Tustin Developer Gets 8-Year Term for Real Estate Fraud
Rejecting a prosecutor’s recommendation for a lesser penalty, a federal judge sentenced Tustin developer Daniel N. Bailey on Friday to eight years in prison for several schemes to defraud real estate investors.
Bailey was just 28 when his 110-employee Sierra Realty and Investments Inc. collapsed in 1982, taking with it $10 million from 600 investors. In addition, Bailey was sentenced for a separate fraud scheme based in Texas in which he arranged for investors $21 million in loans under false pretenses.
The sentence was imposed in Santa Ana by U.S. District Judge J. Spencer Letts, who described Bailey as man “who steals for a Rolls-Royce.”
Prosecutors had recommended six years in prison, noting that Bailey had cooperated in the investigation of both Sierra Realty and a subsequent $95-million Bank of America loss in 1984, which involved some of the same properties and parties.
Defense attorney Paul G. Mast, who had urged probation based on Bailey’s cooperation and his attempts to make restitution to swindled investors, could not be reached for comment.
Bailey’s wife and co-defendant, Sandra, was placed on three years’ probation.
Letts said Bailey’s schemes “resulted in chaos” for dozens of investors.
“I believe there is room for sympathy, if not to condone, for a person who steals to feed his family,” Letts said. “I believe there is even room for sympathy for a person who steals to feed a habit.
“I find no sympathy for a person who steals for a Rolls-Royce.”
Bailey founded Sierra in 1976 and built it into a thriving business. But with high interest rates in 1981 and 1982, his firm ran into trouble. To keep it afloat, according to prosecutors, Bailey lied to investors about the value of the property and the nature of the security for their loans.
Sierra was shut down by the California Commissioner of Corporations in 1982 for alleged violations of securities laws.
After Sierra’s collapse, Bailey moved to Texas and started a new scheme--to which he also confessed--involving obtaining loans for investors under false pretenses. Lenders required the borrowers put money down, but Bailey misrepresented the deals to hide from lenders the fact that no down payment was made. About $21 million was obtained in the Texas scheme.
Prosecutors had no estimate of losses in the Texas case.
Guy N. Ormes, the Orange County deputy district attorney and U.S. special assistant attorney who handled the case, called it a “classic Ponzi scheme.” Bailey used money from new investors to pay off earlier investors, Ormes said.
Bailey told Letts that neither the Sierra nor the Texas schemes were designed to be frauds, “as the government has made it out.” He insisted he was simply trying to make sound business deals, and was swamped by soaring interest rates and oil price declines in the Texas operation.
“I have fully evaluated my entire life and I know for a fact that anything that was done in the past will never, ever be done again,” Bailey told Letts. He asked for “a second chance” and “to help make amends for the problems I’ve created.”
Many of the Sierra’s mortgages that went into default had been insured by Glacier General Assurance Co. Glacier was therefore required to pay off investors when Sierra collapsed.
Many of those properties were then passed on by Glacier and associates to pools of mortgages which were sold in blocks to financial institutions.
Bank of America served as escrow agent on many of the transactions, and when notes were not repaid, the bank was forced to pay out $95 million to cover the losses. The so-called Bank of America swindle shocked financial circles when it was uncovered in 1985.
Bailey provided information about the early stages of the scheme. His cooperation was considered crucial to the indictment last month of John Hayden of Santa Ana, former president of Glacier, which is now in receivership.
Prosecutors declined to comment on other investigations in which Bailey assisted.
