Co-Owner of Real Estate Firm Pleads Guilty to Bilking Investors out of $110M

The co-owner of a Southern California real estate investment firm pleaded guilty today to orchestrating a scheme that caused investors and banks to lose more than $110 million.

John Packard, 64, of Long Beach entered the plea to one count of mail fraud before U.S. District Judge Cormac J. Carney in Santa Ana.

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During the hearing, Packard admitted bilking investors in Pacific Property Assets, which had offices in Long Beach and Irvine, according to the U.S. Attorney’s Office.

Packard and co-defendant Michael J. Stewart created PPA in 1999 to purchase, renovate, operate and resell or refinance apartment complexes in Southern California and Arizona, according to court documents.

To keep PPA afloat after the real estate market began to decline and credit became scarce from 2007 to 2009, Stewart and Packard raised tens of millions of dollars from new investors, using the funds to pay earlier investors, mortgage lenders, and themselves, prosecutors said.

Packard admitted that by October 2008, he and Stewart knew that PPA was dependent on these investor loans to make its monthly debt payments and continue operating, and was unable to raise money through other means, authorities said.

Packard also admitted that during the course of the continued fundraising effort, Stewart misrepresented PPA’s financial condition, claiming that its business model was still working, and that PPA was still financially stable and able to raise money through refinancing, according to federal prosecutors.

Stewart and Packard concealed from investors the fact that the business had effectively become a Ponzi scheme, using new investors’ funds to pay back earlier investors, prosecutors said.

Additionally, following PPA’s final investor offering in 2009, virtually none of the investors’ roughly $9.2 million in funds were used to invest in new property purchases, as had been promised. Instead, the money was used to pay earlier investors and banks, to pay Stewart and Packard, and to pay PPA’s bankruptcy attorney, officials said.

PPA and a group of related companies filed for bankruptcy in June 2009, at which time the company owed private investors and banks more than $100 million, according to the U.S. Attorney’s Office.

In the bankruptcy proceedings, prosecutors said, investors received nothing, while banks lost an estimated $24 million.

Packard faces up to 20 years in federal prison when he is sentenced on May 18. Stewart was scheduled for trial in April.

--City News Service

PHOTO Patch file photo.