Pyramid Scheme Alleged in Case Related to B of A Loss : Mortgage Company Sues West Pac
The firm that packaged the mortgage loan pools that led Bank of America to take a $95-million loss has sued the originator of the mortgages, charging that the transaction was a pyramid scheme designed to enrich two California developers.
National Mortgage Equity Corp. is asking for at least $50 million from West Pac Corp., the Orange development company that bought properties in Texas and California and then sold the mortgages to National Mortgage for syndication to two dozen East Coast thrifts. The suit, filed Tuesday in U.S. District Court in Santa Ana, claims that West Pac and its chief officers engaged in racketeering and interstate mail and wire fraud.
Also named in the suit are Kent Rogers, former president of West Pac, who is in federal prison on an unrelated charge, and Floyd Anglin, now a West Pac consultant.
The suit alleges that, beginning in December, 1982, West Pac, Rogers and Anglin induced National Mortgage of Palos Verdes Estates to invest more than $15 million in mortgages on apartments and condominiums. According to the suit, Rogers claimed to have 3,000 wealthy investors behind the plan and that all the mortgages would be fully insured.
The mortgage company then syndicated the loans to the Eastern thrifts, using Bank of America as trustee and escrow agent. Last summer, however, West Pac stopped making payments on the mortgages, and Pacific American Insurance Corp., which backed the bulk of the loans, was forced into liquidation by Delaware insurance regulators.
Anglin said Thursday that he was never an officer or stockholder in West Pac but acknowledged serving as president of Pacific American for five months before it was shut down.
He said the National Mortgage suit is merely a “smoke screen” to protect the firm from suits by Bank of America, shareholders and Texas and Delaware insurance authorities.
The alleged fraud already has spawned several lawsuits, including one by the bank against Pacific American and another by Texas regulators charging that National Mortgage and West Pac conspired to cheat investors through inflated appraisals and fraudulent loans.
When the arrangement began to unravel late last year, Bank of America agreed to buy back the mortgages from the Eastern thrifts at full face value. The bank has said it paid $133 million for mortgages worth no more than $38 million.
