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Estate Financial lenders plead guilty in fraud case in which investors lost millions

jjohnston@thetribunenews.com

With no sign of emotion, Estate Financial Inc. principals Karen Guth and Joshua Yaguda pleaded guilty to all 26 felony counts against them in a packed courtroom Monday in San Luis Obispo.

The charges included fraudulently selling real estate-backed securities, illegally taking more than half a million dollars and taking or destroying property worth more than $3.2 million.

Many investors immediately expressed relief.

“I’ve been waiting to hear her say she was guilty for a long time,” said Colleen Childers of Santa Margarita. She and her husband John lost more than $600,000 in real estate investments with Estate Financial.

“They have ruined the community,” John Childers added.

However, the Estate Financial saga may not have ended Monday. If the judge in the case decides to impose stricter sentences than the defense attorneys are asking for, Guth and Yaguda can take back their pleas and the legal wrangling would resume.

Estate Financial, a lender based in Paso Robles, had collected $340 million from an estimated 3,000 private investors in real estate-backed securities before it started collapsing in 2007.

Called a “hard money” lending business, the company offered interest rates at 12 percent or more.The firm then lent that money to residential and commercial developers — also at high interest — and promised investors return of their principal in one to three years.

After the real estate market began to collapse, Guth said the subprime mortgage crisis was to blame. Investors cried foul, state regulators and the district attorney launched investigations, and Guth put the firm into Chapter 11 bankruptcy protection in July 2008. The mother and son were arrested, and have been in jail for almost a year in lieu of posting $5 million bail apiece.

Guth and Yaguda entered their pleas after Superior Court Judge Jac Crawford indicated to the defense outside of official proceedings that if they would plead guilty, he would consider less than the 34 years and four months maximum sentence allowable by law. There is no mandatory minimum sentence in this case (theoretically they could be put on probation and serve no time at all), according to attorneys for both the prosecution and defense. When Crawford suggested 12 years for Guth, and eight for Yaguda, “that made sense to us,” Guth’s attorney Steve Smith told The Tribune last week.

Guth and Yaguda also promised to pay back investors for whatever losses they caused through their malfeasance; it is not yet known what that amount is, but it is estimated by the district attorney to be more than $3.2 million, according to the charges.

Defense attorneys say Guth and Yaguda have about $3.2 million in net worth, including $1 million personally invested in Estate Financial real estate, another $1 million in their office building in Paso Robles, $120,000 in cash, and their Pasolivo olive oil business.

The drama may not be over, however, because Deputy District Attorney Steve von Dohlen and seven Estate Financial investors asked the court during Monday’s proceedings to consider giving Guth and Yaguda much heavier sentences.

“There is still much work to be done,” von Dohlen told the court. “It’s the people’s opinion they’re (Guth and Yaguda) not getting sufficient time.”

Before sentencing occurs, a probation officer will give all investors, as well as supporters of Guth and Yaguda, the chance to air their concerns. He will submit his report to the judge, who may then change his thinking on the sentence, given the information.

Estate Financial investor Joe Schacherer, who has been communicating via e-mail with about 200 investors since Guth and Yaguda were arrested a year ago, said that most of the victims he knows are elderly, that many of the crimes of “greed, incompetence …and out and out fraud” occurred before the subprime mortgage crisis (which Guth and Yaguda originally blamed), and that they should not be given a short sentence.

“We’ve seen no remorse,” said Schacherer, an Oceano resident. “The time should match the crime.”Another investor, Judith Baron of Templeton, said “the negative impact (of their crimes) is beyond explanation,” and asked the court for a maximum sentence “so that they think seriously and long for what they have done.”

If the judge gives them more time than the expected 12 and eight years, the accused have the right to change their plea at the time of their sentencing, which is now expected on Dec. 7. If they revert to a “not guilty” plea, the legal process will fall back to where it was Monday: at the start of the preliminary hearing. That hearing was expected to take five weeks.

The trial, which might not come for another year after that, would take as long, or longer, according to attorneys on the case.

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