A felony fraud trial against two former owners of a Paso Robles-based hard-money lending business began Tuesday, 10 years after the pair allegedly scammed investors out of hundreds of thousands of dollars as the real estate market crashed and their operation crumbled.
In a case one judge called “long and convoluted,” the pair have stood accused since March 2011, coming within hours of going to trial in 2015 and then accepting — and later rejecting — plea agreements offered by the San Luis Obispo County District Attorney’s Office.
The trial is expected to last four weeks, and jurors were told Tuesday they’ll hear testimony from investigators, former borrowers and roughly a dozen former investors, referred to in court as alleged victims. A group of former investors have doggedly followed the case through the years, though none were at Tuesday’s opening, as they are expected to testify.
It’s unclear what jail time or restitution Jarmin, 76, and Jordan, 54, could face if convicted of all counts.
Both were co-owners of the business that acted as middleman between investors who put up money to be used as loans for developers in mostly residential real estate projects, including subdivisions in Heritage Ranch and Ground Squirrel Hollow in Paso Robles. Investors were promised annual 12 percent interest payments on their investments, according to court documents.
According to the business model, borrowers were given quick access to loans at higher interest rates than banks, and the facilitators — Real Property Lenders — would make between 1 to 2 percent of each loan.
For investors, these so-called “hard-money” loans are considered high-risk, high-return investments.
According to a document filed with the state Department of Corporations, Real Property Lenders reported more than $55 million worth of outstanding real estate loans in 2007. However, the prosecution alleges they didn’t disclose to investors that the builders they loaned to had defaulted and that previous investors had not been paid dividends.
Estimates for how much investors lost with RPL vary widely, with several alleged victims telling The Tribune they lost millions. SLO County probation officials initially recommended roughly $8.2 million in restitution based on claims submitted by about 80 investors. But in July, a judge found the two owed approximately $363,000 to 14 people who lost money between June 2007 and January 2008, the dates designated in the prosecution’s charging documents.
After investors were told of their losses, many filed complaints with the state Department of Corporations, which recommended criminal charges to the SLO County DA’s Office.
But the defendants’ attorneys told jurors Tuesday that no laws were broken, that investors signed documents showing they knew the risk involved, and that RPL’s “rich” clients simply wanted someone to blame when the housing market crashed in 2008.
“These investors were gambling heavily in the housing market,” Jordan’s attorney, Pierre Blahnik, told jurors during his opening statement. “When things went south in 2008, the blame game began.”
Blahnik showed jurors the myriad disclosure forms and the business’ offering circular, which included the operation’s business model, a summary of its prior performance and a six-page listing of risk factors. The record shows that the company claimed that no investor had lost money with RPL — which Blahnik said was true in 2007 — and an Aug. 8, 2007, letter sent from RPL to investors informed them of a “declining real estate market.”
For jurors to find Jarmin and Jordan guilty, they have to find that the pair knowingly misstated or omitted facts, and either knew of the falsity or were criminally negligent.
“They disclosed what they knew when they knew it and committed no crime,” Blahnik.
The case nearly went to trial in June 2015 when, during the third day of jury selection, the defendants reached a surprise plea deal with the then-prosecutor that reduced their felony counts to misdemeanors, requiring no jail time and less than $115,000 in combined restitution.
However, the DA’s Office claimed the plea deal was offered as a result of miscommunication and prosecutors challenged the move, saying the agreement should have been for felony charges. Also, under the state’s Victim’s Bill of Rights — also known as Marsy’s Law — victims in the case should have been notified of any changes ahead of time, prosecutors argued.
The judge who accepted the deal later agreed, and Jarmin and Jordan appealed. In February 2016, the state Appellate Court issued an informal decision saying that San Luis Obispo Superior Court should honor the deal. A second Superior Court judge agreed in March 2016.
However, another SLO Superior Court judge found that the two owed $363,000 to 14 people, more than the agreed-upon plea deal, so both Jarmin and Jordan decided in September that they would take their case to trial once again.
Testimony is scheduled to resume Wednesday.