . Moreover, following PPA's final investor offering in 2009, virtually none of the investors' funds were used to invest in new property purchases, as had been promised to investors; instead, the money was used to pay earlier investors and banks, to pay Stewart and Packard, and to pay PPA's bankruptcy attorney.
Federal prosecutors allege they presented false financial information to investors and one of its bank lenders in order to raise money for their "investments," showing everything was looking up.

One of their investments was advertised under the name of "Apartments America," and an online archive of Apartments America's website shows some of the Phoenix-area properties they were claiming to be eyeing, along with big potential returns.

apartments-america.jpg


Their alleged scheme pretty much crashed in 2009, when PPA filed for bankruptcy.

A grand total of 647 investors were owed more than $91 million, and no one got a dime through the bankruptcy proceedings, according to the Justice Department. Various banks were owed $100 million, and ended up taking a $24 million loss.

Federal prosecutors also claim that once Stewart and Packard realized they had to go for bankruptcy, they made a transfer of $165,000 from the PPA account to Packard's personal account. Even while bankruptcy proceedings were ongoing, they arranged for another $131,000 to be transferred to outside accounts, conveniently ignoring the whole concept of the bankruptcy process.

Stewart, Packard, and another associate were already hit was an SEC complaint alleging securities fraud in 2012, but the FBI arrested both men today on these new federal charges, including mail fraud, bank fraud, and bankruptcy fraud.

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Follow Matthew Hendley on Twitter at @MatthewHendley.




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13 comments
jogpav
jogpav

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valleynative
valleynative topcommenter

They're facing federal charges, but Obama can sell us a health care plan that relies upon the participation of healthy young people who don't need it, was pushed through based on lies about what it allows, and which was voted for by people who hadn't read it.


vagabond545454
vagabond545454

Arizona is not the only state with these crooked real estate moguls, a Ponzi scheme can never last forever its based on fraud hence its just a matter of time before it collapses!

DonkeyHotay
DonkeyHotay topcommenter

"... were already hit was [sic] an SEC complaint ..."

phxjustice
phxjustice

Will Jamie Dimon, et al, be next?

DonkeyHotay
DonkeyHotay topcommenter

@valleynative  ... ALL insurance is predicated upon the participation of those who don't need or use coverage to pay for those who do ...


... you daft dipshit.



getmeouttahere
getmeouttahere

@vagabond545454 Maybe not, but it sure seems like we have more than our fair share of them. Seriously, sometimes I think Real Estate Fraud is the only growth industry in AZ, besides private prisons and meth labs. 

DonkeyHotay
DonkeyHotay topcommenter

@vagabond545454  ... but as you've seen here, and with Madoff, et. al., the ponzi schemes can last a very long time in a Bull market.

Jukes
Jukes

@phxjustice From your lips to God's ears.  Then again, I'm an agnostic.

JimDuck
JimDuck

@valleynative @DonkeyHotay  Earthquake, Home, Life, Auto are all examples of insurance that you rarely make a claim on, but that you pay every month or year.

valleynative
valleynative topcommenter

@DonkeyHotay @valleynative 

If the vast majority of subscribers never used their insurance, why would they pay for it?  If it's that bad of a bet, walk away from the game (as young, healthy people are doing with Obamacare).  Put your money in the bank, instead.  The money comes from the premiums paid by all, even those who will eventually use them, because the investments bring in more money than the costs of the payouts.


DonkeyHotay
DonkeyHotay topcommenter

@valleynative <== has NO CLUE what he's yammering about.


The PREMIUMS paid by THE VAST MAJORITY of subscribers who DO NOT USE or CLAIM against said insurance.



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