Florence retirees say loan scam stripped them of millions.
FLORENCE - It's been compared to Bernard Madoff's now-infamous securities fraud case, but on a West Coast rather than international scale.
Dozens of Florence-area residents - most of them retirees - say they lost much if not all of their savings after investing in loans they were told would be secured by Southern California properties. In return for purchasing the loans, investors say they were promised twice-monthly payments and interest yields of 10 percent.
But their investments vanished in January, when the one-man California firm that arranged the loans - Sunburst Associates - abruptly went out of business, according to interviews and a pair of lawsuits filed in the case.
A Florence man who brokered most of the investments says he had little indication of any problems, and lost money on the loans himself.
Sunburst sold second trust deeds - ostensibly on expensive California homes - that were essentially second mortgages in which recipients borrowed money that had been pooled by private investors, rather than offered by a bank or other institutional lenders.
The loans are now being characterized in lawsuits and by investors as bogus, or as part of a Ponzi scheme, with no real estate to back them. Sunburst's owner and the Florence broker both have been accused in the civil lawsuits of wrongdoing, but no criminal charges have been filed.
While the total amount of losses with Sunburst remains a moving target, everyone involved describes them in grand terms - $23 million, $30 million, perhaps as much as $90 million.
And at least 52 of the 85 investors who have been identified so far by investor groups formed to urge legal action have Florence ties.
"I'm shocked there hasn't been a bigger uproar about it," says Lonnie Iholts, who as president of Florence-based Siuslaw Bank has heard of how deeply the local retirement community was shaken by the collapse of Sunburst.
"The word is that it's huge - a large number of people, and large dollars," Iholts says.
Gertrude Center says she and her husband began easing into the loan purchases in 2000. The Florence couple lost $280,000 when the investment company closed five months ago, she says.
"We were getting all our checks, and everything was going fine until about the first of the year, then everything just fell apart," Center says. "It's pretty bad, but we're not as bad off as some people. We've still got enough income to live."
Robin and Jeff Malavasic began buying into the loans after moving to Florence in 2003. They say they lost $620,000.
"We put a lot of our other investments into this," Robin Malavasic says. "We literally lost, I think it was 62 percent of our monthly income (when the loan payments stopped).
"But we did not put all our eggs in one basket, and we feel very good about that."
Two lawsuits have been filed this spring over the investments, with more anticipated.
There also is an open investigation by Oregon securities regulators and the FBI into the operations of Sunburst and its owner, 67-year-old Louis James "Jim" Borstelmann, according to numerous sources.
The Sunburst Associates office in Thousand Oaks, northwest of Los Angeles, is closed and its telephone is disconnected. The company's corporate registration is listed as "suspended" by the California Secretary of State's Corporations Division.
Two other former telephone numbers for Borstelmann also have been disconnected, and he has not responded to a letter sent by The Register-Guard to the condominium where he lives in neighboring Newbury Park, Calif.
A background check on Borstelmann shows no criminal record or civil judgments against him in California.
His next-door neighbor, Antoinette Tallarico, says Borstelmann continues to serve on the condominium complex board of directors, but that he and his wife, Jennie, have kept to themselves since their business collapsed early this year.
"His wife was telling me they were getting hassled, so they changed their phone number," Tallarico says. "I know he's retired, but I haven't seen them around very much. His wife has been very ill."
Caught in the middle
Some local residents who lost money on the Sunburst investments are also blaming 87-year-old Douglas Huntingdon of Florence, who says he began investing in the company's trust deeds during the late 1970s and for at least a dozen years has served as a middle man between Borstelmann and the Florence investors, earning a 2 percent commission on each trust deed sold.
Huntingdon is named as a defendant in both of the lawsuits filed this spring, and about half of the dozen or so investors who have been interviewed by The Register-Guard blame him - at least partially - for their losses.
Huntingdon - who lives on a landscaped estate south of Woahink Lake - counters by saying he lost $2.3 million of his own money in the Sunburst collapse. He says his girlfriend lost another $1.2 million, and members of his extended family lost at least $3.5 million more.
"As a businessman and as an investor, it would have been impossible for me to have been in on this with Borstelmann," Huntingdon says. "There are too many miles between us, and you can do only so much business over the telephone.
"Another thing about these people who think I'm in on it - I had enough income each month that I (couldn't) spend it all," he says. "Why would I go crooked?"
Huntingdon lives with his son Don in a 7,567-square-foot home on 3.74 acres. Lane County property records set a value of more than $1.6 million on the estate, and the Huntingdons' family trusts own an adjoining, undeveloped parcel of 6.19 acres that is valued at another half-million dollars.
But Don Huntingdon, who helped his father arrange and track the investment deals, displays an Oregon Trail food stamp card as proof that he and his father are the victims rather than perpetrators of investment fraud.
"I'll tell you something - it's the first time in my life I've been on food stamps," his father says.
Don Huntingdon maintains that they were among the first to report the case to FBI agents, and have cooperated with a resulting investigation.
"We've provided (the FBI) with (Borstelmann's) bank account numbers, so they know where to go," he says. "They will find him, I'm comfortable about that."
FBI officials in Eugene and Portland decline to discuss the case, saying it is against department policy to even confirm an investigation. But a letter from U.S. Rep. Peter DeFazio thanks Douglas Huntingdon for reporting the case to the congressman's office and confirms the FBI role, stating, "Sunburst is under investigation for real estate investment fraud."
Several of the Sunburst victims also say they have been interviewed by a Eugene-based FBI special agent, and a spokeswoman for the Oregon Division of Finance and Corporate Securities - which regulates both securities and lending - says state investigators are working with the FBI.
"We are working on that case," says Lisa Morawski of the state regulatory agency. "But we have an open investigation, so we can't say anything about it."
