Banks Bilked Out of $21 Million : Key Suspect in Fraud Scheme Pleads Guilty

Orange County businessman John (Skip) Chodak, 43, of Laguna Hills pleaded guilty Monday in U.S. District Court here to arranging a complex real estate scheme that caused a consortium of banks to lose $21 million.

Chodak pleaded guilty to six counts of wire fraud and one count of interstate transportation of funds obtained by fraud. Earlier in the day, another participant in the fraud, James Michael Fairbanks, 28, of Anaheim, pleaded guilty to three counts of wire fraud for his role in the operation.

“Chodak’s plea is very significant,” said Gary Schons, a deputy state attorney general who is serving as a special assistant U.S. attorney on the case. “He is central to the indictment.”

Chodak and Fairbanks are among nine men accused of setting up an elaborate scheme to borrow $21 million from more than two dozen banks and savings and loan associations across the country. The defendants, who submitted inflated appraisals and false documentation on two parcels of land in and near the San Fernando Valley, told the lending institutions involved that the borrowed money would be used to develop one piece of property in Chatsworth and one in Newhall.

However, the defendants pocketed most of the borrowed money and never repaid the banks, according to a federal grand jury indictment filed in May.

According to the indictment, Chodak and business associate Gerald R. Ramos, 37, of Orange offered the banks financial guarantee bonds issued by Glacier General Assurance Co., a Montana company owned by another defendant, John F. Hayden, 66, of Santa Ana. Ramos left the country shortly before the indictment was issued and is a fugitive believed to be living in Panama, according to government prosecutors.

Between 1982 and 1984, the Glacier General Assurance Co., which has since gone out of business, issued bonds guaranteeing to repay real estate loans if the borrowers defaulted. But by the beginning of 1983, Glacier was insolvent. Hayden continued to issue “worthless financial guarantee bonds,” the indictment said.

As part of their plea bargain, Chodak and Fairbanks agreed to cooperate with government prosecutors, who agreed, in turn, to drop some of the charges against Chodak and not to file additional charges against Fairbanks. The case stemmed from a joint investigation by the Orange County district attorney’s office, the state attorney general’s office, the FBI and the U.S. attorney’s office.

Chodak faces a maximum federal prison sentence of 40 years and fines up to $16,000. Fairbanks faces a maximum sentence of 15 years and $3,000 in fines.

U.S. District Judge Harry L. Hupp told both men that he also may order them to repay the banks that lost millions of dollars on the fraudulent transactions.

Last week, David Techak, 36, of Anaheim pleaded guilty to three charges of wire fraud for his role in the real estate transactions.

Chodak, a licensed real estate broker, personally received about $2.6 million of the money obtained from the banks, according to Schons. He was charged with sending about $1.1 million of the loan proceeds to a bank account in the Grand Cayman Islands in the British West Indies.

Fairbanks, who prepared some of the paper work associated with the loans and set up two escrow companies through which the borrowed money was funneled, told Judge Hupp he received about $435,000 for his services.

Through a network of shell corporations, the defendants borrowed $14 million from the banks to purchase and develop the Chatsworth property and $7 million to build a hotel in Newhall, according to the indictment. The banks lent the money based on fraudulent appraisals of the properties allegedly prepared by another defendant. Neither of the properties ever was developed.

Hupp scheduled a Jan. 12 sentencing hearing for all the defendants who have entered guilty pleas.

Hupp also ruled that Chodak could be freed on bail pending his sentencing.

The other defendants free on bail are Marvin Weiss, 59, of West Covina; John Ward, 46, of Newport Beach; Bruce Furst, 33, of Laguna Hills and Leo Peterson, 42, of Huntington Beach.