Ponzi Case May Strengthen Grand Juries

Charles S. Hodson walked out of the Ventura County Jail Tuesday, but he isn’t exactly a free man. Hodson, 33, is at the center of a grand-theft case that could end up lifting a decade-old restriction on the use of grand juries in criminal matters across the state.

The state Supreme Court last week agreed to a request by Ventura County Dist. Atty. Michael D. Bradbury to delay a preliminary hearing for Hodson and an associate, Robert V. Cole, 50.

Meanwhile, it will decide whether to review the ruling that put a tight lid on the use of grand juries--a ruling decried by prosecutors but generally hailed by defense attorneys, who point to abuses committed in the past by the secret panels.

So far, the legal implications of the case have tended to overshadow the emotional and financial hardships it has caused for more than 25 local residents whom Hodson and Cole are accused of bilking out of $5 million. Prosecutors say the case is one of the largest of its kind in Ventura County’s history. Victims allegedly include a Santa Paula rancher, a Camarillo doctor, a retired admiral, a high school teacher, a Roman Catholic priest, an Alzheimer’s patient who, ironically, in 1986 was a foreman of the Ventura County Grand Jury.

Trial Pending

Prosecutors say the defendants, who are from Ventura, used business associates and family members to gain entree to clients. They also used the cachet bestowed by fancy cars and lavish homes. But Deputy Dist. Atty. John L. Geb, who is prosecuting the case, said that, most of all, Hodson and Cole used “theft, embezzlement, forgery and false pretenses.”

Attempts to reach Hodson and Cole through their attorneys were unsuccessful. Both lawyers declined to comment because court action is pending.

Going to the grand jury with the case was a gamble for Ventura prosecutors. Since 1978, when the state Supreme Court ruled in Hawkins vs. Superior Court that all felony defendants have a right to a preliminary hearing before standing trial, grand juries have lost much of their power in criminal cases.

The ruling meant that even defendants indicted by grand juries had a right to a preliminary hearing--a process that district attorneys criticized as costly and repetitive. Most have opted to forgo the grand jury process entirely and head straight for the preliminary hearing.

In 1978, the Supreme Court ruling reflected a widespread concern that grand juries were unfair to defendants because they were secret and allowed no cross-examination of witnesses by the defense. But, 10 years later, Bradbury’s office felt that the newly reconstituted, more conservative Supreme Court might be willing to reconsider its ruling.

He was right.

On Nov. 6, after listening to a month of testimony from 80 witnesses and compiling 1,820 pages of evidence, the Ventura County Grand Jury indicted Hodson on 21 counts of grand theft, 24 counts of forgery and one count of filing a false income tax return. Cole was indicted on one count of grand theft and nine counts of forgery. It was the first grand jury criminal indictment in 10 years.

Attorneys for the defendants promptly asked for preliminary hearings. At that point, Bradbury’s office triggered the legal challenge by asking the state Supreme Court for permission to go directly to trial.

Regardless of the court’s eventual decision, the actions alleged in the case have already damaged a number of Ventura County residents, contributing to medical problems and causing financial hardship.

Take A. E. (Bud) Sloan and his wife, Elsie Sloan, for instance, who own two big ranches in Aliso Canyon near Santa Paula.

One of the Sloan ranches lies next to the ranch of Hodson’s father-in-law, Dr. Henry Stoutz. For years, Stoutz has been Bud Sloan’s doctor. Stoutz is also a well-known urologist, a former chief of staff at Community Memorial Hospital in Ventura and a partner of a medical firm called the Ventura Community Professional Group.

Court documents show that, in May, 1986, Stoutz asked the Sloans to help Hodson out of a bind by lending him $218,000 for 90 days. Bud Sloan agreed to sign a promissory note as a favor to their doctor.

Cole co-signed on the loan but failed to pay the money back, according to prosecutors. Not only that, Bud Sloan testified, in July he received notice that his ranches had been pledged as collateral for loans to Cole totaling $1 million.

“It’s a bunch of crooked stuff . . . a trumped-up deal,” Bud Sloan told the grand jury. “I never signed anything except a promissory note” for the initial $218,000, he said.

Prosecutors maintain that Hodson and Cole forged the Sloans’ signatures on the subsequent notes and that Cole, a notary public, certified that the Sloans had signed the papers.

