Regarding this letter from PCF, the Department of Real Estate concluded nothing. I guarnatee we will be hearing more from them again. And saying the DRE could uncover a Ponzi scheme is like saying Barney Fife wasn't able to pin a murder rap on you so you must be innocent. The DRE has been presented with clear evidence of misrepresentation on the Summerwind loan which was confirmed by the City of Carpinteris. Who knows how long it will take them to act. Don't have time to go into the other statements by Harkey, but he'll have his day in court. The depositions of Harkey, his staff, his appraisers, his developer pals should be good stuff. They better get their stories straight and hope one of them doesn't crack.
FYI: the neighbor on the other side of Harkey is now part of the lawsuit also so this is hardly a case of a disgrunteld, renegade, terrorist or other term that Harkey has called Charton in recent letters. The plaintiffs are folks who have invested million of dollars with Harkey and are astonished that other investors haven't figured out that a firm that has default rates on 80% of their loans is not on the up and up. Lloyd Charton doesn't want to control the assets, but he does want to find a replacement who will do it for much less than Harkey and much more competently (which won't be too difficult).
And no, I am not Lloyd Charton.
[quote author="matt138" date=1235802625]February 19, 2009
Re: Recent media coverage
Dear investors:
Lloyd Charton is a disgruntled investor who happens to be my neighbor. Those of you invested in National Financial Lending, LLC will recognize his name, as he has been harassing you for over a year trying to convince you to align with him against Point Center. Mr. Charton's name may be new to the rest of you. In short, Mr. Charton sees his status as "special" and he wants to be repaid his investments before anyone else. Of course I refused to treat him preferentially, to which he responded by email: "You've told me you cannot treat me differently than other investors. You can. You should. Eventually you WILL, although by then we will have traveled down a long arduous litigious path which will by necessity involve many others."
It was only a matter of time before Lloyd Charton and his group enlisted the press in his war against Point Center. By now you probably know that Mr. Charton contacted the Los Angeles Times and provided them with an advance copy of a lawsuit he and his group of investors filed two days ago against Point Center, me personally and my wife, Diane. Point Center has also been featured on KNBC local news and in the Orange County Register. Mr. Charton is banging the same drum he has been banging for year and a half, and now he is using the media for that extra measure of pressure in an attempt to gain the favorable treatment he has sought all along. In the last several communications from Mr. Charton to other investors, his goal has become clear: Lloyd Charton has specifically told some of our investors that it is his goal to take over the servicing of the Point Center portfolio, thereby giving him control of your investments.
I want to address some key points raised in the Times article. It is unfortunate indeed that once the article begins "A lawsuit alleges" the article recites those allegations almost as proven fact. The key is "alleges". Friends, anyone can "allege" anything. Diane's election campaign funds are a perfect example. The complaint alleges "on information and belief" that Diane is an owner and employee of Point Center and used investor money for her campaigns. In fact, Diane does not have an ownership interest in Point Center, is not an employee or officer here and most certainly did not pay for her campaign with investor money. So how can they get away with an allegation like this? My lawyer tells me that "information and belief" translates into "speculates" "thinks that" or "guesses" this to be true without any direct knowledge at all.
A few other examples from the Times Article:
ALLEGATION: "Harkey exaggerated the value of the properties used as collateral by borrowers, making the individual investments appear much safer than they were."
FACT: Point Center does not establish the value of the properties. We have ALWAYS hired third party MAI (Member of Appraisal Institute) or other certified appraisers. In fact, when we became suspicious that appraised values were coming in too high on out of state loans, we required TWO appraisals and used the lower of the two values.
ALLEGATION: "many investors were retired people who entrusted Dan Harkey and Point Center with their life savings."
