SANTA ANA, Calif., Feb. 5 (UPI) -- Two ex-real estate executives were arrested Wednesday for an alleged $110 million Ponzi scheme that fell apart in the recession, California prosecutors said.
John Packard, 63, Long Beach, and Michael Stewart 66, Phoenix, Ariz., were picked up by the FBI without incident on a 16-count indictment issued last month in Orange County.
They were ordered to appear separately Wednesday before magistrates in Phoenix and Santa Ana.
The pair, who once owned Pacific Property Assets, were each charged with mail, bank and bankruptcy fraud for their alleged scheme, in which apartment buildings they owned in Southern California and Arizona were repeatedly re-financed at higher values, with a sizable slice of the loans going into their pockets.
When real estate crashed, the pair allegedly recruited investors to keep their operation afloat while continuing to pay themselves six-figure salaries and "millions of dollars in other payments," the U.S. Attorney's office in Los Angeles said in a written statement.
"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 U.S. Attorney's Office in Los Angeles said in a written statement. "The defendants are accused of using these new funds to pay earlier investors, mortgage lenders, other company expenses, and Stewart and Packard themselves."
Stewart and Packard were accused of lying about the financial condition of their company in order to obtain additional loans; however, PPA fell into bankruptcy in 2009 with $100 million owed to the bankers and $91 million to some 647 investors.
The statement said the banks recouped about $25 million, but individual investors were not repaid at all.