DA addresses alleged improprieties relating to Gold Country Lenders
December 31, 2012
Whether or not Nevada County District Attorney Cliff Newell has managed to escape the appearance of impropriety in his connection with the hard-money operation Gold Country Lenders remains up for debate.
Newell does not dispute that in 2007, he and his former wife, Kelly, signed up for a $700,000 loan with Gold Country Lenders, of which he said only $260,000 was ever provided.
In September, the owner of Gold Country Lenders, Phil Lester and his business associate, Susan Laferte, were charged by the California Attorney General with multiple counts of fraud, criminal conspiracy and elder abuse.
Newell maintains that his business affiliation with those charged with a litany of financial crimes has not impeded his ability to execute the duties of his office.
In early June 2011, the Sacramento Bee published an article and an editorial that said Newell showed "an appalling lack of discretion" that "irreparably damaged his ability to administer fair and impartial justice" due to his connection to hard-money lenders in the county.
In an interview with The Union, now that Lester and associates have been charged, Newell discredited the Bee's coverage as "the worst form of yellow journalism."
"The article had no substance," he said. "It was full of allegations and loose connections."
However, connections do exist. And they have provided Newell's critics fodder regarding how he handled financial crimes in Nevada County while his own investments caused him to seek emergency loans from an allegedly disreputable source.
Slow to act?
Victims of hard money lending schemes in Nevada County question Newell's role in prosecuting Gold Country Lenders and other cases relating to financial crime.
Melissa Kaput, a Downieville resident, lost hundreds of thousands of dollars due to the financial malfeasance of Tom Hastert, the former owner of Loan Sense who pleaded no contest to 59 felony counts of embezzlement, securities fraud and selling unregistered securities in 2009 and was sentenced to seven years in prison in June 2010.
While serving his sentence in a Fort Bragg state penitentiary, Hastert wrote a letter to The Union, insinuating Lester's business dealings with Newell led to a favor from the DA.
"As I look back at the mistakes I made in the management of Loan Sense, and see the free pass Newell's office gave his broker (Lester), I now see my biggest mistake was not landing the Newell loan application," Hastert wrote.
Having investigated Newell's property dealings, Kaput said she is not satisfied with how his office responded to both the Hastert and Lester cases (Hastert was also prosecuted by the California Attorney General's Office).
"The bottom line is that I think Cliff Newell shelved cases (dealing with Phil Lester)," Kaput said.
Kaput is not alone in such thinking.
Midge Fowler, who said she lost her entire life savings in Gold Country Lenders investments, said Newell ignored her and other victims when they first filed complaints, then dragged his feet in taking action.
Fowler, along with Phyllis Shippen, was one of the first investors in Gold Country Lenders to become suspicious in late 2009 that they were the victims of fraud.
Fowler said she went to the Grass Valley Police Department and spoke with then-detective Colin Nelson, who has a background in financial institutions.
Fowler said there was no movement on the case in Nevada County and not until she contacted the California Attorney General's Office was the case addressed.
Newell denies such claims, saying that because he had a loan with Gold Country Lenders, which he said he acknowledged up front with Nelson, his office never began work on the case.
"(The case) was never even brought to me," Newell said. "The detective at the time comes to me and says, 'Cliff we've started an investigation on Gold Country' and I say 'Stop. Don't say another word to me about this and, as a matter of fact, don't refer any documents to me and don't come to me for search warrants. Take everything that has to do with this business and take it straight to the Attorney General's office.'"
The Grass Valley Police Department's account differs slightly from Newell's, suggesting the case was forwarded to the state due to its size and the complexity of the crimes involved.
Capt. Rex Marks said Nelson began investigating complaints lodged by Fowler and soon realized the scope of the investigation was beyond the department's means, thus Nelson, Marks and another supervisor determined forwarding the case to the state Attorney General was appropriate.
Grass Valley police called a meeting with Newell "because we didn't want to jump past him," Marks said.
Marks does not recall Newell bringing up his personal conflict of interest during the initial discussion of how to proceed with the case, he said. Marks said Nelson does not remember at exactly which point Newell brought up his personal conflict but did confirm it was disclosed at some point before the information was forwarded to the Attorney General.
