Fate of Paso lenders accused of fraud in real estate crash is now in jury’s hands

Whether two former North County hard-money lenders knowingly misled their investors or were “scapegoats” for investors in a “feeding frenzy” to recoup legitimate losses is now up to a jury following a four-week trial in the longest-running white-collar crime case in recent San Luis Obispo County history.

Rodney Jarmin, 76, and Tammy Jordan, 54, former owners of Real Property Lenders, face three counts of selling securities by means of false statements or omissions after losing investors’ money during the Great Recession in 2007.

The company got into the hard money-lending business in 1990 and for years provided its investors healthy returns for real estate construction loans, according to court testimony. Jarmin and Jordan acted as middlemen for investors who provided the company money to be loaned to developers of residential 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, and borrowers were provided loans much quicker than banks could provide. Real Property Lenders would make 1-2 percent of each loan.

So-called hard-money loans are considered high-risk, high-return investments.

It’s unclear how much money all investors lost during a crucial seven-month period in 2007, but a listing presented by a prosecutor during closing statements Tuesday came to about $645,000 of unreturned investments from nine people directly related to the charges.

The District Attorney’s Office, which is prosecuting the case following a recommendation by the Department of Corporations, contends that Jarmin and Jordan purposely didn’t disclose to investors that many of their home-builder borrowers were defaulting on their loans.

The two aren’t accused of embezzling or profiting from the lost investments; both lost personal money with the business.

“We’re all looking for the Big Steal — the boats and the trips — that’s not this case,” Deputy District Attorney Eric Dobroth said Tuesday. “They’re simply charged with not telling folks what they should have told them, when they should have told them.”

Attorneys for the two, however, argue that their clients were as straightforward as possible, requiring investors to review disclosures and sign waivers before investing, and notifying them of media reports when the real estate market began to nosedive as the group continued to invest.

“How much more can you do?” Jarmin’s attorney, Robert Sanger, told the jury. “(Investors) all knew it was a high-risk investment.”

If convicted on all counts, the pair could face a maximum of about eight years in County Jail.

The trial began Oct. 24 and featured testimony from Jordan, the company’s former legal counsel and roughly a dozen investors and borrowers.

In closing arguments Tuesday, Dobroth said Jarmin and Jordan had a fiduciary duty to protect investors by releasing timely information about the housing market that could affect their returns. He contended that an offering circular provided to all investors featuring the company’s past performances and risks was vague.

“Telling them ahead of time what could possibly happen is significantly different than telling them in real time when you’re accepting $45,000 checks from them,” he said.

On Aug. 8, 2007, as notices of default were piling up on 23 of the company’s properties, Jarmin and Jordan sent investors letters telling them of media reports that the national real estate market was declining and continued to decline, according to evidence presented during the trial.

“Some investors didn’t even remember it,” Dobroth said.

To convict the two, the jury needs to find that Real Property Lenders omitted information to investors, that the information was material to investors’ decisions to invest and that the defendants knew they were omitting important info.

Jurors also must believe Dobroth’s argument that Jarmin and Jordan knew there was a substantial likelihood that a “reasonable investor” would have considered the increasing notice of defaults important at the time of their investments. Jurors have to decide based on the alleged victims’ testimony whether some of them may not have been experienced enough to be considered a “reasonable investor.”

“This is why this is such an interesting case for a jury,” Dobroth said.

In their closing arguments, Pierre Blahnik, the attorney for Sanger and Jordan, argued that the case should never had been brought against their clients and that it was due to the district attorney “cowering in the face of these investors.”

“This is a fundamentally ridiculous case,” Sanger said. “It does not belong in criminal court.”

The attorneys noted that many of the company’s investors — even after the losses — still made hefty profits with the company, at least one making at least $1 million over several years. Jarmin and Jordan each poured their own money into saving the company, they said, and Jordan eventually lost her home. He also pointed out that some of the alleged victims testified that the defendants were “good” and “honest” people.

The investors, the attorneys argued, were gambling heavily in the real estate market at the wrong time. Some were well-connected to the real estate and lending industry and were capable of recognizing the failing market, Sanger said, yet they continued to invest.

“Where did we get the idea that investors in September (2007) weren’t aware there was a problem?” Sanger said. “They knew what was going on — it was all over the papers.”

Blahnik said the district attorney’s case hinged on “20/20 hindsight” about the real estate market, and that the company disclosed that the real estate market was continuing to decline in the Aug. 8, 2007, letter to investors.

“If they’re really trying to deceive investors ... then why would they send these letters at all?” Blahnik said. “How do you get around that?”

This is the second time the pair have gone to trial since charges were filed in 2011. Both were well into jury selection in 2015 when they accepted — and later rejected — plea agreements offered by the San Luis Obispo County District Attorney’s Office.

The plea deal with the then-prosecutor reduced their felony counts to misdemeanors, requiring no jail time and less than $115,000 in combined restitution. The DA’s Office later claimed the deal was offered by mistake and prosecutors challenged the move. 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 agreed, and Jarmin and Jordan appealed. In February 2016, the state Appellate Court issued a 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 deal, so both Jarmin and Jordan have taken their case to trial once again.

A verdict is expected in the coming days.

This story was originally published November 15, 2017 at 6:08 PM with the headline "Fate of Paso lenders accused of fraud in real estate crash is now in jury’s hands."