No one expects a quick resolution of the Sunburst case, and most victims figure their money is gone. Retirement plans in many cases are in shambles.
Savings down the drain
Robin and Jeff Malavasic say they got involved in the Sunburst investments at the urging of a friend who also was an investor. After receiving a January form letter in which Borstelmann told investors the company was broke, the Malavasics say it has become easy to second-guess their investment decisions.
"We're not stupid, but we all like to be receiving checks twice a month, so we tend to do what you shouldn't do sometimes," says Robin Malavasic. "But that's looking back."
The Malavasics retired in Florence after selling the home they'd owned for several years in California. They paid cash for their Florence home but eventually invested much of their retirement savings in the loans.
"We took several annuities that we had not started drawing on, and cashed those in along with some IRA money," Robin Malavasic says.
But the Malavasics are among those who see the Huntingdons as fellow victims in the unfolding drama rather than villains.
"I think the world of Doug," Robin Malavasic says. "I don't know why, but I want to believe until it's been shown (otherwise) that he didn't have anything to do with this."
The couple aren't saddled with mortgage payments, but say their losses have forced them to cut back in areas such as travel - one of their favorite past times.
Others are feeling the pinch even more.
Norma Seay, a 72-year-old Florence resident, lost $400,000 - her entire retirement savings.
"That was all of it," she says. "All I've got left is Social Security, and that's not a lot to live on."
Gen Ivie-Mason of Sisters got into the Sunburst investments in the mid-1990s, when she and her late husband were living in Florence.
"There were different (investors) in the community who were making such good interest on their money," Ivie-Mason says. "And someone must have given Mr. Huntingdon our number."
Her late husband, Harland Ivie, had worked as a title officer and went so far as to make a trip to Southern California to meet with Borstelmann before investing in the trust deeds.
"My husband wanted to look the man in his face and see what he was about," Ivie-Mason says. "He had a good talk with him, and it seemed like he was on the up-and-up."
The couple made some small investments, which Ivie-Mason says "paid off like clockwork." After her husband died in 2003, she bought more of the Sunburst trust deeds, taking her total investment to $60,000.
"Then right after Christmas I got this letter that said they were no good anymore," she says. "Needless to say, it was a real blow. I'm 78 years old, and I was depending on it for part of my income."
At a 10 percent annual rate, interest income on a $60,000 investment would come to $500 per month.
Lawsuits allege fraud
Both lawsuits filed so far in the case allege that fictitious loans were being sold in a "Ponzi scheme" that used money taken from new investors to make interest payments to previous investors.
The suits contend that many if not all of the outstanding trust deeds were fake - that loans were not made to people listed on the documents as debtors.
The first lawsuit, filed in April by Norma Seay and Paul and Florence Patrick of Florence, seeks a total of $2.2 million in damages to cover their investment losses. It names Douglas Huntingdon as sole defendant.
The second lawsuit was filed last month by Jerry Medler and Marilyn Capen of Florence, against Huntingdon, Borstelmann and Sunburst Associates. It seeks $905,000 as compensation for Medler and Capen's losses in the alleged investment scheme.
Both lawsuits maintain that the defendants told investors the trust deeds would be secured by real property, and that the loans would not exceed a 65 percent loan-to-value ratio - which means loans would be capped at 65 percent of the property's value, leaving ample equity in the property to repay investors even if foreclosure became necessary.
Both court filings contend that Huntingdon represented himself as an investment adviser who received a 2 percent commission for each trust deed he sold for Sunburst, and that he promised to verify each trust deed was "properly executed and properly recorded."
Investment advisers in Oregon are required to be licensed by either the state Division of Finance and Corporate Securities or the federal Securities and Exchange Commission, but the 351 current licensees listed by the state agency do not include Huntingdon, Borstelmann or Sunburst Associates, and none of the names turn up on the SEC's database.
"Doug Huntingdon over here, he tried to get people to mortgage their homes and get into it," says 78-year-old Gertrude Center, who owns several rental homes with her 80-year-old husband, Carl. "Thank heavens we never did. We're a little smarter than that."
But the Centers did begin investing other savings in Sunburst about nine years ago, building to a total of $280,000 by the time the company collapsed.
"(Huntingdon) was calling continually for money (to buy more trust deeds)," Center says. "When you're doing that for people, you ought to do some research yourself, to know everything's doing OK.
"I think he was just naive, really, but I don't know. I don't believe he would have intentionally taken some of his family and friends. And we could have done more research ourselves; there's enough blame to go around."
"Greed is behind it"
Les Buss is a Florence building contractor who got into the Sunburst investments just last year. He says he's glad he didn't have the opportunity to put more money into it before entering the hospital early this year for treatment of a cancerous brain tumor.
"I've got a house on Woahink Lake, and I was getting ready to sell it," Buss says. "I'm glad I didn't sell it, because I probably would have put it in.
"I only had $35,000 that I lost, and that was all from (investments made) last year."
Tammy and Don Lindberg of Alsea started investing with Huntingdon about five years ago, and say they are out $125,000 as a result of the Sunburst failure.
Tammy Lindberg says she got "kind of a sinking feeling" when she received a letter from Borstelmann late last year, reassuring investors that Sunburst was in good shape despite rapidly worsening economic conditions in Southern California and across the nation.
"We talked about trying to get our money out then, but it was probably too late at that point," she says. "That was just (Borstelmann) buying time, probably.
"But we don't have anyone to blame but ourselves. Greed is behind it."
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|Title Annotation:||City/Region; Lawsuits have been filed, and federal and state authorities are investigating what jilted investors are calling a Ponzi scheme|
|Publication:||The Register-Guard (Eugene, OR)|
|Date:||Jun 14, 2009|
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