FACT: Of course many of Point Center's investors are retired, but Point Center is not an investment advisor or counselor. We make investment products available. The disclosures Mr. Charton, a retired attorney and self-proclaimed real estate expert, and his group signed are the same ones you signed. They tell you the investment is risky and you could lose some or all of your investment. The disclosures we provide on fractional trust deed investments are so voluminous that we refer to them as "the phone book". Investors are not allowed to invest more than 10% of their net worth in any one investment, and before Point Center will accept an investor's money, the investor must sign statements assuring Point Center that they are experienced in investing. If the plaintiffs put their "life savings" all in one place, it was not because Point Center suggested it.
ALLEGATION: "Point Center made millions of dollars by charging broker fees upfront to borrowers, allowing the company to profit regardless of whether the loans were repaid."
FACT: Brokerage fees and servicing fees are how Point Center earns its income and pays its expenses and employees. There is nothing unusual or inappropriate about it. Anyone who has ever financed a home has paid a broker fee up front regardless of whether the loan was paid back. As bad as the home mortgage meltdown is, no one has suggested that the brokers on all those foreclosed homes should give back their commissions.
ALLEGATION: "the investors were often left with foreclosed properties worth a fraction of the money they had invested."
FACT: At least they got this one right. And this is the very reason Point Center continues to hold the properties. To sell now would result in huge losses. By managing and holding the property until the real estate market recovers, losses can be minimized or avoided. Perhaps the plaintiffs' other investments are somehow immune from market forces, but for those invested in the stock market, real estate and other common investment vehicles, the loss of value is familiar.
ALLEGATION: The Burnett Development loan was a "bad" loan.
FACT: The article provides its own answer on this one: "The loan was made near the peak of the real estate boom, but conditions soon changed." One investor, a highly experienced real estate agent, claims: "I knew the intention was to develop the property. I didn't realize it hadn't gone very far." She apparently didn't read the disclosures. It's as simple as that.
ALLEGATION: "In a summary of the project distributed to prospective investors, Point Center said the property owner had 'spent the past seven years securing California Coastal Commission approval' and needed only final approval from the city of Carpinteria. . . . But the Coastal Commission had not approved the project . . . . This was just a clear case of misrepresentation.
FACT: Elsewhere in the article, it is mentioned that the plaintiff's have filed complaints with the Department of Real Estate. In fact, one of those complaints related to this very issue and Point Center received an inquiry from the DRE. What the plaintiffs want to twist into Coastal Commission approval of the project said nothing of the sort. The Loan Summary said "The General Plan on the subject property dated April 2003 was reviewed and approved by the California Coastal Commission". Once documentation was provided to support the loan summary, the DRE dropped its investigation.
ALLEGATION: "He was bringing in new money to pay off investors on the same loan, and that's a Ponzi scheme."
FACT: In addition to the inquiry regarding the Coastal Commission approval, Point Center also underwent a full 8 week audit by the DRE, which found absolutely no irregularities in the trust account. If anyone would be in a position to spot a Ponzi scheme, it was the DRE. Once again, Point Center came through unscathed.
ALLEGATION: "Investors say they also filed complaints with the Securities and Exchange Commission, the California Department of Real Estate and the FBI."
FACT: The DRE concluded its audit finding none of the issues complained of by the plaintiffs, which apparently prompted the second, more specific audit on the Coastal Commission issue where Point Center was again vindicated. As threatened, we received a subpoena from the SEC which we must now divert significant company resources to for response, along with fighting the lawsuit itself. So far, there has been no communication from the FBI.
The press coverage, like the DRE complaints and the SEC subpoena, is yet another distraction; yet another waste of money and resources. No amount of mud slinging does anything to change the substance of the matter or the current market conditions. Point Center continues to work on your behalf; Point Center is best situated to manage the properties through these troubled times; and Point Center will weather yet another storm served up by Mr. Charton.
You will soon receive a full newsletter from Point Center, but I wanted you to have this important information in the meantime. As always, if you have any concerns, please contact your Point Center representative.
Sincerely,
Dan J. Harkey, President[/quot
