Postscript: Money Starts Trickling In to Investors Bilked in Mortgage Scam

In June, 1980, a man representing himself as a prominent Orange County lawyer began wooing investors by promising high rates of return on low-risk second trust deeds. Within 10 months, more than 100 investors had turned over between $1.2 million and $2.5 million to Gerald Paul Nelson, who worked out of the Santa Ana law offices of Roger J. Agajanian.

But in April, 1981, as some investors began to look more closely at what was happening to their money, Nelson fled the country, leaving stacks of bogus or unrecorded trust deeds behind.

Nelson, who turned out not to be a lawyer (he reportedly studied law while in a Nevada prison on a bad-check charge), returned in August, 1983, and pleaded guilty to eight counts of grand theft and four counts of forgery. He is serving a five-year term in Chino state prison.

Some of the investors decided to write off their losses. But others sued Nelson, his salesmen, office workers and Agajanian, and almost five years later they are starting to get some of their money back.

The investors claimed in their suit that Nelson and his salesmen told them the second trust deeds were safe and would bring returns of 15% to 24% in less than two months. But in a classic pyramid scheme, Nelson simply paid off early investors with money he got from later investors, the suit claimed.

Agajanian, who was never charged criminally in connection with the scheme, claimed that he did not know that Nelson was defrauding investors or that Nelson was representing himself as a lawyer in advertising, on stationery and on business cards for Agajanian’s firm. Agajanian never spoke of Nelson as anything more than an investment partner, said Agajanian’s lawyer, Thomas D. Weaver of Santa Ana.

Settled With Investors

Last June, Agajanian settled with the investors, and six other defendants either settled or were dismissed from the lawsuit.

And on Dec. 13, an Orange County Superior Court judge awarded the investors $5,233,289.86 from Nelson and two of his salesmen, the remaining defendants in the suit. But since Nelson and the two former salesman apparently have no assets left, the investors’ only avenue for reimbursement was against Agajanian, according to Santa Ana attorney Andrew S. Hollins, who represents 83 of the investors.

The June settlement with Agajanian provides for a $1.22-million payment--with $1 million to come from Agajanian’s malpractice insurance policy. That left $220,000 to be paid by Agajanian, and of that amount, his home and office liability carriers paid $132,000.

According to court documents, Agajanian’s malpractice carrier, National Union Insurance Corp., refused to legally defend him or pay investors the $1 million--the limit of his malpractice policy. The settlement also provides that the investors sue National Union directly for the $1 million.

Apparently to ensure that the investors will get more money back, the June settlement with Agajanian also provides that the investors will have a 60% interest in any award Agajanian may win in a lawsuit he plans to file against National Union.

Hollins said his clients can also sue National Union later for so-called “bad faith” for refusing to follow state law, which requires an insurer to negotiate and to turn over policy limits when liability becomes clear.