Ponzi Scheme Masters Brought Down

California Duo Indicted for $110M Heist

SANTA ANA, California – Michael Stewart, 66, of Phoenix, and John Packard, 63, of Long Beach, California, were arrested today for allegedly perpetrating a Ponzi scheme that ended with the bankruptcy of their company, Pacific Property Assets (PPA), and caused private investors and banks to lose over $110 million.

The owners of PPA were named in a 16-count indictment returned by a federal grand jury last month. The two men each face 11 counts of mail fraud, three counts of bank fraud, and two counts of bankruptcy fraud.

According to the indictment, Stewart and Packard created PPA in 1999 to purchase, renovate, operate, and resell or refinance apartment complexes in Southern California and Arizona. Typically, PPA financed property acquisitions through mortgages, and it raised money from private investors to pay for renovations to the properties.

Although PPA’s apartment rental operations were not profitable, it was able to raise cash through refinancing. As real estate values were generally increasing until approximately 2007, the properties were refinanced at ever-higher values, which enabled PPA to use the extra refinancing proceeds to not only pay off the original mortgages, but also to make payments on other loans, make payments to investors, to pay other business expenses, and to pay Stewart and Packard. In its 10 years of operations, PPA acquired more than 100 real estate properties and raised tens of millions of dollars from hundreds of investors.

Stewart and Packard paid themselves annual salaries of $400,000 to $750,000, and each received millions of dollars in additional payments. However, by the end of 2007, when the real estate market began to decline and credit became scarce, PPA’s business model was no longer feasible, and the value of PPA’s properties was falling.

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 defendants are accused of using these new funds to pay earlier investors, mortgage lenders, other company expenses, and Stewart and Packard themselves.

The indictment alleges that during the course of this continued fundraising effort, Stewart and Packard misrepresented PPA’s financial condition, claiming that its business model was still working, and that PPA was still financially stable and able to raise money through refinancing. Stewart and Packard allegedly concealed from investors the fact that the business had effectively become a Ponzi scheme, using new investors’ funds to pay back earlier investors.

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