But a handwriting expert who testified before the grand jury concurred that all of the Sloans’ purported signatures except the one on the $218,000 note were forged.

The Sloans still are trying to straighten out the mess.

Elsie Sloan said in an interview that the couple have incurred $100,000 in legal fees and that her blood pressure has risen to a worrisome level.

“I’ve been sick ever since this came up,” she said.

Prosecutors paint the case of Hodson and Cole as a Ponzi scheme in which a con artist uses his latest victim’s money to pay back earlier victims, typically financing a lavish life style for himself along the way. The house of cards eventually collapses because the self-styled investor cannot pay everyone back.

Hodson, a Ventura resident since at least 1982, billed himself as an international investment counselor and loan broker. He offered to place his clients’ money in real estate, high-interest notes, and other investments. He also asked some clients for short-term loans to help him and his family out in emergencies, according to court records.

Some clients were paid back in full with interest. Others received partial payments. Still others invested with Hodson beginning in 1983 and received regular payments until 1985.

Prosecutors at first figured that Hodson had misappropriated more than $1 million. But, during the grand jury investigation, testimony indicated that the figure was closer to $5 million and that the list of victims was twice as long as was originally suspected.

“He was very convincing,” said Robert Bordeau of Camarillo, who said he lent Hodson $150,000 and is still owed about $100,000. “He has a way of making it sound like it’s really urgent; he needs to have it now, and you’ll make a lot of money.”

Bordeau, who came to know Hodson through an old acquaintance, said the broker drove up to his auto repair shop in a black, 500 SEL Mercedes, sporting tailored suits and jewelry.

“He reeked of money. He acted like he was a multibillionaire and a couple hundred thousand was nothing to him,” Bordeau recalled.

Schemes Seemed Plausible

Yet one characteristic that drew clients to Hodson appeared to be the relative plausibility of the investments he offered--deals that more frequently were described by Geb, the prosecuting attorney, as yielding returns at 4%, rather than 40% over prevailing rates. Bank statements show that Hodson used the money he received from Ventura County clients to make payments to other clients, to make mortgage payments on his Ventura ranch and other properties and to finance construction projects, among other things.

But, according to prosecutors, bank documents do not show that Hodson actually invested any money on behalf of his clients, as he claimed he would do.

In the grand jury hearing, Cole refused to testify, citing the Fifth Amendment’s protection against self-incrimination.

Hodson testified willingly. He said he did nothing wrong. He said he himself had been victimized, taken in by investment schemes engineered by Roy Comstock, a Studio City investment broker who was convicted of securities fraud last year.

Comstock is serving a four-year sentence in state prison for defrauding 500 people of nearly $5 million.

Comstock, who was subpoenaed by the grand jury in the Hodson case, testified that he never took any money from Hodson and knew nothing about promissory notes in Hodson’s possession that bore his signature.

Other documents also appear to have been forged, prosecutors said. Hodson produced promissory notes from Exxon, Shell Oil and ITT, purportedly signed by company officials for sums less than $50,000--relatively piddling amounts in the corporate world.

To investors, he claimed that the firms were borrowing money from him because they didn’t want to approach banks, Geb said.

But Hodson’s bank records do not show any loans made to the companies, according to prosecutors. Officials for Shell, Chevron and others told the grand jury that their companies do not borrow from individuals or for such relatively small amounts.

Moreover, the notes were typed up on blank forms available at any office supply store, not on company letterhead.

Nonetheless, the signed documents, promises of quick returns on investments and Hodson’s affluent appearance misled a number of people.

Few of them knew that Hodson had been convicted in August, 1983, of one count of misapplication of bank funds in U.S. District Court in Los Angeles. He was sentenced to two years in prison, which was suspended to 30 days in prison and five years’ probation, court records show.

Since California law does not regulate loan brokers, “Anyone can hang out a shingle and run around trying to broker big deals,” Geb said.

fees.

Some of those who were at first impressed by Hodson’s promises include:

Vincent and Edith Chianese of Glendale, who in May, 1984, reportedly gave Hodson $162,000 to help purchase a home on Faria Beach in Ventura purportedly owned by TV personality Peter Marshall. Hodson purportedly agreed to provide $500,000 toward the purchase price and told the couple he could sell the house for more than $1 million in six months and present them with an $80,000 profit. But Marshall did not own the home, and Hodson never purchased it.

