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Homestead Northwest accused of misleading investors.

As the real estate market continues to struggle, the threads may slowly be coming unraveled at one of the most prominent development companies in Whatcom County, Lynden-based Homestead Northwest Inc.

On April 5, the Department of Financial Institutions (DFI) announced that it had filed a statement of charges against company CEO James Wynstra, Homestead Northwest and related companies--including Great Link Resort LLC--accusing them of misleading investors and selling unregister securities in violation of the Securities Act of Washington.

The DFI alleges that Wynstra and the Homestead companies offered and sold an estimated $121 million in unregistered real estate investments from 1989 until at least 2009. Investments typically were promissory notes which offered 8 percent interest. The Homestead companies marketed the investments as secure and backed by deeds of trust. Homestead Northwest allegedly abruptly stopped paying interest to investors beginning in April 2009.

The securities division of the DFI began investigating Homestead Northwest after receiving complaints from investors, securities director Bill Beatty said. The department had received six investor complaints in regard to Homestead as of April 22, he said.

The DFI's action does nothing directly to recoup money for investors, Beatty said, but investors may choose to file civil suits on their own to recover their investments.

To date, approximately 350 people still have an estimated $65 million in outstanding investments with the Homestead companies, according to the DFI's statement of charges.

According to the DFI's charges, "Wynstra used the sense of community in the small town of Lynden in order to prolong his investment scheme ... Wynstra arranged for and made payments to certain investors while telling other investors there was no money for such payments. In most instances, the basis for the special payments was not a demonstrated need, but whether the particular investor was threatening legal action."

The charges also state that several investors who did not receive payments were elderly retirees who relied on interest payments from Homestead for living expenses.

Attempts to reach Wynstra failed--phones were either disconnected or ended with a recording and no option for leaving a message. Wynstra's attorney, Lawrence Engel of Bellvue, said he had no comment. According to Beatty, though, the respondents have requested a hearing. That typically signifies that respondents plan to contest charges or want to negotiate with the department.

In addition to the statement of charges, the DFI also filed a notice that it intends to enter a cease and desist order, impose fines, and recover costs. The department notified Wynstra that it intends to order him to pay a fine of $100,000 plus investigation costs of $10,000. Homestead Northest salesperson Rita Lahman was also notified that she would be ordered to pay a $10,000 fine.

The cease and desist order would stop Homestead and related companies from participating in any actions that violate the Securities Act of Washington; it does not directly dissolve the company, Beatty from the DFI said.

The worst case scenario for the respondents as a result of the department's actions, he said, is that they would be legally bound to stop allegedly violating the Securities Act, and they would have to pay fines and investigation costs; however actual results of the DFI's charges remain to be seen, Beaty said.

"It's a little bit early to know what will happen in this case since we just entered the statement of charges," Beatty said.

BY RYAN WYNNE

rwynne@bbjtoday.com
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Author:Wynne, Ryan
Publication:Bellingham Business Journal
Date:May 1, 2011
Words:568
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