SalFalko/Flickr Creative Commons
Two owners of a defunct Southern California real estate investment firm were arrested on Wednesday for pushing a Ponzi scheme that resulted in more than $110 million in losses for investors and banks.
The arrests of Michael Stewart and John Packard, owners of PPA Holdings Inc. and Pacific Property Assets (PPA), comes after being indicted by a federal grand jury on 16 counts, which include mail fraud, bank fraud and bankruptcy fraud. PPA, which is defunct, had offices in Long Beach and Irvine.
The U.S. Attorney's Office in Los Angeles said PPA's business typically worked like this — the company bought property through mortgages and raised money from investors to renovate the property. Then, PPA would rent out the property, according to the indictment.
The office said that PPA was able to raise even more cash by selling or refinancing their properties during the real estate boom, allowing PPA to acquire more than 100 properties and pay Stewart and Packard annual salaries of $400,000 to $660,000, plus other payments. Both later upped their salaries to $750,000, according to the indictment.
The U.S. Attorney's Office said the two men mislead investors and at least one bank into believing that PPA was financially stable, even when it wasn't, and continued to pay earlier investors by raising money from new investors.
In 2009, PPA filed for bankruptcy, owing more than $91 million to 647 investors and owing banks about $100 million, according to the U.S. Attorney's Office. The office believes that Stewart and Packard moved some of their funds into outside bank accounts so they wouldn't be impacted by the bankruptcy process.
Stewart and Packard would each face up to 320 years in federal prison and millions of dollars in fines if they are convicted on all 16 counts, the U.S. Attorney's Office said.
Packard's attorney did not immediately respond for comment.