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Guth, Yaguda still stewing; more arrests hinted

January 30, 2009

By KAREN VELIE

Prosecutors and defense attorneys today asked a judge to postpone arraignment and bail hearing for Estate Financial Inc. principles Karen Guth and Joshua Yaguda for the fourth time. San Luis Obispo Superior Court Judge JacCrawford agreed to continue the arraignment of Estate Financial Inc.principles on 26 felony charges to February 20.

Then Deputy District Attorney Steve von Dohlen alluded to the possibility of additional charges being made against the EFI pair, as well as the prospect of additional parties being arrested.

Attorneys on both sides requested more time to put their cases together and to find out which allegations they agree on and which charges they plan to “fight over.”

Judge Crawford asked what would happen if they were to proceed on with the arraignment.

“It would be a logistic nightmare for both parties,” von Dohlen said. “We are finding more victims and strengthening our case.”

Enticed by the promise of 12 percent interest on property-secured investments, approximately 3,400 investors have entrusted their nest eggs with Guth and Yaguda. Estate Financial’s portfolio contained more than $317 million in monies owed to investors when the company filed bankruptcy last summer. Of that, only $21,000 remained unencumbered.

“It was way back before we knew about the huge scope of this case,” von Dohlen said in response to a question of why the pair is charged with $13 million in losses due to fraud. “If I knew then what I know now.”

In October, the court added a white collar crime enhancement to Guth and Yaguda’s charges, which placed their personal belongings, property, vehicles, and other items under court jurisdiction.

Judge Crawford said the status of Guth and Yaguda’s property was his concern. He asked von Dohlen how the district attorney’s office was moving forward on liquidating the mother and son’s assets.

The prosecutor said that Guth and Yaguda’s assets had been identified – Chevron gas stations in Templeton and Morro Bay, an office building on Ninth Street in Paso Robles, their Pasolivio olive ranch, a hotel in Morro Bay, and a beach home in Cayucos – and that that they were in the process of liquidating and turning the properties into cash. Even so, most of the properties are over-encumbered and as such hold very little value to investors looking for compensation for their losses, von Dohlen said.

Guth, 65, and Yaguda, 40, were arrested October 16 by a multi-agency task force at their Pasolivo olive ranch. They face 26 fraud charges, and both remain in San Luis Obispo County Jail pending $5 million bail each.

“We expect no change in custody,” von Dohlen added.

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By: hotdog on 2/3/09

Nameless,

your research and knowledge are very helpful, but depressing! I do have one comment about your facts; in a recent court action where I sued a local bum my attorney advised me the old 'usury' interest issue is out of date. My contract called for a 14% penalty and the judge awarded that without comment. Of course, collecting my judgment is another matter!

I find it strange and unfair to charge previous investors for a successful (concluded) investment, if they had no knowledge of the scheme. I guess, in the case of Hurst, who has been in business for (he says) 28 years, would ALL the clients for all those years have to turn in their returns for distribution to recent victims? Wow, that will be something. If so I can see quite a deal brewing….

By: Paso_Guy on 2/3/09

For what it's worth, I was in the EFIF for a number of years on occassiion had a need to withdraw money. Never had a problem pulling out what I requested, typically $50k or so.


My mother-in-law had some money in the Fund and passed away at the end of 2006…we made a request for total withdrawal and recieved 90% of the funds….EFI fellback on the contractual withdrawal obligation which was honored until the market downturn, then they flat ran out of funds.


Are these experiences typical of a ponzi senario? I still feel that they were legit and morphed into robbing peter to pay paul.


Either way, it's not a good thing.

By: Nameless on 2/3/09

BAD TO WORSE

Even for initial investors, it's rare that they receive all of their investment back. Suppose Henry, an initial investor in a Ponzi scheme, puts in $10,000 with the promise of a 25 percent return in 30 days. A month passes and the scheme operator sends

Henry a check for $2,500 and convinces him to keep his original $10,000 in the scheme. Another month passes, buzz around the

scheme builds, other investors come in and the operators total take increases. Henry receives another $2,500 check. Henry

thinks he has struck gold. Then the operator, seeing that he has milked the scheme for all it's worth, hides the money and declares bankruptcy. Henry is technically owed $10,000 but would probably be happy just to get his remaining $5,000 back. Henry is in a bad situation.

