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Massive CA Fraud Case Emerges

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When elderly investors gave more than $17 million to a California mortgage broker, they believed the company was going to make mortgage equity loans.

Michael Schneider reportedly showed the investors documents indicating loans were secured by deeds and some investors received monthly payments.

But as they began demanding to see more documents and proof of Schneider’s investment activities, prosecutors say a massive multi-million dollar fraud was exposed.

Schneider is accused of stealing $17.7 million and faces 102 charges, according to a statement from Santa Cruz County District Attorney Bob Lee.

He was arrested by police on May 1 in nearby Santa Clara and is being held on a $10 million bond. If convicted of all counts, Schneider faces more than 100 years in prison.

“It is believed that there may be hundreds of victims of this fraud,” Santa Clara prosecutors said in a statement.

Schneider’s lawyer could not be reached to comment. MortgageDaily.com tried to leave a message at the California Plan Inc. offices but the voice mail was full.

Prosecutors say investors, most of whom were elderly, relied on Schneider’s “representations” that the money would be to fund residential loans in the San Francisco Bay Area. The loans, Schneider promised, were secured by first and second deeds of trust on the properties.

Schneider also serviced the real estate loans.

But prosecutors said the entire investment strategy was a sham. Investors discovered the ruse when Schneider stopped making interest payments.

“The victims later learned that deeds of trust had not been recorded as promised and that their security interests in the properties did not exist,” according to the district attorney’s office in Santa Clara. “In several cases, Schneider sold multiple deeds of trust for the same loan.

“Several victims lost their life savings to the fraudulent scheme,” prosecutors said.

Prosecutors in Santa Cruz say Schneider actually did record a deed of trust but he “failed to tell the investor when the loan was paid off.”

Instead, they said, he simply kept the investors’ money.

To keep investors at bay Schneider allegedly ran what amounted to a Ponzi or pyramid scheme.

“To keep investors from discovering his fraudulent acts, Schneider’s company would send monthly loan payments to the investors, as if the loans were active and valid,” prosecutors said.

Investigators said they have uncovered 71 suspect loan transactions from 1995 through the end of 2005 and have confiscated thousands of pages of loans and other documents from Schneider’s office.

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