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Scope of alleged scam grows
By: CHRIS BAGLEY - Staff Writer
An alleged pyramid scheme focused on Murrieta real estate drew in large numbers of investors from Arizona and northern California and a scattering of others from as far away as Minnesota and Puerto Rico, according to documents filed in conjunction with a growing set of lawsuits.
A lawsuit filed Tuesday in Riverside Superior Court by a Murrieta couple targets Hendrix Montecastro and James Duncan, both of Murrieta, and Pacific Wealth Management LLC, a Nevada corporation with a Murrieta telephone number.
The suit follows others filed last week in U.S. district court and last month in the Riverside court that target the two men and a range of other people including Southern California resident Charlie Choi and Maurice McLeod, an officer of Pacific Wealth.
The documents, drawn from a spreadsheet, appear to show a bewildering web of participants, including the four men and 423 "core clients" and "golden clients." About 20 of those clients have signed on to the original lawsuit, which alleges that Montecastro, Duncan and McLeod duped plaintiffs into spending millions of dollars on phony investments. They were filed last week as evidence in that suit.
According to the original lawsuit, the plaintiffs borrowed as much as $3 million each in mortgage loans and credit card advances. They spent the majority of that on single-family homes in and around Murrieta; the original lawsuit alleges that the defendants promised to invest the remaining 10 to 25 percent of it in low-risk, high-return investments.
The defendants allegedly lied to the clients about the meaning and significance of the loan documents and other forms they were signing, and allegedly acted as securities brokers without the necessary licenses.
Many of the houses are now going into foreclosure, and the lawsuit alleges that the defendants have pocketed the money.
A copy of the suit brought Tuesday by Carol and Syling Lee of Murrieta wasn't immediately available for review, but the spreadsheet lists the couple as affiliates of the investor group. The spreadsheet lists 423 clients, including more than a dozen whom plaintiffs have identified as recruiters for the operation. The document identifies more than 100 of the clients as living in the Tucson, Ariz., area. It identifies other large clusters in the San Francisco Bay Area; Tacoma, Wash.; and northern Texas; and smaller clusters in eight other states and Puerto Rico.
The document lists the names of a "referral partner" and a "referral source" alongside each. Clients contacted by The Californian said those represent the people who recruited them as investors.
Anna Richter, one of two Rialto women suing in federal court, said Tuesday that a friend from her church brought her into the group. That suit accuses the four men of using wire transfers to steal more than $550,000 from Richter and Deborah Weber, the co-plaintiff. Their attorney, Rich Ackerman, said he filed their suit under a federal racketeering statute after learning the case involved extensive interstate wire transfers and investors in numerous states.
Richter identified the church friend as Connie Duron, the aunt of McLeod's wife, a member of the church since August 2005. The spreadsheet identifies Duron as a "referral source" for Richter and more than a dozen other clients.
"Connie to me was like a mom," Richter said.
The spreadsheet identifies one Tucson-area resident as a "referral partner" for Richter and nearly 200 other clients. Richter and Duron said the man, Ken Fraleigh, is married to Duron's sister. The couple's daughter is married to McLeod, Richter said.
Fraleigh and Duron didn't respond to voice-mail messages left Tuesday evening. McLeod, Duncan and Montecastro couldn't be reached. None have responded to numerous calls seeking comment in the six weeks since the original lawsuit was filed.
Tucson-area clients who spoke with The Californian said their losses in the investment group have been small compared to the amounts claimed by Riverside County residents in the original lawsuit. Two "core clients," both of whom work at Davis-Monthan Air Force Base in Tucson, say they lost $2,500 and $16,000 in the investment arrangement.
Air Force authorities have identified an unspecified number of base employees who put money into the investment group but weren't able to specify amounts of money or provide other details, an Air Force spokesman said Tuesday.
-- Contact staff writer Chris Bagley at (951) 676-4315, Ext. 2615, or email@example.com.
A noncommissioned officer at Davis-Monthan Air Force Base is at the center of claims that more than 100 Tucsonans, many of them church members or military personnel, were financially ruined after investing in shaky real estate deals or near-worthless Iraqi currency.