The bankruptcy trustee, seeing that Henry was paid $5,000 within the context of a Ponzi scheme, sues Henry to get the

money returned to the bankruptcy estate so that it can be shared among all the creditors/investors. Unfortunately, Henry

already spent the $5,000 he was paid from the scheme on a vacation to Hawaii. Henry is now in a worse situation, one that

might be compounded by court fees and interest payments.

If you invest in a Ponzi scheme you will probably lose your money to the scheme in the end, but even if you don't, any

payments you may receive along the way may have to be returned to a bankruptcy estate. So, what's the best advice?

Avoid these scams. Invest in opportunities that make financial sense not ones that promise guaranteed, high profits. The old

adage is as accurate today as it was during Ponzi's time: If it looks to good to be true it probably is.

Michael McQuaid is a member of the Creditors' Rights Group


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By: Nameless on 2/3/09

PONZI SCHEMES AND BANKRUPTCY LAW

The first risk of involvement in a Ponzi scheme is that you will lose your money. However, even if you are one of the lucky ones who gets your investment back, you are still at risk. Many Ponzi scheme operators end up in bankruptcy. For some investors, this is just the beginning of their troubles.

In bankruptcy, a trustee is appointed to recover assets for the benefit of creditors. Since a primary tenet of bankruptcy law is equality of distribution, the trustee will attempt to recover money

from investors who were paid and distribute it to those that were not paid so that all investors are treated equally. The bankruptcy trustee has three primary weapons at his disposal to accomplish this: usury, (this does not aplyhere) preference, and fraudulent transfer laws.

Usury – In California, it is unlawful, with certain exceptions, to loan money at interest rates above either 10% or 5% plus the federal reserve rate. Needless to say, most Ponzi schemes promise interest

well above these rates. Consequently, to the extent an investor receives interest on his investment, he may be liable to pay it back.

In certain circumstances, the investor may have to pay back three times the interest he received from the Ponzi operator.

Preference – The bankruptcy trustee can also sue investors to recover funds paid by the debtor as preferential transfers. A preferential transfer (or preference) is a payment made by the debtor to a creditor within 90 days of the bankruptcy filing while the debtor was insolvent. Consequently, in most Ponzi cases, if the payment was made in the 90 days prior to the bankruptcy filing, the payment is

a preference and will need to be paid back.

Fraudulent Transfer – The bankruptcy trustee can also sue investors to recover funds paid to them by the Ponzi scheme operator as a fraudulent transfer. A transfer is fraudulent and recoverable

by the bankruptcy trustee if it was made by the debtor with the intent to hinder, delay, or defraud creditors. The courts have ruled that existence of a Ponzi scheme is enough to establish that payments

made by the Ponzi scheme operator are done with the intent to hinder, delay, or defraud creditors. Consequently, all payments made to investors under a Ponzi scheme are subject to recovery under the fraudulent transfer law. The look back period for fraudulent transfers is four years, but can sometimes be longer. Thus, if an investor received payments in connection with a Ponzi scheme within

four years of the bankruptcy, the payments may be recovered by the bankruptcy trustee. There are some defenses available but they

are difficult to establish within the context of Ponzi schemes, which

promise unusually high rates of return.

By: Nameless on 2/3/09

Tennessee trustee demands all money back


The same principle is currently being applied to retrieve funds in another Ponzi scheme that was based in Tennessee.


The scheme was run by the late Robert McLean, a former stockbroker, through his company McLean & Company Investments. It collapsed after several of McLean’s clients filed lawsuits against him in the summer of 2007. McLean shot himself in September 2007.


In May 2008, the NashvillePost.com reported that Bob Waldschmidt, who had been appointed the business’ bankruptcy trustee, filed suits against more than 50 people who had invested money into the promissory notes McLean sold. The notes purported to offer a high rate of return.


However, Waldschmidt claims the notes were really a way to invite new investment to pay back other investment obligations, what is termed in the United States as “fraudulent conveyances.”


Unlike the Alaska case, where the recovery effort focused on the interest paid, Waldschmidt is arguing investors return all payments made to them so the money can be divided fairly among them. In a statement released to the NashvillePost.com, he says he plans to take into account all payments over the business’ four-year existence.


“There are massive inequities between the amount of repayments received by some vs. (sic) the lack of repayments received by others. Equitably, all payments should be returned to ‘one pot’ and distributed ‘fairly,’ on a pro-rata basis, to all those who lost money,” his statement said.


