A federal judge has ordered a freeze on the assets of an Orange County firm accused by federal officials of misspending money from foreign investors who hoped their cash would buy them permanent U.S. residency.
The Securities and Exchange Commission filed civil fraud charges late last month against Newport Beach lawyer Emilio Francisco and his investment firm, PDC Capital, saying he improperly spent at least $9.5 million of investors' cash, with some of that money going to a yacht, a yacht-club membership and his personal credit card debt.
The agency asked a federal court in Santa Ana to freeze the assets of PDC and related entities. District Judge Cormac Carney last week approved that request, saying the SEC had presented "extensive, thorough and compelling evidence" of fraud and that the freeze was necessary to prevent Francisco and others from spending or hiding investors' funds.
Carney also ordered PDC, Francisco and others to not destroy documents. Attorneys for Francisco and PDC did not return calls for comment.
PDC raised more than $72 million from investors, most of them Chinese citizens, between 2013 and last year, according to the SEC's suit. Those investors hoped to participate in the federal EB-5 visa program, which offers permanent residency to foreigners who make job-creating investments in the U.S.
It's a program that has surged in popularity over the last several years but has increasingly become a target for fraudsters who see foreign investors — perhaps more focused on getting green cards than in investment returns — as easy marks.
More than 100 investors gave PDC Capital $500,000 apiece, with promises that the money would be used to build assisted-living facilities and open new locations of Caffe Primo, a Los Angeles coffee shop and restaurant chain.
Francisco is part owner of Caffe Primo International, a general partner in several of the restaurant's planned locations, according to the SEC. Charlton Liu and Tony Riviera, two restaurateurs affiliated with Caffe Primo, did not return calls for comment.
While some of the money went to the promised projects, the SEC alleges that millions of dollars were improperly funneled to separate projects and that more than $2 million went to pay Francisco's personal expenses.
In filings to the court, the SEC said Francisco used $560,000 of company money to buy a yacht, paid nearly $214,000 to the tony Balboa Bay Club in Newport Beach and used more than $450,000 to pay credit cards belonging to him, his brother and his daughter.
The court filings also reveal connections between PDC and Robert A. Ferrante, a former Irvine savings and loan boss with a checkered history that includes a conviction for taking illegal kickbacks while advising a pension fund.
Though Ferrante is not named as a defendant in the SEC's case, filings indicate that he has been investigated by the agency and that he received $170,000 from the company. Ferrante in 2014 posted a YouTube video in which he mentions working with PDC.
In his order granting the asset freeze, Carney noted that Francisco recently transferred ownership of several EB-5 projects to an entity controlled by "his longtime business associate who refused to answer any SEC questions regarding the nature of his relationship with Mr. Francisco." Carney did not name Ferrante as that associate, but referenced a transcript of testimony from Ferrante taken by the SEC.
Ferrante did not return calls for comment. The SEC declined to comment.
Ferrante has a history of run-ins with federal authorities, dating to the 1980s when he briefly owned a savings and loan in Irvine. He founded Consolidated Savings Bank in 1984 during a period of rapid growth in the thrift industry, which imploded a few years later when hundreds of the institutions failed nationwide.
Regulators declared Consolidated insolvent and seized it in 1986, then sued Ferrante, accusing him of fraud. He settled, but a federal grand jury later charged him and a handful of associates with criminal fraud, alleging Ferrante and others had improperly funneled large loans to a fireworks company he controlled.
Ferrante was acquitted in 1992, but faced more legal problems a decade later when he pleaded guilty to federal charges of filing a false tax return and taking unreported kickbacks from a developer while he was working as a consultant to a union pension plan.
He was later sentenced to four months in federal prison and ordered to pay restitution of $243,925 — the amount he received from the developer for arranging a loan from the pension fund.
By 2013, Ferrante was working with PDC Capital Group, according to a lawsuit filed against that company by a former consultant over an employment dispute. Neil Richardson, who sued Ferrante, Francisco and PDC, alleging breach of contract and fraud, said in his suit that Ferrante and Francisco approached him in early 2013 through a mutual acquaintance and asked for his help raising money from EB-5 investors.
A PDC investor presentation submitted to the court by the SEC names Ferrante and Richardson as officers of PDC, and Francisco as chief executive. But in his suit, Richardson alleges that Ferrante and Francisco were both, in effect, in charge of the company, saying they had "substantial control" of PDC and related companies.
Richardson also alleged that the pair were using company money to pay for a 2010 Ferrari Spyder and other luxuries, mirroring some of the allegations made by the SEC.
Ferrante, Francisco and PDC denied all of Richardson's allegations in a court filing. PDC filed a suit of its own against Richardson, saying he was attempting to sabotage the business.
Follow me: @jrkoren