Those involved say they're now heavily in debt °™ some for as much as $400,000 °™ for investment money they borrowed against their homes or credit cards to buy Iraqi dinars or California properties that now face foreclosure.
Often, religion was used to push the investment deals, they said, and some investors, including a Tucson pastor, said they bought in to raise money for church projects to aid the poor. The promised rates of return ranged from about 20 percent to 300 percent, they said.
"They said they could help us, that it was based on faith and trust. They knew the vocabulary to use with Christian people," said Maria Hynum, an East Side grandmother who said she lost $393,000. Two of her relatives also lost tens of thousands of dollars each, she said.
Hynum is a member of Christian Faith Center, 4108 E. North St. She said she's one of nine church members, including the pastor, who invested in a company formerly known as Pacific Wealth Management of Murrieta, Calif., a firm that made its Tucson pitches at some of the city's poshest hotels.
The company, registered in Nevada, is not licensed to sell investments in Arizona and is not connected to a San Diego-based investment firm by the same name.
No criminal charges have been filed against anyone involved. Several agencies are investigating, including the FBI, the Air Force Office of Special Investigations and the Riverside County Attorney's Office in California. At least four lawsuits have been filed by three California law firms.
One attorney says as many as 400 people from across Arizona were victimized, along with hundreds more in California, Arkansas, Puerto Rico, Texas, Oregon and Washington.
Collectively, their losses total hundreds of millions of dollars, and many face bankruptcy, ruined credit ratings and the loss of their homes, said the lawyer, Richard Ackerman of Temecula, Calif., who represents numerous California investors and recently met with dozens of Tucson investors.
Ackerman says Pacific Wealth in Murrieta had no assets of its own and was essentially a "ponzi scheme" that could be kept afloat only as long as more new investors were persuaded to come aboard.
He said investors were fraudulently induced to extract equity from their homes and borrow against lines of credit to buy Iraqi currency or real estate in California, both offered at vastly inflated prices.
For example, he said investors who bought currency were charged about $25,000 each for a million Iraqi dinars, which are worth only about $500.
Tucsonans who took part over the past 18 months say Pacific Wealth agents told clients that if they remortgaged their homes to raise investment cash, the company would cover the differences between their old mortgage payments and their new ones, and also would cover any extra monthly costs for the California properties once renters were found to occupy those premises.
In some cases, Pacific Wealth followed through for a few months, clients said. But when the firm suddenly stopped paying in late 2006, local clients said they were left on the hook for enormous debts. Some of their mortgage payments now top $4,000 a month and the California properties are now in default or foreclosure, they said.
In Tucson, those involved say, nearly all the investors were brought into the Pacific Wealth fold by D-M Tech. Sgt. Ken Fraleigh, a facility manager with the 355th Logistics Readiness Squadron. He has been in the Air Force for nearly 20 years, the past eight at D-M.
Fraleigh, who did not respond to a request for comment left with his wife, was identified in a recently filed lawsuit in California as the main Tucson "referral partner" for Pacific Wealth.
The suit alleges that Fraleigh helped bring in at least 125 Tucson investors, including a dozen D-M airmen and the members of Christian Faith Center, his own church. He also brought in about two dozen more from across Arizona and in six other states, the suit says.
Other California suits allege that frauds were committed on D-M base property, on other U.S. military installations and at a California church.
Church members in Tucson said they don't believe Fraleigh intentionally duped them and said he lost money, too. They think he was taken in by the prosperous image Pacific Wealth portrayed and by the fact Fraleigh's son-in-law, identified in court claims as Maurice McLeod of Murrieta, was president of the company.
Fraleigh greeted potential investors at the door at lavish Tucson investment dinners held at the JW Marriott Starr Pass Resort and other swank locales, investors said.
Under Defense Department rules, service members engaged in after-hours business ventures must obtain their commander's OK. D-M officials said Friday it was not immediately clear if Fraleigh had such approval.
Meanwhile, the situation could jeopardize the security clearances and deployability of the other D-M airmen involved.
