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Press Release

Co-Owner of Real Estate Investment Firm Sentenced To Prison for Participating in Fraud Scheme that Ended in Massive Bankruptcy

For Immediate Release
U.S. Attorney's Office, Central District of California

          SANTA ANA, California – One of the owners of a now-defunct Southern California real estate investment firm was sentenced today to 30 months in federal prison after pleading guilty to participating in a fraudulent scheme that ended with the bankruptcy of the company and hundreds of investors collectively losing as much as $169 million.

          John Packard, 66, of Long Beach, was sentenced by United States District Judge Cormac J. Carney.

          Packard’s business partner and co-defendant, San Clemente resident Michael J. Stewart, received a 14-year prison sentence from Judge Carney on February 29. Judge Carney ordered Packard and Stewart to collectively pay $9,234,914 in restitution to 120 victims.

          Packard pleaded guilty to one count of mail fraud in 2014, admitting that he and Stewart bilked investors in Pacific Property Assets (PPA), which had offices in Long Beach and Irvine. Packard and Stewart 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. After several years, PPA usually refinanced, but sometimes sold, each property.

          Although PPA’s apartment rental operations were not profitable, it was able to raise cash through refinancing and selling properties. 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, 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.

          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. To keep PPA afloat, from early 2008 through April 2009, Stewart and Packard raised more than $34 million dollars from new investors, many of them elderly and retired persons who were investing their retirement funds in the company. For example, one 74-year-old investor testified at Stewart’s trial that in early 2009, shortly after her husband passed away, Stewart’s staff persuaded her to invest virtually all her retirement savings in PPA.

          The defendants used those new funds to pay earlier investors, mortgage lenders, other company expenses, and Stewart and Packard themselves – including their annual salaries of $750,000 and hundreds of thousands of dollars in additional compensation. Packard testified at Stewart’s trial that, in 2008, he and Stewart knew that PPA was dependent on these investor loans to make its monthly debt payments and continue operating, and the company was unable to raise money through other means.

          In the last investor offering in early 2009 – which PPA called the Opportunity Fund – investors were told that their funds would be used to purchase new real estate properties. In fact, none of the more than $9 million raised as part of this offering was used for that purpose. Instead, the money was used to pay earlier investors and banks, to pay Stewart and Packard, and to pay PPA’s bankruptcy attorney.

          “Mr. Packard and Mr. Stewart deliberately and repeatedly misled hundreds of victims who entrusted their retirement funds – and in some cases, their life savings – to PPA, with disastrous results,” said United States Attorney Eileen M. Decker. “These defendants concealed the weak financial condition of the company, which resulted in the victims losing their investments and their ability to retire with confidence.”

          PPA and a group of related companies filed for bankruptcy in June 2009. When the bankruptcy was filed, PPA stated that it owed 647 private investors more than $91 million, and it owed banks approximately $100 million. The Chapter 11 trustee appointed in the bankruptcy case later estimated the total investor losses at $169 million, and predicted that investors would receive, at best, “pennies on the dollar” through the bankruptcy process.

          The investigation in this case was conducted by the Federal Bureau of Investigation, which received assistance from the United States Trustee’s Office.

Updated May 7, 2018

Press Release Number: 16-081