The state attorney general's office filed 73 criminal counts Friday against Grass Valley real estate broker and lawyer Thomas Hastert, who state officials charge filed false paperwork, embezzled fees and "brazenly deceived" investors and borrowers of $20 million.
The charges come after almost 18 months of investigation by city, county and state authorities, a process that involved hundreds of interviews " and frustrated his alleged victims.
A warrant for Hastert's arrest was issued Friday. That afternoon, a special agent from the state attorney general's office and an investigator from Nevada the County's district attorney's office were looking for Hastert, whose whereabouts were unknown, said District Attorney Cliff Newell.
"This man brazenly deceived investors and borrowers, promising high returns and easy loans, ripping off his customers for his own personal enrichment," said state Attorney General Jerry Brown in a press release.
"Ultimately, this criminal scheme collapsed when many of these loans failed, costing hundreds of people more than $20 million."
Charges were filed in Nevada County Superior Court for embezzlement, securities fraud, conspiracy and filing false documents.
If convicted, Hastert could face up to 11 years and four months in state prison. Bail was set at $540,000.
"Hastert brokered over 270 hard-money loans in Nevada, Sacramento, Sutter, Butte, Placer and Yolo counties between September 2004 and September 2007 for real estate development projects," Brown alleged.
"Hard-money loans typically provide high returns for private investors and are secured through collateral such as real estate," Brown said.
Hastert allegedly secured $20 million from scores of investors " many of them elderly people seeking higher returns to supplement their incomes " and used the funds to broker hard-money loans to borrowers seeking to build homes on real estate, the press release said.
In September of 2007, police seized a truckload of files during a raid of Hastert's Loan Sense office after numerous investors reported suspicions of fraudulent activity.
According to the criminal complaint, Hastert allegedly misled investors by telling them borrowers had excellent credit scores and were capable of repaying loans; instead, the borrowers' credit scores were poor, they did not make regular payments on loans and held properties that were in foreclosure at the time Hastert made the loans.
Hastert also allegedly set up fake investors called "straw men" to keep concerned investors at bay, the attorney general's office said.
Hastert filed documents with county recorder offices saying his secretary owned a majority interest in the investment, though she had never invested a single dollar, according to the complaint.
"The fact that the straw person on these multi-lender loans was in actuality Hastert's secretary, Nancy Selecman, and later Debra Newby, with no funds at risk was not disclosed to either investors or borrowers," the 30-page complaint read.
Selecman no longer resides in Nevada County. Newby would not comment on the allegations when reached late Friday.
While the investigation continues, it is unclear whether authorities intend to file charges against the straw people who were named in the complaint.
"The culpability of several straw persons is minimal, given the circumstances of the case," Newell said. "Hastert is the main actor in the affair. They certainly wouldn't be charged at the same time he would be."
In addition, the complaint alleges Hastert did not put his loans into a special trust account overseen by a third party, as required by law. As a result, borrowers regularly withdrew and misused funds with no oversight.
Hastert allegedly took all the fees up front, collecting money beyond the 3 percent he was entitled to as his fee for brokering loans, the complaint said.
"Some loans were never fully funded, and others took more than a year to fully fund," Brown's office said.
In January, paralegal Kathleen Ann Gilio's rights to notarize documents were revoked after she pleaded no contest to a misdemeanor violation in Nevada County Superior Court.
She had been accused of notarizing fraudulent documents in Hastert's office when she placed her own thumbprints in her notary book where spaces had been left blank.
Gilio has said she had no intention of defrauding anyone and was trying to fix a mistake.
The criminal charges against Hastert end a long wait for investors and borrowers who have expressed concern that the investigation was taking too long.
"It took awhile to put everything together," Newell said.
To contact staff writer Laura Brown, e-mail email@example.com or call 477-4231.