Lodi residents fall prey to senior center Ponzi scam

"If it sounds too good to be true, it is."

Two Lodi residents had both heard that saying, and both did some careful consideration before investing in senior housing.

But everything presented during a spring 2006 seminar at Wine and Roses seemed to be legitimate. By taking the money from their rental homes and reinvesting it in the senior housing, two Lodi families could avoid hefty capital gains taxes.

The investment company, called AREI as well as AGA Financial, was real. So was the Lodi financial adviser who helped broker the deals. And so were the senior housing centers.

Three years later, those investments are gone. AREI is bankrupt. The investors, many of them elderly, now know they were just pawns in what prosecutors say was a $200 million Ponzi scheme that started a dozen years ago.

After an 18-month investigation led by California's attorney general, three men were jailed last month on $5 million bail each.

Gary Armitage

In May, Attorney General Jerry Brown filed 79 criminal charges against each of three men: Gary T. Armitage, 59, of Healdsburg; Jeffery A. Guidi, 53, of Santa Rosa; and James Stanley Koenig, 56, of Redding. All face dozens of counts of securities fraud and residential burglary.

The men are accused of using the investors' money to buy an 80-acre castle estate, a Lear jet, expensive homes and fancy cars, according to Brown's office. Starting in 1997, the men began marketing construction projects around the state, ranging from subdivisions to schools to the Mountain House Golf Course near Tracy.

Jeffery Guidi

Due to poor management, the attorney general's office said in a press release announcing the arrests, many of the projects wound up in foreclosure or were left unfinished.

The projects began to have problems due to poor management, and the fact that a lot of the money was being siphoned off as pay to the executives, according to the attorney general's office.

Investors didn't know about the problems, or the fact that Koenig had been convicted of federal fraud in 1986 — something the Lodi residents said they never knew about. Both did some research on the Internet before investing, but convictions from the '80s wouldn't appear online.

James Koenig

Meanwhile, the three suspects allegedly began recruiting more investors in order to pay the interest due to the previous investors, known as a Ponzi scheme. Starting in 2001, the men invested in 20 senior housing and care centers, according to prosecutors.

Doing due diligence

They recruited investors who had property to sell, and that's how the Lodi victims came to be involved. Those two Lodi families have lost what they thought would be their retirement cushions. While they hold out hope that the arrested men might have to forfeit assets, there's one catch: At last count, the assets will be divided among more than 1,000 victims.

"We did our due diligence, but it wasn't diligent enough," said David Glass, one of the investors.

Another Lodi man, now age 75, didn't want his name used because he is embarrassed that, even with his research, he got conned and lost $200,000.

"I might as well have taken that $200,000 and spread it off the Golden Gate Bridge," he said.

Both men owned rental properties and wanted to end the burden of being a landlord. Both received mailers from a Lodi investment adviser inviting them to an informational session.

That adviser, Steve Senior, said he is also a victim who trusted the deal enough that he invested his own money.

If you think you're a victim ...

Those who think they may be the victims of a scam can contact the California Attorney General's Office at (800) 952-5225.

Locally, the San Joaquin County District Attorney's Office has an elder fraud line at 468-2488.

"Why would I put money into something I didn't believe?" he said, disputing one victim's accusation that Senior knew the scheme was shady.

For the victim who didn't want his name used, the investment offer came at the perfect time — he had looked into care homes for his mother, and in the process realized that they were in demand. Not only were baby boomers getting older, but people were living longer, he noted.

Glass, the other Lodi victim, didn't just take the word of those at the meeting. He looked at other investments, and he checked out AREI. He said they offered an 8 percent return, which seemed good but not too high to raise flags.

Checks late, then not at all

Things were fine for about nine months, Glass said. Then the checks started arriving late, or not at all. He tried finding out what was going on, and said that Koenig made excuses.

Then came notices of foreclosure on the senior care centers. The ringleaders asked for more money to stall the process, Glass said.

Another 91 investors got sucked into it in 2007, according to the attorney general's office.

In June 2008, the investment companies closed. The money was gone. The retirement savings were used up.

Civil lawsuits have been filed, and now the criminal proceedings are underway.

What could the investors have done differently?

Scott Gerber, an attorney general's spokesman, repeated the old adage that if it sounds too good to be true, it is.

While the Lodi victims both said they were offered interest rates between 6 and 8 percent, Gerber said that most were offered around 12 percent — an amount too high to be realistic.

Gerber also reminded people that there is always risk in any investment, so it's a safer idea to avoid investing everything in one place.

He also urged potential investors to look closely at who they're working with, and to make sure that they can be trusted. If it comes down to it, he said, hire an investigator.

Glass isn't sure what more he could have done to protect himself, other than to just sell his property and accept the hefty capital gains taxes. But he is thankful that he has a home and savings that he and his wife did not invest.

"Don't put all your eggs in one basket, I guess," he said.

Contact reporter Layla Bohm at layla@lodinews.com.

Reader Feedback

edumacation wrote on Jun 15, 2009 7:09 AM:

" Rhodie: "...that is until the gun losses ammo and becomes little more than a hammer and then who wll provide food to you?..." You made my point. Your gun is no longer a "hammer" if you have plenty of ammo! People believe that ammo is most important during this crisis. As long as liberals, and our fearless leader Obama, blaim guns and ammo for crime, we will have fear. When these people realize that CRIMINALS cause crime, more of us will be less fearful. Bottom line, the gun grabbers, believe (like a religious belief) that gangbangers, thieves and robbers are "misunderstood". Whats wrong with wearing all blue or red clothes? Whats wrong with turf wars where thousands are killed each year? They are just kids having fun?

With this logic, most of us have learned that we need protection to kissy kissy games with the criminals.

Require a mandatory death sentence for the FIRST gang offense and reduce the age for adult criminal penalties for gangbangers to 12, and you will see people stop buying ammo. "

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