The Chianeses reportedly also gave Hodson $500,000 to invest in a Euro-Dollar account in a Zurich bank that was supposed to draw 14% interest. Hodson allegedly forged financial updates for the couple on the bank’s stationery but never invested the money. The couple eventually filed a civil suit but dropped it in July, 1986, after Hodson paid back the money plus attorney’s fees.

Camarillo resident Robert Bordeau lent Hodson $150,000 in January, 1986, on the advice of a bank loan officer and Donald L. Karr, an insurance broker whom Bordeau knew. Hodson allegedly said he needed the money to get his mother’s house out of foreclosure and was to pay back the loan in 30 days at 15% interest plus $4,500.

When he did not get the money as promised, Bordeau began calling Hodson “at least two or three times a day.” He also suffered a heart attack, which he attributes to stress from his financial problems. He has filed suit against Hodson.

Charles Walker of Camarillo, the 1986 foreman of the Ventura County Grand Jury, lent $18,500 that April to Karr for an investment. Karr, who testified that he received commissions from Hodson for lining up investors, turned the money over to Hodson, prosecutors said..

Walker now suffers from Alzheimer’s, but his wife, Marguerite, said in an interview that Karr had attended their church for 20 years and seemed trustworthy. The loan was to be repaid in 30 days at 15% interest. Marguerite Walker said the couple have received $6,000.

“It has created a hardship,” Marguerite Walker said, adding that the money was part of her husband’s retirement. “ We had planned to take this money and pay off some of our bills.”

Karr has not been charged with wrongdoing. He declined to comment on the case.

Prosecutors say Hodson first met Cole in 1983. Cole, who was then a partner at the Tollman and Wiker Insurance Co. in Ventura, arranged a multimillion-dollar insurance policy that protected Hodson’s business from employee theft.

His former clients, however, testified that Hodson maintained he was covered for all losses and that his insurance was better than federal insurance covering bank deposits.

Cole, a Ventura resident since the 1940s, according to his attorney, was not connected with Hodson’s investment service.

But Cole’s name was linked to Hodson’s again in 1986, when he surfaced as a co-signer on the Sloan loans and notarized the allegedly forged documents.

About this time, Hodson and Cole also were attempting to broker a multimillion-dollar loan to a worldwide Christian evangelical group based in San Bernardino, according to Geb.

Documents seized at Hodson’s house under a search warrant indicate that in November, 1985, Cole approached the religious group with a proposal to get the organization a $150-million low-cost loan, Geb said.

Terms called for Cole and Hodson to set up the loan through a Swiss bank, Geb said. In exchange, the group would receive a $30-million commission. The deal never materialized.

Meanwhile, a number of investors were asking for their money back, and local newspapers were printing stories about civil suits filed in connection with Hodson’s business.

“This has created a cottage industry of civil suits,” Geb said.

When the Chianeses sued Hodson to recover their $600,000, Hodson turned to the Sloans in Santa Paula. This eventually netted him $1 million.

Prosecutors said it will take them several more months to trace back all of Cole’s and Hodson’s bank records.

Some Investors Repaid

The prosecutors maintain that half of the $5 million that was allegedly misused went to pay back investors and some went toward living expenses and house payments. But at least $1 million is still unaccounted for, Geb said.

Prosecutors said some victims have balked at testifying because they are still friendly with the defendants.

Geb said other victims were embarrassed about their losses and downplayed them to the district attorney’s office. Others felt a public investigation would invade their privacy.

Hodson also allegedly told victims that legal action would impair their chances of retrieving their money, the prosecutor said.

Both Hodson and Cole have been released from jail on their own recognizance and are awaiting the Supreme Court’s decision. They face either a preliminary hearing or a trial.

If convicted, each faces at least 10 years in prison.

Hodson testified recently that he has only $200 in his Ventura County bank account and has lost the property he once owned in Italy, Florida and Ventura.

Marguerite Walker, living on a fixed income and caring for a husband with Alzheimer’s, doesn’t have much sympathy.

“I feel that the man has no conscience,” Marguerite Walker said. “I don’t see how anyone could prey on people such as we with the intention of not paying it back. . . . That money was part of my husband’s retirement.”