Victims Lost $41 Million in Giant Home Equity Scam

John Ember, who is 66 years old, suffers from Parkinson’s disease and can’t get around much, lost half his life’s savings when a property scam cost him his eight condominiums.

Mike and Susan Reynolds and their three young children lost their home and say it will be years, if ever, before they can save enough to buy another.

Raul and Michelle Rodriguez fought for a year to get their home back and clean up the trash and rats’ nest tenants had left, but finally abandoned the house with its “nightmare” memories.

These Southern California families are only a tiny fraction of the people who say their lives were ruined by four real estate agents and a callous scheme for easy riches.

By the time investigators halted what they have called “the largest real estate equity skimming case ever tried” in the United States, 343 families had lost homes worth $41 million in 2 1/2 years of operations by a Long Beach realty firm, Suma Properties Ltd.

Prison Terms

Last Thursday, the case that began in April, 1986, with federal grand jury indictments ended with prison terms for four top officials of Suma Properties.

U.S. District Judge J. Spencer Letts sentenced the company’s president, Mark Christopher Meng, 36, and its chief financial officer, Marcel Fernando Jordan, 29, to 12 years each in prison. They were each also ordered to pay fines of $27,000 and make restitution totaling $77,286 to their victims.

Meng’s brother, Charles H. Meng Jr., 38, and Carol Ann Hays, 34, both vice presidents of the company, were each sentenced to six months in custody and five years of probation and ordered to perform 300 hours of community service.

For the victims, the sentences were small compensation.

“It doesn’t seem nearly enough, considering how many people’s lives they wrecked,” said Susan Reynolds.

In a five-week trial in February and March, testimony showed that Suma Properties agreed to buy hundreds of Southland homes by assuming the mortgages and paying owners for their equity with promissory notes dated months later.

Never Made Payments

Suma Properties then rented the houses, but almost never made payments to the owners or mortgage companies, allowing the homes to go into foreclosure. By collecting rents until the homes went into foreclosure, Suma Properties made at least $1.2 million, testimony showed.

A federal court jury convicted Mark Meng and Jordan of 22 counts of mail fraud, and Hays and Charles Meng of nine counts of mail fraud. In addition, each of the four was found guilty of one count of equity skimming.

Assistant U.S. Atty. Paul L. Seave, who prosecuted the case with Los Angeles County Deputy Dist. Atty. Albert H. MacKenzie, had asked for 20 years for Mark Meng and Jordan and three to six years for Charles Meng and Hays.

“The scope of the crime is shockingly large,” Seave said. “Often the homes acquired by Suma represented the victims’ life savings. . . . The loss of those homes not only represented grave economic problems but also caused needless and tragic feelings of humiliation, rage, and finally despair.”

In a scathing sentencing memorandum, Seave accused Jordan and Mark Meng of trying to intimidate government witnesses, and said Jordan had threatened to kill a former Suma Properties employee if she cooperated with investigators.

Fondness for Weapons

Jordan, Seave said, had a fondness for weapons and was seen in photographs submitted to the court holding a submachine gun and smiling as he held a pistol to the head of a stuffed Easter bunny.

Seave said that during Suma Properties’ operations, victims “telephoned, wrote and visited the defendants on literally hundreds of occasions in order to ask, threaten and beg for the money promised them or the return of their properties. Often, shouting and shoving matches broke out between the defendants and their victims.”

And in a vivid reminder of the attitude in Suma Properties’ office, Seave recalled testimony that Charles Meng had regaled his brother and Jordan with a song, sung to the tune of “Row, Row, Row Your Boat,” that went:

Ream, ream, ream the sellers,

And the tenants, too.

Merrily, merrily, merrily, merrily.

We know how to screw.

At Thursday’s sentencing, Jordan and Hays both broke down and cried as they apologized for the harm that the scheme had caused and appealed for mercy.

“I just want to ask for mercy and ask for another chance,” said the slim, brown-haired Hays, as she stood before the judge. “I ask for the chance to prove to you that I want to live a good life.”

Apology to Parents

The Argentine-born Jordan, appearing in his khaki prison garb, apologized, his voice breaking, “to my father and mother for the pain and suffering I have caused them.” His mother sobbed and wailed as he and Mark Meng were led from the courtroom shackled together.

During the trial, Jordan told the judge, he had seen himself “described as an arrogant and ruthless person who is still proud of what he did. I want the court to know this is not so. I humbly regret the insolence I might have shown to anyone.”

