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3 to Be Arraigned After 2-Year Investigation Into Alleged Building Fraud

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Times Staff Writer

A two-year-long investigation by the Los Angeles County district attorney’s office and state authorities into what they say was one of the Southland’s biggest home and apartment construction frauds is set to conclude today with the arraignment of three people on a variety of felony charges.

The former owner and two former employees of Delta Homes Inc., a now-defunct West Los Angeles company that, authorities charge, defrauded several hundred people out of more than $2 million, were named in a felony complaint and are to be arraigned today before Municipal Judge Glenette Blackwell.

In 1984 and 1985, Delta offered the public an enticing package--swift construction of low-cost homes and apartment buildings--but built almost nothing, according to the district attorney, the state attorney general and the Contractors State License Board, all of whom participated in the investigation.

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In many instances, down payments ranging from $1,000 to $25,000 were lost by some of the victims, many of whom were low- and moderate-income minority families, investigators said.

Worse, as many as 60 individuals who signed second-trust deeds on their homes to finance Delta deals now face foreclosure because they cannot meet their monthly loan payments, state investigators said.

“It’s the largest new-home construction fraud case we’ve ever seen,” said Larry McNeely, the chief investigator for the Sacramento-based contractors board. “It was overwhelming in terms of the number of victims involved.”

David R. Disco, the deputy district attorney in charge of major frauds, said the following individuals were charged Friday in a felony complaint and would be arraigned today:

- Joseph Polifroni, 47, of Marina del Rey, Delta’s chief executive, who was charged with 25 felony counts, including grand theft, diversion of construction funds and conspiracy to defraud another of property. All of the offenses took place between July 1, 1984, and Jan. 6, 1986, according to the felony complaint.

- Anthony Escario, 48, of Irvine, the firm’s former vice president and general manager, who faces the same charges as Polifroni.

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- Ciro Aramayo, 61, of Los Angeles, a former salesman and notary who is charged with 13 felony counts, including conspiracy to defraud another of property and diversion of construction funds. According to the felony complaint, he notarized a deed of trust “with knowledge that the deed . . . was forged.”

If convicted on all the counts, the defendants face a maximum of eight years in prison and/or a $10,000 fine, he said.

Donald Schindler, a Covina criminal attorney representing Escario, said, “I don’t believe (Escario) had any criminal intent or criminal knowledge.”

As for the company, Schindler said his analysis of Delta told him that it was “a legitimate operation that was soured by the upper levels of management. . . . There was a good deal of mismanagement, but I don’t think there was any fraud in it.”

Aramayo’s attorney, Harold Mulville of Irwindale, said he could not comment because “I really haven’t had an opportunity to fully discuss the situation with my client.” Neither Polifroni nor his attorney could be reached for comment.

The district attorney’s one-year investigation of the Delta case was preceded by an investigation by the contractors board, which polices the construction industry, and the attorney general’s office, the board’s prosecutorial arm.

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As a result of the state investigation and a subsequent court order last January, Delta was shut down and its records were seized.

At the same time, the contractors board brought a number of civil charges against Delta officials, charging unfair business practices under the state Business and Professions Code. Those charges are still pending in Los Angeles Superior Court. Declared Disco, a 17-year veteran of the county prosecutor’s office:

“This is a special case because of the taking of money from people who have worked long and hard to save small amounts. The taking of property here has literally involved foreclosures. That’s what makes it particularly insidious.”

“The company had a consistent pattern of accepting down payments on construction contracts with no construction ever being done,” said state Deputy Atty. Gen. Dora Levin in Los Angeles.

Separate from the pending court charges, Levin said, an order will soon be issued by the state Registrar of Contractors to bar Delta chief executive Polifroni and former Delta executive Ruth Ray Levy, 64, of Los Angeles from doing contracting work for life.

Prosecutor Disco said Levy “faces no criminal charges because she is cooperating” with the district attorney’s office.

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Victims Lured by Ads

Defendant Escario, an architect, will appear before an administrative law judge on March 23 on whether he will be permitted to remain in the contracting business, prosecutor Levin said.

Delta’s activities were largely confined to Los Angeles County, although victims also turned up in Orange County. They were lured by ads in the real estate sections of The Times, in La Opinion, the Los Angeles-based Spanish language newspaper, and in other newspapers as well as through radio ads.

“Build your apartment or home from as little as $19,900,” said a Delta ad in the July 28, 1985, Times. “We do it all . . . 100% financing.” Moreover, Delta promised that construction would be completed within 120 days, according to investigators.

In fact, according to the charges, Delta did very little.

In sworn declarations made to attorney general’s investigators conducting the civil probe, former Delta employees described a company that engaged in deceptive sales practices and sloppy bookkeeping, and where lying to customers was expected.

“It does not seem to me they have any intention of building . . . only of obtaining down payments,” former salesman Lyle Orth said in a declaration.

‘Instructed Me to Lie’

Former Delta employee Grace Velasquez Sarmiento, who drafted blueprints, said in her declaration that “things were really mixed up. Joe (Polifroni) was canceling contracts and we didn’t know which project to draw first.”

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Sarmiento also charged that defendant Escario “instructed me to lie” to impatient Delta customers clamoring for construction to begin. She said she was told to say that their plans were moving through city red tape or were still being drawn when, in fact, little or nothing was being done to expedite them.

“The customers never knew what Tony (Escario) was doing,” she said.

In his declaration, defendant Escario said Sarmiento’s sworn statement “is fraught with lies, misrepresentation and speculation. . . . At no time did I tell her to lie to customers.”

Furthermore, said state contractors board investigator Frank Chisholm in a report attached to the felony complaint, “a Delta manager called (victims) and impersonated city officials in attempts to stall the victims to give the appearance of progress of the projects.”

Signed Second-Trust Deeds

Interviews with Delta victims, some of whom are expected to be at today’s arraignment, show they all owned lots, often adjacent to their home, and were looking for a low-cost construction package that would generate future income either through a second home or apartment units.

Some made down payments and lost the cash. In retrospect, compared to other Delta customers, they were lucky.

Many others, apparently unwittingly, signed second-trust deeds on their homes, or had relatives do the same to finance the Delta deals.

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Recently, a Superior Court judge ruled that individuals holding these trust deed notes were doing so in good faith and could foreclose if loan payments were not forthcoming. Investigators say about 60 Delta victims fall into this category and are facing foreclosure.

However, the state is trying to persuade holders of the notes to delay foreclosure until the case is settled, state investigator McNeely said.

One victim, a retired Glendale grocery store worker, said he was forced to pay $18,000 on a second-trust deed over a year’s time to finance a duplex that Delta had contracted to build, or face foreclosure. His lot is still empty.

Lost $23,000

A South Pasadena contractor said he lost a $23,000 down payment on a proposed house that Delta never constructed. “I’m building the house now,” he said.

An El Monte machinist said he could not meet his $225-a-month payments on a $26,500 note and filed for bankruptcy, opting to destroy his credit rating while trying to save his house. His Delta investment homes were never built.

A Huntington Park family was forced to sell their apartment building to pay off a $25,000 second-trust deed used to finance another Delta apartment complex, again one that remained on the drawing board.

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Questioned about these financial tragedies, former Delta salesman James S. DuGalle told state investigators in his declaration: “I don’t know if anybody in that office can really build anything.”

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