Advertisement

Golf Pitches Found Takers

Share
Times Staff Writer

To hundreds of people, the investment apparently looked like a straight-ahead fairway shot to the green.

For $25,000 or more, investors were told they could own part of a company developing luxury resorts and residences, authorities say. One supposed project was next to an Arnold Palmer-designed golf course. At another resort, Greg Norman’s company had been hired to design the course.

The salespeople pitching the deal also dropped the names of other golf greats, authorities say, and urged investors to get in quick before the company went public.

Advertisement

Carolina Development, the Irvine company peddling the real estate partnerships, recruited many of its 50 salespeople from an addiction recovery program operated by Saddleback Church in Lake Forest, authorities say. To help endear themselves to Christian investors, they said, some sales agents distributed copies of “The Purpose-Driven Life,” a best-selling inspirational tome by Saddleback Pastor Rick Warren.

But Carolina and its founder, Saddleback member Lambert Vander Tuig, had other motives, according to the Securities and Exchange Commission. The SEC has accused the Rancho Santa Margarita man of fleecing about 700 investors across the country and in Canada of $50 million by exaggerating Carolina’s holdings -- in some cases fabricating its ownership of property and in other cases disguising the fact that it held only options on land or had taken on heavy debt to buy it.

This year, the SEC filed a civil complaint against Carolina Development, its 47-year-old founder and its vice president and sales chief, Jonathan Carman, 43, of Aliso Viejo.

At the SEC’s request, a federal judge froze the defendants’ assets and has appointed a receiver to liquidate the company. The SEC accuses Vander Tuig and Carman of securities fraud and illegal sales of unregistered securities. It alleges that Vander Tuig violated a court order barring him from acting as a broker or selling unregistered securities.

No criminal charges have been filed against Carolina Development’s executives, although a task force of local, state and federal authorities served a search warrant on Carolina’s offices on the same day the SEC civil charges were filed.

Authorities say that Warren and golf greats Palmer and Norman had no role in misleading investors. Warren said he was unaware of the alleged scam and did not know that his book was distributed by sales agents for Carolina, until he was contacted recently by a Times reporter.

Advertisement

Attorneys for Vander Tuig and Carman declined to comment on the specifics of the case. In court filings, both men generally denied the allegations but did not offer a detailed response.

SEC lawyers say Vander Tuig is a repeat offender. In 2000, a federal judge had banned him from the investment industry as a result of a stock-fraud case and ordered him to pay back $61,305 to investors, along with the same amount in fines.

Vander Tuig never paid those sums, the SEC said, and changed his last name to Vander Tag to conceal his history from Carolina investors. In addition, the agency said, he violated securities laws and the federal judge’s order by employing unlicensed sales agents and selling to investors who were not wealthy enough to buy into the limited stock offerings that private companies are permitted to make.

According to the SEC’s lawsuit, Vander Tuig began selling shares in Carolina Development, then known as Carolina Co. at Pinehurst, in September 2004. The company, operating from four suites in an Irvine Spectrum high-rise, told investors that it owned two “championship golf course communities” in Pinehurst, N.C., including one designed by Palmer.

What distinguished Vander Tuig’s operation were the elaborate descriptions of his golf resort plans, state and federal officials say, including glossy brochures featuring photos of Palmer and Norman, among others.

“The misrepresentations were quite egregious,” said Karen Martinez, the SEC attorney handling the court case. “You get this marvelous brochure with pictures of golf celebrities plastered all over it, and elaborate [property] maps, and it looks very, very convincing.”

Advertisement

The company also described plans to develop a 2,300-home complex in Texas, with Norman’s Great White Shark Enterprises to design a golf course and a clubhouse featuring Norman-themed restaurants.

Although the company bought some Pinehurst lots, it didn’t own the entire communities, the SEC said. Carolina claimed to own the land in Texas long before it actually bought it, then borrowed nearly all of the $23.5-million purchase price, giving it “little or no equity” in the property, the agency said.

The SEC’s office in Salt Lake City began investigating after investors in Utah filed complaints, court record show. Martinez, who works from the agency’s Salt Lake office, said investors were told they had to act quickly because the company was about to have an initial public stock offering and that the price of its shares would probably triple or quadruple, she said.

“But their appraisal sheets listed properties they didn’t own,” Martinez said. “They would add properties for a while and then take them off and substitute others. They had no audited financial statements, and we could find nothing to support their claim that an IPO was in the works.”

But they talked up their connections with Warren’s church. “It appears as if the evangelical side of it was used to bolster their credibility,” Martinez said.

SEC attorney Cheryl Mori, who investigated the alleged fraud, said Vander Tuig and Carman belonged to Warren’s 20,000-member church. In e-mails to The Times, Warren said that he could remember neither Vander Tuig nor Carman.

Advertisement

“With over 30 million copies of ‘Purpose-Driven Life’ printed in 51 languages, it doesn’t surprise me that somebody somewhere may have tried to use the book for personal gain,” he said in an e-mail. “It’s sad, but I doubt that would surprise anyone else either.”

Alastair Johnston, chief operating officer of Arnold Palmer Enterprises, said his company became aware of Vander Tuig’s operation last year, when a stock brokerage approached Palmer with questions about Carolina’s investment pitch.

“It was quite clearly, in our opinion, a violation of North Carolina securities laws in making misleading statements,” Johnston said.

An attorney for Palmer wrote cease-and-desist letters to Vander Tuig in July, August and October, warning that he was infringing Palmer’s commercial rights and breaking trademark and securities laws by “falsely implying an endorsement,” Johnston said.

Johnston said the company complained to the SEC and North Carolina regulators late last year when the misrepresentations continued.

Norman’s golf course design company, by contrast, went into business with Carolina Development, accepting a $200,000 down payment for course architecture, according to Thomas Seaman, the court-appointed receiver.

Advertisement

Bart Collins, the president of Great White Shark Enterprises, declined to discuss how his company linked up with Vander Tuig. But Collins said it was not uncommon for Norman’s firm to “enter contracts with people who own a piece of land and are developing private communities.”

“We try to do what we can to protect ourselves from this type of thing,” Collins said. “We try as best we can to complete our due diligence.”

Mori, the SEC attorney who investigated Carolina, said she believed that in this instance Norman’s company “probably didn’t look real carefully at the company, because they were getting paid.”

In a search warrant affidavit, Kathryn Holguin, an investigator for California Atty. Gen. Bill Lockyer, said investors were sold restricted stock in Carolina for $1 to $5 a share in 2005, when “they could have purchased free-trading shares [over the counter] from any broker,” sometimes for pennies a share.

Holguin and the SEC’s Martinez said in court filings that Carolina paid 3% or 4% annual “dividends” that lulled investors as they awaited the repeatedly postponed IPO. Since Carolina had no profit, they said, that turned his operation into a Ponzi scheme, in which money from new investors is used to pay earlier ones.

Seaman said Vander Tuig and Carman personally received a total of $6.1 million that they used for such expenses as Hawaiian vacations, airplane leases, taxes and church donations.

Advertisement

Salespeople for Carolina Development and its predecessor, Carolina Co. at Pinehurst, were paid $10 million, Seaman reported. Of the $50 million in invested funds, he said, just $22.9 million was spent on land and related investments.

On the bright side, he said, it’s possible that because the real estate investments do have value, investors might get back about half of their money -- a better ratio than in many similar fraud schemes.

Advertisement