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By: Nameless on 2/3/09

Alaskan Ponzi victims recover half their money


Recently in Alaska, a bankruptcy trustee recovered about 50 per cent of the money lost by investors in a Ponzi that operated in the 1990s.


Operated by RaeJean Bonham of Fairbanks, Alaska, the Atlantic Pacific Funding Corporation and World Plus Inc. claimed to sell discounted airline tickets obtained from ticket brokers. The company solicited investment by offering payment with interest, claiming it was being used to help buy large blocks of frequent flyer ticket miles from corporations. In reality, however, the money gained was being used to pay off earlier investors in the scheme.


In 1995, Bonham and her two businesses were forced into bankruptcy. There were more than 1,100 creditors. Net loss to investors was pegged at US$10 million. Court action ensued and in 1999, Bonham received a five-year prison sentence for running a Ponzi.


According to Anchorage Daily News reports, it was Alaska’s biggest investment scam, ever.


When the business went belly-up, the court appointed accountant Larry Compton as the bankruptcy trustee. To retrieve some of the money lost, Compton pursued the interest payments early investors received.


Legal records show that the argument he most often used to retrieve these funds was that the payments made to the earlier investors happened when the company was insolvent.


Compton and his legal team successfully argued that payments the early investors received during the last three months of the business were more than what they would have received if the company had declared bankruptcy.


By: hello on 2/2/09

Karen, this may seem like a technicality, but not all 3400 investors were promised 12% interest as you state. This was the average rate offered for the individual project investments, from which you could choose to invest. The rate offered for the "Mortgage Fund", which has the largest number of investors and was typically expected to be less risky than the individual projects, was around 10 – 11%.

By: insider on 2/1/09

All investors are not the same. Investors that got out with all their principle after earning huge profits over the years are not the same as investors that lost everything and only shared in minor repayment of interest. How did this disparity occur? Was the first group just lucky? You tell me.

By: employee on 2/1/09

I would say that 85% of the borrowers whose loans were fully funded had those loans funded by Laura & shauna to make interest payments, pay EFI commissions, and refinance fees, the borroweres who benefitted are the ones who were partnered with Karen in the form of an LLC, the loans that were fully funded for construction purposes were under those LLC's, and come to think of it, are those out of county lawyers harboring money for Karen & Josh, and if not, where is the money coming from to pay them, like the DA said, their personal assets are owned by HOB now, wonder if Karen & Josh even have clothing to wear to court when and if this trial starts, and why on earth are they allowing their high priced attorneys to keep postponing their arraignment, you would think that they would want to be officially charged and possibly their bail reduced, guess the only people benefitting from any of this are the trustees, the lawyers, and the two employees who should be sharing their cells, Laura & Shauna, maybe they are the ones who the DA is talking about being possible more arrests, I would sure think the investors who gave them their ok to put their money on these loans would be pushing for that


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By: Nameless on 2/1/09

According to the Trustees investigation, funds were misdirected by Karen. How she did it is for the Investigators to point out. Fortunately, the DA has a special FBI Task force to help them sort things out. So let’s wait for their work results.


Karen’s operation started sometime ago that was profitable until she couldn’t resist the temptation to satisfy her ego. When Charlie left, they already had Republic Properties hiding bad loans, so she just expended on it further.


She learned quickly that as long as investors getting their interest on time, they would spread the words and more money will come her way. As everyone can see, it worked very well. When Charlie left, she had Josh to take the broker exam, who was just a clerk in the office till than. He knew less about construction financing or real estate than Bernie Medoff about real investing. They both understood the power of money that made them so arrogant and started believing that they were smart.


When there was no more good loans to make, Karen got into the action herself with partners. It provided unlimited loan opportunities partnering with builders who were happy to take a cut regardless the economics.


New loans provided fees, interest spread and management fees regardless of the viability of the project. These projects were fully funded with the hope that 20% appreciation will bail them out and everyone will get their money back. Investors own money was returned to them in the form of interest and all was well. She did tryto sell projects way over their real values, but their was no greater fool out there.


Until the unthinkable happened, like market forces, stalled projects, demands from legitimate borrowers for their money and the inability to pay interest to investors.


