John Packard, 63, of Long Beach and Michael Stewart, 66, of Phoenix were indicted in January by a federal grand jury on 11 counts of mail fraud, three counts of bank fraud and two counts of bankruptcy fraud.
They are accused of using new investor money to make payments to early investors, while pulling out millions of dollars for themselves, as their company, Pacific Property Assets, headed to bankruptcy.
The two men created the company in 1999 to invest in apartment complexes in Southern California and Arizona. It operated from offices in Irvine and Long Beach.
As property values soared in the early 2000s, the company refinanced mortgages and used proceeds to pay investors and business expenses. The two owners also used that money to pull out millions of dollars for themselves, prosecutors said.
When the real estate market began to falter in 2007, the company was unable to refinance properties and fell behind in mortgage payments. In order to keep the company afloat, Packard and Stewart raised tens of millions of dollars from new investors, using the money to pay earlier investors, mortgage lenders and themselves -- instead of investing in real estate as they said they would, prosecutors said.
The indictment also charges that the company provided false financial information to one of its bank lenders, Vineyard Bank, in order to obtain loans and to maintain its line of credit with that bank. The company overstated its income, concealing the fact that it was losing money, prosecutors said.
Pacific Property Assets filed for bankruptcy in June 2009.
Stewart and Packard are accused of bankruptcy fraud for allegedly withdrawing $165,000 from one of the company's accounts and hiding the money from creditors.
The criminal charges carry a maximum sentence of 320 years in federal prison and millions of dollars in fines.
In 2012, the