Gold Country Lenders embroiled investors in ‘vast Ponzi scheme’
January 1, 2013
It took Special Crimes Unit investigator Debra Gard nearly two years to put together the fraud case against Gold Country Lenders that resulted in the arrest and prosecution of CEO Phil Lester and his wife, Ellen, CFO Susan Laferte, and business partner Jon Blinder.
What she allegedly uncovered was a collapsing house of cards that enmeshed dozens of investors who lost at least $4 million on the charged counts alone.
The charges allege that Gold Country Lenders engaged in a pattern of theft and fraud-related crimes for more than eight years. Phil Lester and Laferte have been charged with 66 felony counts of elder abuse, securities fraud and conspiracy. Blinder was charged with four felony counts of securities fraud.
“Lester’s financial promises were unsustainable,” Gard wrote in her declaration in support of the arrest warrant. “His empire was spiraling out of control and becoming a vast Ponzi scheme … As the losses mounted, Phil Lester became ever more desperate.”
“His empire was spiraling out of control and becoming a vast Ponzi scheme … As the losses mounted, Phil Lester became evermore desperate.”
— Special Crimes Unit investigator Debra Gard
Phil Lester allegedly would issue fractional deeds of trust secured by property that he either owned outright or in partnership with other developers, and Laferte allegedly would solicit money for projects that then was used to pay investors on other projects in a risky shell game.
On many of the projects, investors allegedly were not informed that Phil Lester was the property owner, partner, developer, appraiser and/or borrower, as well as the loan broker.
Unbeknownst to many of Lester’s investors, he had no money of his own to fund the projects or pay the investors, Gard said.
In many cases, investors allegedly were not told that their money would not be used for the stated purpose but instead would be used to make interest or principal payments to other investors — and that the investments were, in some cases, not secured as promised.
According to Gard, everything went well for Gold Country Lenders initially — but that success “sowed the seeds” of Phil Lester’s downfall.
Phil Lester became a licensed broker in 1985, moving to Nevada County in the late 1980s. He licensed Gold Country Lenders as a real estate company in 1992 and hired Laferte, his sister, as a salesperson. Laferte became a broker in 2001.
Phil Lester became more ambitious and started doing real estate development projects by putting people together to fund projects rather than seeking bank funding, Gard said.
Phil and Ellen Lester created partnerships and limited liability companies to own and fund the projects, and the Lesters and Laferte cultivated a large number of investors. But then, according to Gard, the economic downturn led to Lester over-extending because he had borrowed on multiple multi-million-dollar projects at the same time.
Gard’s investigation allegedly reveals a spiraling web of mounting losses and increasingly frantic attempts to cover those losses by rolling over loans and renaming projects, among other tactics. The two projects that Gard primarily focused on were Deer Creek Pines/Kenny Ranch, which formed the basis for 16 of the charges in the arrest warrant, and Osborne Hill, with 30 charges.
Developer Steve Elder bought the Kenny Ranch property (off Ridge Road and Rough and Ready Highway) in 2000, paying $1.5 million with a private loan facilitated by Lester. Lester and Elder partnered on two projects on the property — Deer Creek Pines and Kenny Ranch Inc., which were registered that same year.
Toxic waste issues were a problem from the get-go with the property; Elder was advised to enter into a voluntary clean-up agreement in January 2001.
That same year, Gold Country Lenders loaned $500,000 to Deer Creek Pines through the sale of “subscription units,” which were being sold by Laferte. Laferte failed to inform investors that Phil Lester was a partner, and failed to inform them of the toxic waste issues, Gard said.
Gold Country Lenders began a strong push for investors on the project in 2003, soliciting more than $1 million in loans. Investors were allegedly told that the property was in Grass Valley’s Special Development Area and was ready for development into a mixed-use project — but in fact, the area’s annexation had been pushed out by Grass Valley to 2015.
Between 2005 and 2007, Gold Country Lenders allegedly continued to solicit loans for Deer Creek Pines, despite the fact that the project could not move forward until sometime between 2016 and 2020. In August 2006, Lester donated land valued at $545,000 to Hospice of the Foothills, allegedly without telling investors of the project.
In 2008, Deer Creek Pines was rolled into Enlibra Inc., a holding company, and “rebranded” as Wildflower Ridge, Gard said. By May 2009, all the investors in Deer Creek Pines and Kenny Ranch were rolled into a massive consolidation loan; Gard estimated that the total amount invested in the project was more than $5.3 million.
None of the early investors were paid off, Gard wrote, and no development has been completed.
“No property taxes have been paid on the property, and the property is moving toward a foreclosure/tax sale by Nevada County,” Gard wrote.
Elder and Phil Lester bought the Osborne Hill property for $1.84 million in 2004. Investors were told the property, which borders Empire Mine State Park, would be developed into a mixed-use community of housing and open space. Investors were not informed of the substantial toxic waste issues on the property, even as estimates for the clean-up costs skyrocketed from $14,000 in 2005 up to approximately $74,000 in 2009 with additional remedial action costs of $157,000.
According to Gard, Lester attempted to circumvent the toxic waste issue by subdividing 33 acres containing the worst toxic waste and transferring ownership to developer Curt Haidle. Haidle was to develop the 33-acre parcel with single-family spec homes that would be sold to facilitate the development of the rest of the property, Gard wrote.
Lester and Gold Country Lenders solicited $750,000 from investors to develop those 33 acres, and then used $400,000 of that to operate the Auburn Valley Country Club, Gard said. Haidle did receive $350,000, which allegedly was used to develop other property.
Gard said that Haidle was unaware of the toxic waste issues and tried to get approval from Nevada County to develop the parcel, which could not happen until clean-up was completed.
In July 2006, a corporation formed by the Lesters, named Linx Group, purchased 6 acres of the Osborne Hill project for $200,000; that loan was financed by private investors. Then, in 2007, Lester obtained a loan from Citizens Bank on the property for $1.56 million. All investors on the Osborne Hill loans were subordinated to that loan, Gard wrote. They allegedly were required to sign documents that placed them in a second deed of trust; Lester allegedly met with investors and told them additional funds had been required to pay back taxes but that the development could go forward.
Gold Country Lenders suspended interest payments on the project in September 2008. The next month, Lester solicited an additional $175,000 from investors, allegedly claiming the money was needed to pay taxes. It was not known if that happened, however.
In 2009, Lester defaulted on the Citizens Bank loan, and a notice of trustee’s sale was sent out in September 2010.
According to Gard, more than $3.8 million was invested in Osborne Hill, and all of the investors — except for those on the Linx Group loan for $200,000 — lost their entire investment.
To contact Staff Writer Liz Kellar, email firstname.lastname@example.org or call (530) 477-4229.