Lawyers for the four reminded the judge that none of them had ever before been convicted of a crime, and said afterward that they will appeal the convictions. The lawyers said the four had been trying to help people in desperate situations. “Suma was a junk dealer buying junk properties,” said Mark Meng’s lawyer, Brian O’Neill, in an interview before the sentencing. “People who came to Suma had already tried to sell their houses elsewhere and failed.”

Jordan’s lawyer, Donald Marks, said the sellers were offering “distressed property that had virtually no equity. The sellers knew it, and they made the deal knowing what they were getting into.”

But many victims denied that. They said they were not desperate to sell and some had other potential buyers bidding for their properties.

Susan Reynolds, 30, told the court that Suma Properties’ operations cost her and her family their four-bedroom house in Rialto. Four years ago, Hays agreed to buy the house for $75,000 by assuming the mortgage and giving the Reynolds a promissory note for their $7,000 equity, Reynolds said. The family moved out.

Four months later the mortgage company told them no payments were being made.

‘It’s Gone’

“I called Hays and she told me they were trying to refinance the mortgage but the mortgage company did not want to, so Suma was withholding funds to pressure the company to refinance,” Reynolds said. “She assured me real estate companies did this all the time.”

Reynolds began badgering Suma Properties officials to make good on the promissory note, but met only with excuses, she said. Finally, she said Jordan told her that he would return the home to the family if they paid him $2,000.

“We never got the house back,” Reynolds said. “Because they had not paid the mortgage, the house was foreclosed. It’s gone. That money was all we had.”

Reynolds and her husband, Mike, 29, a tractor operator, and their three children, aged 10, 6 and 3, now live in a rented house and doubt that they’ll ever own another home. “I can’t see being able to put that kind of money together again,” Susan Reynolds said bitterly.

For John Ember, the real estate fraud helped destroy his dream of being able to provide a comfortable post-retirement life for his family, and the stress it created worsened his already precarious health.

When Ember developed Parkinson’s disease and planned his retirement from his consulting business, he and his wife, Jean, decided to spend half their life savings to buy eight condominiums in Tujunga, hoping that the rents would support them as John’s health deteriorated.

But, he said in an interview, the disease advanced more rapidly than he expected and he could not keep up the payments on the condos.

“I had paid $79,000 each for them and Suma agreed to assume the mortgage and pay me my equity,” said Ember, a former chemical engineer. But Suma paid only a couple thousand dollars on the eight mortgages and after five months, the condominiums were foreclosed on.

‘I Fell Very Ill’

“I lost $190,000 I had in the properties,” Ember said. “I also lost over $20,000 rent. It really affected my health. Any stress makes me shake more and stutter. I feel very ill.”

One of the most harrowing stories the court heard was from Raul Rodriguez, 36, and his wife, Michelle, 34. They had purchased a lot with two homes in Hawaiian Gardens in October, 1980.

In August, 1983, Mark Meng agreed to buy their property for $150,000 and said he would assume the mortgage and pay off the equity with promissory notes for $26,000. Payments were to begin three months after the sale.

The payments were never made and the dream sale turned into a “nightmare,” said Rodriguez, an ex-Marine and Vietnam veteran.

With the help of a lawyer, Rodriguez discovered that he and his wife could themselves foreclose on the house, make up $16,000 in back payments and regain possession. They did.

‘A Disaster’

“Then we went to look at the property,” Rodriguez said. “The renters Suma put in had turned it into such a disaster the city had condemned it. The front house was a mess, with wrecked cars in the yard. The back house was totally unlivable, full of cockroaches. Trash was piled up near the back door. I worked three months, stripping it to bare walls and concrete.

“There was a big rats’ nest near the back door. It almost made me sick.”

Rodriguez was now paying a $1,400-a-month mortgage. “I couldn’t keep it up. And there were too many bad memories. The time, the frustration, the anger. . . . I finally walked away from it.”

There were hundreds of heartbreaking stories. But it took 2 1/2 years of grinding work by half a dozen federal, state and local agencies to bring the Suma Properties’ operators to court.

The investigation began when Long Beach police received complaints that Suma Properties was refusing to pay on promissory notes. A special unit of the major fraud detail, under Detective Joe Yanich, found irregularities in the company’s operations and went to work with Deputy Dist. Atty. MacKenzie.

‘On a Thin Line’

“In fraud cases, you’re on a thin line between civil and criminal proceedings,” Yanich explained. “At first, you wonder if it’s just an isolated bad deal. It’s only when the story is repeated it becomes obvious it’s a criminal case.”

Yanich and MacKenzie checked county records and found that hundreds of properties bought by Suma Properties were under foreclosure.

“It was puzzling,” MacKenzie said. “People operating scams usually get cash. The question was: What was Suma getting out of it? Then we realized they were renting the houses and getting four to six months rent.”