A principal contention of the Sacramento Bee coverage is that Newell received "favorable treatment on his loans from two hard-money brokers."
Phil Lester, in an interview with the same newspaper, said: "I did him a favor in case I ever kill anybody."
The article made it clear that Lester was joking, but Newell said the comment caused him considerable political damage.
"That was awful," Newell said. "It was a ridiculous thing to say."
"We weren't pals," Newell added. "We weren't business associates other than through my wife's business."
Records at the Nevada County Clerk-Recorder's Office show that Newell received a 4 percentage point reduction on the $260,000 loan he took out with Gold Country Lenders, resulting in an annual savings of about $10,000. The reason for the reduction was not due to Newell's position, he said, but instead was due to the change in the nature of the loan.
Originally, the Newells took out the loan with Phil Lester as a short-term "bridge loan," meant to help pay taxes and other expenses on personal property in Nevada City, Newell said.
In the meantime, Newell was set to sell family-owned property outside his hometown of Yuba City to pay off the Gold Country Lenders loan and raise additional capital.
When that deal fell through, due to declining real estate demand, Newell said the couple sought to renegotiate the terms of the loan with Lester, with whom Kelly Newell worked directly on the deal.
The interest rate on the loan was ultimately reduced from 11 percent to 7 percent. But the agreement, Newell noted, had to be presented to the investors on the loan and was not Lester's sole decision.
Gene Lehman, an experienced real estate broker with Century 21 Davis, said the percentage point reduction was standard operating procedure.
"It's something that happens frequently in hard-money investing," Lehman said. "If the market starts to plunge, these organizations do modify interest rates. In fact, it happens more often than not."
The other hard-money institution alleged to have provided Newell with a favorable loan was Olympic Mortgage, presently called Olympia Mortgage. In September 2004, Newell took out a loan with Olympic Mortgage for $1.4 million, according to records at the Nevada County Clerk-Recorder's Office.
The loan was an attempt to consolidate all debt relating to the Snow Mountain Camp property that the Newells bought in 2000 with the intent of running a summer camp for children, Newell said.
As they continued to experience financial hardship after the real estate bubble burst in 2006, they were forced to sell three of the plots and give three more plots to Olympic Mortgage to avoid foreclosure, Newell said.
In 2009, the hard-money lender accepted three plots of the Snow Mountain Camp property, nearly 5 miles north of Nevada City, as to retire the Newells' loan, which was about $600,000 at the time, said Phil Ruble, president of Olympia. The three lots, Ruble said, amounted to about 16 acres.
Ruble said he is confronted with two recourses when a debtor cannot make payments — to either accept the property or foreclose.
"The business transaction we did with Cliff and his wife, Kelly, is nothing that we haven't done a dozen times with other people," Ruble said. "It was a good business move and it was purely a business decision for our company and on behalf of our investors."
'Doing my job … doing it well'
Fowler said she heard from an associate that Phil Lester received a call directly from Newell, tipping him off to the Attorney General's investigation.
"I would certainly never tip somebody off about an investigation," Newell said. "It's not something anybody in this office would do. We're enforcers of justice, we build cases. Something like that wouldn't be illegal, but it is certainly unethical, and I didn't do it."
Newell said Lester likely knew he was being investigated even before Newell did, as investigations of that nature are not a "tip-toe through the tulips" sort of process. Investigators seize records, perform interrogations and generally make their presence known, he said.
Newell said he is aware that his affiliation, however tenuous, with Phil Lester and Gold Country Lenders creates the appearance of potential misuse of power and opens the door to criticism.
"It certainly gives (my critics) ammunition," he said. "You're an attorney practicing criminal law, so half of the people like me and half don't. I don't win all the cases, but we have a good clearance rate, generally.
"Now, some are angry at the way my office has performed, and some have made it known that their personal strategy is to see me kicked out of office."
Newell said he has no intention of relinquishing his position as the county's District Attorney.
"I am not resigning," he said. "I'm doing my job, and I'm doing it well. I have Nevada County's best interest at heart 24-7."
To contact Staff Writer Matthew Renda, email email@example.com or call (530) 477-4239.
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