John Packard, 63, of Long Beach and Michael Stewart, 66, of Phoenix were indicted on 11 counts of mail fraud, three counts of bank fraud and two counts of bankruptcy fraud.
Both men were arrested Wednesday "without incident," the U.S. attorney's office in Los Angeles said.
The indictment, returned by a federal grand jury under seal last month, alleged that Packard and Stewart used new investor money to make payments to early investors and pulled out millions of dollars for themselves as their company, Pacific Property Assets, headed toward 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. When the real estate market began to falter in 2007, the company was unable to refinance properties and fell behind in mortgage payments.
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 promised, prosecutors said.
The indictment also alleged that the company provided false financial information to one of its bank lenders, Vineyard Bank, 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.
Stewart and Packard could not be reached for comment.
Pacific Property Assets filed for bankruptcy in June 2009.
The indictment alleged that Stewart and Packard withdrew $165,000 from one of the company's accounts and hid the money from creditors. It also accused them of arranging for $131,000 owed to the company to be sent to accounts not linked to the bankruptcy, enabling them to conceal the money from creditors, prosecutors alleged.
The criminal charges carry a maximum sentence of 320 years in federal prison and millions of dollars in fines.
In 2012, the
The SEC suit alleged that Stewart and Packard formed a new company, Apartments America, to replicate Pacific Property's business model. The agency accused them of misleading prospective investors about their track record in an attempt to raise money for the new company.