Military personnel who incur heavy debt can be deemed security risks, lose their deployable status and be reduced in rank, something that already has happened to several Navy members in California who made the same investments, said their lawyer, Ackerman.
D-M officials said they have identified 11 airmen and three civilian workers on base who dealt with Pacific Wealth, and are offering legal or financial help to anyone affected. The base is cooperating with investigations, said 2nd Lt. Mary Pekas, a D-M spokeswoman.
Several Tucson investors said the Pima County Sheriff's Department and the Arizona Corporation Commission, which regulates investment sales in the state, also are investigating.
Fraleigh is not listed as a defendant in the California lawsuits, but his son-in-law is.
McLeod now is banned by court order from using the business name Pacific Wealth. The long-established investment firm in San Diego with the same name, worried about damage to its reputation, recently sued to stop him.
McLeod did not respond to requests for comment. The Arizona Daily Star was unable to reach anyone being accused of investment fraud to comment for this story, despite numerous phone messages left at the work phones or cell phones of company principals or their lawyers.
Several other California firms are identified in the lawsuits as linked to the McLeod-run Pacific Wealth, along with several California residents. So far, no Tucsonans are known to have filed lawsuits, but several said they plan to sign on to the California actions.
Randy Winkles, a pastor at Christian Faith Center, said he was one of the 40 or so people at the recent meeting with Ackerman in Tucson. Winkles said he lost about $400,000 through remortgaging his home and that his house payment has jumped from $1,300 to $2,500 a month.
Winkles, who sometimes said the opening prayers at the Tucson investment meetings, said he believed godly people were behind the firm, and one of the California principals would talk at length during the meetings about faith and religion, saying that he'd been a pastor's son.
Winkles said he invested to try to raise money for church outreach projects such as a gymnasium for youth, and transitional housing for teenage parents, the homeless and recovering addicts.
"I don't think anyone went into this for self-enrichment. It was done to carry on our vision," said Winkles, who said he heard of the investments from Fraleigh, the D-M technical sergeant, who attends his church.
Noemi Barrios, a Tucson nurse, said she lost about $80,000 and her mortgage payments jumped from $734 to $1,800 a month.
"Some of us feel kind of foolish now for believing, but these are not ignorant people who got involved with this. There's a retired professor, a civic planner, military people, and a lawyer and a doctor," she said.
But with the company's Christian pronouncements, no one thought to check up on the firm's legitimacy, Barrios said. The Arizona Corporation Commission, for example, has a toll-fee number (1-866-VERIFY9) that citizens can call to see if an investment dealer is registered.
Heather Murphy, a spokeswoman for the state agency, said authorities there want to hear from those who feel they were victimized, and they should call the toll-free number.
Meanwhile, as authorities investigate and lawsuits are tested in court, investors such as Hynum say they still believe God will somehow make things right.
"God is going to give us victory in this," she said. "I have to believe that."
Find the online version of this story to download the California lawsuits at www.azstarnet.com/dailystar
°Ů Contact reporter Carol Ann Alaimo at 573-4138 or at firstname.lastname@example.org.
Renters latest victims of alleged scam
By: CHRIS BAGLEY - Staff Writer
MURRIETA ---- Several dozen families are being asked to leave the houses they rent, a mass eviction that makes them the latest group of people touched by an alleged real estate scam centered in Murrieta.
The houses belong to about 20 plaintiffs who have signed on to a class action lawsuit that accuses three Murrieta men and their companies of running a vast pyramid scheme. According to the suit, the defendants suckered investors into buying overpriced houses with 100 percent financing. They allegedly promised the investors that excess cash from the loans would be plowed into low-risk, high-yield investments that would help to cover the monthly mortgage payments.
But the loans went into default late last year after the defendants stopped making the payments, the suit alleges. With more than 100 homes set to be auctioned or seized by the lenders sometime this year, the plaintiffs have told their renters to leave this spring. They acted on the advice of their attorney, who said the likely foreclosures would otherwise force out the renters with just a few days' notice.
Some neighborhoods in Murrieta stand to lose four or five families. Stonewood Consulting Inc., one of the defendants, arranged numerous home purchases that were heavily concentrated in just a few neighborhoods, according to a database used by real estate agents. Many of those houses entered the foreclosure process in December. The owners say their credit ratings are in the tank, and their lawsuit says Stonewood is to blame.
