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| Four individuals — including a school principal and a pharmacist — have been charged with deceiving investors on loans originated by a mortgage banking firm that subsequently filed bankruptcy and saw the suicide of its chief. Nearly $200 million was involved.
Pharmacist Howard Walder and his wife, grade school principal Berta “Bunny” Walder, along with certified public accountants Tom Hirsch and Harish Shah have each been charged in a complaint filed by the Securities Exchange Commission in U.S. District Court for the District of Arizona, a news release today said. Also charged was their company, Radical Bunny LLC. At semi-annual meetings held at a luxury Scottsdale resort, the four defendants promoted investments in Radical Bunny, the government alleges. The funds were then lent to Phoenix-based Mortgages Ltd., which used the capital to invest in high-interest, short-term loans to real estate developers. Even though they had been advised by counsel that the investments were subject to federal securities laws, they told investors that the offering was not subject to such laws, the statement said. “Radical Bunny was not registered with the SEC in any capacity and did not register any offering under the securities laws,” the SEC stated. Investors — friends and family of the foursome who poured more than $197 million into the company — were told that their funds would only be used for real estate development, even though there were no such restrictions, according to the SEC. Instead, the funds were increasingly concentrated into fewer riskier loans. Investors were also allegedly told that the defendants were closely monitoring the company’s financial condition — even though they weren’t. In addition, the defendants claimed that Radical Bunny had a secured interest in Mortgages Ltd., although that wasn’t the case. The four defendants allegedly pocketed $5.7 million in “vendor” fees. Mortgages Ltd. was thrown into turmoil last year when its chairman and chief executive officer, Scott Coles, reportedly committed suicide. Coles’ death was followed by a bankruptcy petition for involuntary Chapter 7 liquidation that was subsequently converted to a voluntary Chapter 11 bankruptcy reorganization. “They were caught completely unaware of the circumstances that ultimately led to its bankruptcy,” the SEC said of the defendants. “These promoters promised investors more than they could possibly deliver.” Mortgages Ltd. recently emerged from bankruptcy and is now headed by former Arizona State Land Commissioner Mark Winkleman, according to the Phoenix Business Journal. The SEC said it is seeking permanent injunctions, financial penalties and a return of ill-gotten gains. |
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