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Brother and Sister Arrainged in Huge Scam

Joseph LaCoste and Angela McCoy arraigned in $15 million case

May 4, 2011

By KAREN MCCOWAN The Register-Guard - McClatchy-Tribune Information Services

A brother and sister have been arraigned in U.S. District Court in an alleged Ponzi scheme invovling more than $5 million in investment fraud and $10,884,438 in mortgage fraud.

Joseph Anthony LaCoste, 46, and Angela Marie McCoy, 43, were arraigned in federal court Monday after a U.S. District Court grand jury indicted them on the charges late last month.

LaCoste, the former chief executive officer of Willamette Development Services, also faces a bank fraud charge for allegedly misrepresenting his assets when obtaining real estate loans.

McCoy was director of investment relations for the short-lived company. Each pleaded not guilty to the offenses.

Bank fraud carries a potential maximum penalty of 30 years in prison and a $1 million fine. The other charges each carry possible maximum penalties of 20 years in prison and $250,000 to $5 million in fines. The indictment also seeks forfeiture of all proceeds from the alleged fraud.

It charges that the pair bilked investors of nearly $5.3 million between April 2006 and December 2007. It says they misled investors, telling them their funds would be used to develop at least 10 profitable real estate projects, including two in Lane County.

LaCoste and six other owners of the company reportedly promised investors monthly interest payments totalling 13 to 37 percent per year and return of their principal within three years.

Instead, Willamette Development Services was declared insolvent in 2008, and none of the developments was completed. Among the unfinished projects was Lenore Estates, a 23-home subdivision in Eugene's Santa Clara neighborhood; Wisteria Estates, 10 high-end homes near the Sandpines Golf Course in Florence; and North Point Estates, an 18-home development in Brownsville.

By the time it collapsed, the company had racked up $14,115,825 in debt. Banks and other secured lenders recovered some of their loans through foreclosure actions, but individual investors collectively lost their entire principal of $5,272,000, according to court documents.

The April 21 indictment also alleges that LaCoste and McCoy lied to investors, telling them their money was going into specific projects when it was secretly diverted toward other purposes.

Investors were told that Willamette Development Services received no fees for managing the development projects, the indictment continues, but LaCoste, McCoy and other company employees actually received "substantial" commissions and fees.

The grand jury indictment also accuses LaCoste of falsely claiming he had a master's degree from Oregon State University and that he had a successful background as a developer, investor and lender. In fact, LaCoste filed for bankruptcy in 1998 -- a fact he did not disclose, the indictment charges. Nor did LaCoste tell investors that he was fired by U.S. Bank in 1999 for "forging signatures on bank account applications in order to increase his commissions," the indictment charges.

Willamette Development Services' former chief financial officer, Anthony James Tuomi, pleaded guilty in February to conspiring with LaCoste and McCoy to commit securities fraud. Tuomi, 36, is scheduled for sentencing Aug. 9. He faces a maximum possible penalty of five years in prison and a $250,000 fine.

Oregon U.S. Attorney Dwight Holton said after Tuomi's guilty plea that the former CFO had admitted sending bogus financial summaries to investors accompanied by letters from LaCoste falsely assuring them that their investments were secure. According to the April 21 indictment, LaCoste claimed that investors were protected by their developments' strong equity margins and that some projects were "nearly completely presold," when he knew that was not the case.

Creditors have filed more than a dozen lawsuits against Willamette Development, and LaCoste in 2008 again sought protection in U.S. Bankruptcy Court. The federal judge in that case has refused to discharge LaCoste from the case's 78 claims, which include nearly $7 million owed to unsecured creditors, bankruptcy trustee Ron Sticka said.

Sticka said he doesn't expect the unsecured creditors to get their money back. He said LaCoste's and Willamette Development's assets are mostly "underwater" real estate properties worth less than the company paid for them.

"I did recover some, but we're not going to get below tax liabilities to anyone else," Sticka said.

LaCoste owes $353,000 in unpaid taxes, and the Internal Revenue Service is first in line for anything recovered.

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