Dana Story, who has been asked to leave the house she rents on Via Alisol in Murrieta's Copper Canyon neighborhood, said she sympathizes with the owners' plight.
"But," she said, "I think the real victims are the families who are renting their houses, paying their rent in good faith."
Renters and owners say most of the owners gave 60-day notice, the legal standard for no-fault evictions.
Bob Pape, who lives on nearby William Place, said he got the phone call in late January. He still hasn't received formal written notice or a specific date when he'll have to leave.
"We're kind of in the dark, and so is the owner," Pape said.
The owners' lawsuit targets Stonewood chief executive Hendrix Montecastro; his mother, Helen Montecastro, who allegedly recruited investors from among co-workers at Rancho Springs Medical Center; Murrieta-area resident James Duncan; and Maurice McLeod. Other defendants include Jovane Investments LLC, registered to Duncan at an address in Orange; The Henson Group, an unregistered company that Duncan once operated from the same address; Sunburst Financial Systems Inc., registered to Chris Oetting in Palm Desert; and Pacific Wealth Management LLC, which is registered to McLeod at an address in Las Vegas but uses a Murrieta-area telephone number.
Tom Hargrove recently spent the morning of his 69th birthday at a nearby Starbucks, discussing his imminent eviction from a house on Falkirk Drive in Murrieta Hot Springs. A part-time marketing consultant who also runs a small cleaning business, Hargrove said he's optimistic that he and his wife will be able to find another house to rent within the Murrieta Valley Unified School District. Their oldest son is an 11th-grader at a local public high school and has lived in the district since first grade.
He said he's doesn't blame Vicky Reiss, who owns the house and four others that are now entering foreclosure. In court documents, Reiss alleges that she borrowed about $3 million to buy the houses.
Eduardo and Soledad Carrillo, a married couple who are among the plaintiffs, bought seven houses, including the two where Pape and Story live. They borrowed about $4.4 million to finance the purchases, which closed between March and June of 2005, according to the real estate database. Six of the seven purchases were brokered by Stonewood Consulting.
In addition to Reiss and the Carrillos, 17 other plaintiffs own between 100 and 140 houses that are now going into foreclosure, attorney Richard Ackerman said. About 75 of those houses are now occupied by renters who are being asked to leave, Ackerman said.
Another defendant in the lawsuit, Arbor Terrace Real Estate Inc., had acted as property manager for many of the houses, owners and tenants said. Late last year, the company abruptly backed out of management arrangements with the owners who are now suing, the owners and tenants said.
Hendrix Montecastro was a licensed officer of the company until Jan. 9, four days after the lawsuit was filed, according to the California Department of Real Estate.
In most cases, owners say they bought houses with little or no down payment.
Depending on how the lawsuit and negotiations with the lenders turn out, those buyers could take the biggest hit in terms of wrecked credit instead of large cash losses, Ackerman said. But many investors were also duped into other bogus investments ranging from overpriced Iraqi currency to short-term bank loans and cash advances on credit cards, the suit alleges.
Reiss said two of her tenants told her they would quit paying rent for their last few weeks in the houses. One explained his decision by saying that she had broken the lease and in any case wasn't making mortgage payments, according to separate interviews with Reiss and the tenant.
"I'm $3 million in debt," Reiss said. "What can I go after him for?"
Contact staff writer Chris Bagley at (951) 676-4315, Ext. 2615, or email@example.com.
The crime continues to roll on FBI, DRE, SEC, and DA are slow to move on the company...The pressure was on Stonewood and Pacific Wealth now they have morphed into Coast Wealth Management located in Hemet California...