Investigators got the state attorney general’s office to file a civil suit accusing Suma Properties of unfair business practices. A receiver was appointed, the business was frozen and the state seized $60,000 in Suma Properties assets, MacKenzie said.

In February, 1985, Suma Properties’ sumptuous row of six executive suites in the Coast Federal Savings building in Long Beach was searched and Mark Meng and Jordan were arrested. Searches of safe deposit boxes and the home of Charles Meng yielded records showing what MacKenzie called “clear intent to defraud.”

“Intent is the key,” he said. “We had to show it was deliberate.” The records also showed Mark Meng and Jordan had created another firm and were preparing to shift their operations to the new firm and new offices on Long Beach Boulevard.

122 Properties

The court receiver took over 122 properties Suma Properties was processing, returning 42 to their rightful owners. But the remaining 80 could not be saved from foreclosure.

Because loans on many properties Suma Properties bought were guaranteed by the Veterans’ Administration and the Department of Housing and Urban Development, and because the company had used the mail in its fraud, the case was turned over to federal prosecutors as a joint federal-state case, to be heard in federal court.

Investigators said it was hard at first to believe so many people were fooled by Suma Properties. Then they met Mark Meng and Jordan.

“They’re both intelligent, knowledgeable in real estate and articulate,” court receiver Dan Foley said. “Meng is six feet tall, handsome. . . . Jordan came into my office one day and he looked as though he had stepped out of a fashion page.

‘It Was Impressive’

“When one of these two men rolled up at someone’s house in a Mercedes, wearing a $500 suit and a Rolex watch, it was impressive.”

Both exuded confidence. Former Suma Properties employee Steven Gomez testified during the trial that Jordan told him that if he were convicted, he (Jordan) expected to spend no more than several months in jail.

“Suma people lived well,” MacKenzie said. “They all drove Mercedes. In 1984 alone, Suma took in over $700,000. Mark Meng and Jordan paid themselves $100,000 each that year.”

Seave, MacKenzie and Yanich were joined on the prosecution team by HUD investigator Noel Tognazzini, a computer specialist who put together a clear chart of Suma Properties’ operations.

“The difference between Suma and most equity skimming cases was in the victims,” Tognazzini said. “Normally, equity skimming is worked with desperate people who deed their property off to save a foreclosure in their names.

343 Cases

“Suma Properties took advantage of many people who had a lot of equity and who would not have sold had Suma Properties not promised to pay them their equity. At trial, we offered proof on 343 cases. But we know of at least 60 additional victims.”

Equity skimming has become a nationwide phenomenon in recent years, officials say. Patrick Neri, HUD’s assistant inspector general for investigations in Washington, told The Times that his department is preparing 49 equity skimming cases throughout the country.

“Equity skimming” is buying a home from someone, then refusing to pay the agreed-on price, renting it out and skimming off the rent. It is specifically forbidden by federal statute when the mortgage on the property is insured by a federal agency, such as HUD. In state prosecutions, the crime is called “grand theft by false pretenses.”

At Thursday’s sentencing, Judge Letts acknowledged that many of Suma Properties’ activities fell into a “gray area of the law,” between what is formally illegal and what is morally wrong.

Defense Contention

But Letts discounted the defense contention that because the contract that property owners signed with Suma Properties did not explicitly say that the company would make payments, Suma Properties was not obligated to make the mortgage payments.

It is not possible, he said, to conduct business in the way it was conducted by Suma Properties “without knowing you were doing wrong.”

In this case, he said, if the sellers had known Suma Properties did not intend to pay, they could have sold to other buyers, or stayed in their homes and “hustled” to make the mortgage payments and avoid foreclosure.

Although the trial is over, a major question remains: How much money did Suma Properties make on the scheme?

According to testimony by a former employee, Jordan boasted that he and Mark Meng had “made $3 million” that was “stashed away somewhere.”

Investigators heard repeated hints that Suma Properties had taken in much more money than shown on its books and hidden the extra cash in foreign accounts.

Cash Was Skimmed

And a handwritten memo seized from Mark Meng’s briefcase indicated that cash was skimmed as a regular business practice by keeping separate bank accounts under phony tax numbers and keeping separate records on non-reported funds.

But court receiver Foley, a Tustin CPA with 28 years experience in criminal investigations with the Internal Revenue Service, tried in vain to find any hidden money.

“The accounts had been cleaned out,” he said. “I don’t believe there’s any secret pot of money. . . . When Suma’s financial affairs are sorted out, there will be about $60,000 left. The courts will decide what happens to that money.”

If there’s more, investigator MacKenzie said, “We don’t know. We might never know.”