Mortgage lenders and 800 investors may have been defrauded by two individuals who took in nearly $1 billion in what may wind up as the biggest fraud case in California history. The pair, who promised to invest the funds in real estate, allegedly used the money to pay for personal activities and fund offshore accounts.
And now lawyers for the more than 800 investors who say they have been taken by the nearly $1 billion ruse fear one of the alleged operators of the scam have fled to Mexico or elsewhere.
Spurned investors, state regulators, lawyers, judges and federal agents are all eager to hear from Hendrix Montecastro and James Duncan, whose investment companies are the heart of the growing network of civil complaints.
Montecastro couldn’t be reached to comment and Duncan “may be seeking dual citizenship in Malta [Mexico] or elsewhere in the world to escape liability,” according to a lawsuit filed in Riverside County Superior Court in southern California.
Lawsuits filed in California courts accuse Duncan, Montecastro and others of duping investors by promising to invest their money in legitimate real estate deals involving distressed properties.
Duncan operated under the name The Total Return Fund LLC, or TRF, which was based in Nevada and promised returns of 13 percent to 57%, according to an investment solicitation included in court papers.
“We use investor cash to buy distressed properties and businesses at a deep discount, rehab the property or improve the businesses as needed, and sell it at a profit,” the company said. “The fund specializes in providing funds for companies in the construction industry.”
But southern California residents Brian Hendley and James Kabellis, who claim to have lost about $112,000 by investing, say in a lawsuit that the money was not loaned to construction companies or invested in properties.
“TRF does not buy distressed properties,” the investors said. “It creates distress properties by stealing equity and excess loan proceeds from homeowners throughout Riverside County and elsewhere.
“There were not legitimate loans being made to the ‘construction industry’ by TRK,” the investors said. “The defendants were simply pocketing all monies received.”
The lawsuit claims money was used by “Duncan and his cohorts” for gambling and prostitution; to invest in a “kung fu studio”; to invest in “BioCybernaut”, a new age company in San Francisco; and to put money into Blush Boutique, a dress shop in Murrieta, Calif., operated by Duncan’s wife.
Investors’ money was allegedly laundered through a “Christian ministry” in Mexico and the FBI and federal regulators are investigating the alleged scam.
Federal authorities have not commented on the case, but plaintiffs in some of the many lawsuits filed against the pair have said they have been interviewed by federal prosecutors, law enforcement and regulators.
In addition to TRF the pair operated together or individually companies under the names Stonewood Consulting, Arbor Terrace Jovane Investments, Pacific Wealth Management, Sunburst Financial and Oetting Investments.
In some alleged cases the pair used inflated appraisals and other phony documents to entice legitimate mortgage lenders and home owners into their schemes. Among the mortgage companies mentioned in lawsuits include Community First Bank, GMAC Mortgage Corp., Aurora Loan Services, SLS Loan Servicing and Home EQ Servicing.
Hundreds of loans are involved in southern California, court records show.
Both Duncan and Montecastro have had problems with state regulators.
In February 2002 Iowa regulators issued a cease and desist order to Duncan, who was found to have sold unregistered securities, according to order from the Iowa Division of Insurance.
Montecastro has turned his real estate license into California regulators.