Alleged ties to Pacific Wealth
STEVE KAYDEN Manager TOTAL RETURN FUND, LLC
STEVE KAYDEN Director CATHEDRAL CAPITAL PARTNERS
STEVE KAYDEN President CATHEDRAL CAPITAL PARTNERS
STEVE KAYDEN Secretary CATHEDRAL CAPITAL PARTNERS
STEVE KAYDEN Treasurer CATHEDRAL CAPITAL PARTNERS
STEVE KAYDEN Director PALM VALLEY ADVISORS
STEVE KAYDEN President PALM VALLEY ADVISORS
STEVE KAYDEN Secretary PALM VALLEY ADVISORS
STEVE KAYDEN Treasurer PALM VALLEY ADVISORS MAURICE MCLEOD Managing Member PACIFIC WEALTH MANAGEMENT, LLC
MAURICE MCLEOD President THE TWOFOLD INCORPORATED
MAURICE MCLEOD President MAXIX CORPORATION
MAURICE MCLEOD Treasurer MAXIX CORPORATION
JAMES DUNCAN General Partner JACOB RITZE LIMITED PARTNERSHIP
JAMES DUNCAN General Partner JAMIE PROPERTIES LIMITED PARTNERSHIP
JAMES DUNCAN General Partner JAMIE SECURITIES LIMITED PARTNERSHIP
JAMES DUNCAN President MATERIALS EVOLUTION AND DEVELOPMENT USA, INC.
JAMES DUNCAN President DUNCAN CIVIL RECOVERY SERVICES, INC.
JAMES DUNCAN Director JAMES DUNCAN AND ASSOCIATES, INC.
JAMES DUNCAN President JAMES DUNCAN AND ASSOCIATES, INC.
JAMES DUNCAN Secretary JAMES DUNCAN AND ASSOCIATES, INC.
JAMES DUNCAN Treasurer JAMES DUNCAN AND ASSOCIATES, INC.
CHARLES CHOI Director INLAND COAST CAPITAL CORPORATION
CHARLES CHOI President INLAND COAST CAPITAL CORPORATION
CHARLES M CHOI Manager HUI LAU SHAN (LAS VEGAS), LLC.
ARBOR TERRACE REAL ESTATE, INC.
Number: C2597178 Date Filed: 9/22/2005 Status: active
37081 CHERRYWOOD DR
MURRIETA, CA 92562
Agent for Service of Process
WILLIAM H SAULS
427 C ST STE 416
SAN DIEGO, CA 92101
License # Agency Name License Type Institution Name License Status Address Phone
01456322 DRE Montecastro, Bayani Delos Salesperson Licensed MURRIETA, CA N/A
01159306 DRE Montecastro, Hendrix Moreno Broker
AllCare Nursing Inc
Stonewood Consulting Inc
Ocean Ridge Equity Inc
Arbor Terrace Real Estate Inc Licensed
Montecastro, Bayani Delos
26273 HORSETAIL ST
MURRIETA, CA 92562
Original License Date:
10/28/04 (Unofficial -- taken from secondary records)
NO FORMER NAMES
License ID: 01781537
Arbor Terrace Real Estate Inc
41120 ELM ST STE H218
MURRIETA, CA 92562
NO DISCIPLINARY ACTION
04/29/06 - CONDITIONAL LICENSE SUSPENSION. EDUCATION REQUIREMENTS NOT FILED.
05/03/06 - CONDITIONAL SUSPENSION REMOVED. EDUCATIONAL REQUIREMENTS MET.
Oetting, Christopher Jeffrey
74-140 EL PASEO #341
PALM DESERT, CA 92260
Original License Date:
10/18/01 (Unofficial -- taken from secondary records)
NO FORMER NAMES
License ID: 01374994
Bankers Realty Inc
22719 HAWTHORNE BLVD STE 200
TORRANCE, CA 90505
NO DISCIPLINARY ACTION
NO OTHER PUBLIC COMMENTS
>>>> Public information request complete <<<<
Arbor Terrace Real Estate
Pacific Wealth Management, a Nevada LLC
Coast Wealth Management
Inland Coast Capital Corporation
Total Return Fund
Palm Valley Advisors
Cathedral Capital Partners
New World Mortgage
Ocean Ridge Equity
The Henson Group
James Duncan and Associates, Inc.
Ken Black Industries
Duncan Civil Recovery
Want to see what James Looks like I found him on the web and his alleged Ponzi Posi
all looks like!