Karen and Josh were still pulling money from EFI when they couldn,t make payments to borrower’s requests, and subsequently interest to investors. Some were lucky or privileged but most were not. Since June 27 2007 until their resignation, Karen and Josh withdrew over $1,300,000. I’d like to see where did that money go! Maybe some of it found its way to their defense attornies but not enough for the bail.

By: Nameless on 2/1/09

insider and Booty_Juice


If a builder received all funding without spending on the construction for the project, he is in violation of the contract. However, remember he couldn't get funding without verifying where the funds were gone. Karen's or Josh's responsibility was to monitor construction progress. Given the fact that Karen was in partnership with some of the projcts (over 30% of the funds) it is likely that she and the receipient of those funds were in cohuts with each other.


Given some reality, Karen had projects 100% funded, but the many for the builder didn't see the funds coming to them. Much of the funds were used on other projects if at all, or paid to investors in the form of interest, i.e. she paid them back their own money slowly while charging everyone a hefty fee.


Karen was hoping that borrowers will come up with other sources of funds to complete their construction. Some were able other were not. Irrespective of Karens lack of timely funding, she charged the upfront fees on loans she knew will never get to the borrower. Additonally, she charge interest on funding that was already spent somewhere else, so if and when payoff came for a loan, she took the interest she charged on the loans.


Her operation was beyond question a great fraud. Her action placed not only investors in great jepordy, but borrowers as well.


Many investors who blame borrowers for their demise are misplacing their anger. It should be directed toward the two and the ones who asisted them in their operations.


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By: insider on 2/1/09

What about investors that blackmailed (presured her into paying them off or turn her in) the black widow knowing she was getting funds of other investors that were then going to be in the deep dodo themselves?

By: Booty_Juice on 2/1/09

At the very least, all builders who were advanced 100% payment on unstarted projects are complicit and should be hauled off and tossed in a cage. If the rancid bitch and her retarded boy are cooperating with the law, many many more will be in deep shit.

By: Nameless on 1/31/09

northcountyresident


Bernie Medoff was on the NASDAQ and have legitimate pension with investments going back 30 plus years. Karen and Josh had nothing until taking investors money. Besides, what difference does it make whats happening in New York? The 50 Bill is likeley less than a third that was real money. With Karen, $317,000,000 was real and disappeared into the bottomless pit Karen dug.

By: SMOKEY on 1/31/09

"Karen Velie", I sat in court yesterday for Karen and Josh's arraignment hearing. I do believe that the Judge was introduced as "San Luis Obispo County Superior Court Judge Jac Crawford", not "San Luis Obispo County Superior Court Judge Charles Crandall". Is it one judge with two different names, or two completely different judges altogether?

By: Cindy on 1/31/09

To NCR,

Maybe Bernie had some supposed untainted bail money that he or someone put up.

By: northcountyresident on 1/31/09

Somehow it doesn't seem fair that they are waiting in jail before being found guilty, yet Bernie Madoff, who is accused of stealing $50 billion, sits at home.

By: Cindy on 1/31/09

I suspect that the additional parties they are talking about are/were various partners of Guth and Yaguda. They had a lot of LLC's with various partners that were being funded through EFI investors. I have no doubt these partnes and various LLC's received preferential treatment and funding.

By: Roo on 1/30/09

Wow, it's an "insider" from some parallel universe…

By: insider on 1/30/09

I have always been a supporter of the investors in general. Some have implied otherwise. When some have said that they got what they had coming because they were either stupid or greedy I attacked those statements and those who made them. I do believe however you can not paint all investors or all developers with the same brush. I think we will find their were both investors and developers that recieved preferential treatment. You investors who the shoe fits know who you are. Karen and Josh know who you are too. What do you think they have left to bargin with if not you? Do you really think they are not trying to reduce their time? Do you not think the DA wouldn't like to get a few investors that always land shiny side up? How could they get these lucky few without the help of Karen and Josh? Who do you think they are talking about when they talk of additional arrests? Don't worry I'm sure you can count on Karen and Josh to keep your secrets. I'm sure a few years off their time wouldn't persuade them to give anyone else up. Or would it?

By: Nameless on 1/30/09

We could all eccept a loss of 13 Mill. I am just looking for the rest. Would it be hidden in the closet? Under the bed or just simply melted away? Maybe deposited with other partners along the way who will soon be their cell mate?


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