Accountant Pleads Guilty to Role in $19-Million Fraud

An El Toro accountant pleaded guilty Monday in federal court here to falsifying tax returns as part of a $19-million real estate fraud that investigators claim was perpetrated against more than 1,000 Southern California investors.

Kenneth L. Shattuck, 46, admitted that he aided and abetted his employers--the now-defunct Newport Interstate Properties in Newport Beach--in securing a $135,000 line of credit from a bank by filing false financial statements.

Newport Interstate and its two principal executives--Richard J. Lorenat and Michael Joyce--are the subjects of a federal criminal investigation led by agents from the U.S. Postal Inspector’s office.

Shattuck, who was the company’s controller, could receive up to two years in jail and be ordered to pay as much as $250,000 in fines. He is scheduled to be sentenced July 15 and is cooperating with authorities in the investigation of Newport Interstate.

“We anticipate filing further charges, and we anticipate this defendant would cooperate,” said Assistant U.S. Atty. Paul L. Seave in the proceedings before U.S. District Judge Alicemarie H. Stotler.

Neither Lorenat nor Joyce could be reached for comment Monday.

Sources close to the investigation say Newport Interstate raised about $30 million from 1,000 investors by promising them high rates of return on real estate investments. The investors’ losses total an estimated $19 million, the sources said.

Each investor put up $75,000 to $250,000 to buy into real estate syndications that were supposedly developing properties in Arizona, Texas and the Southern California communities of Buena Park, Palm Springs and Victorville.

Three years ago, about 550 investors filed a lawsuit in U.S. District Court in Los Angeles against Newport Interstate and its principal officers, including Shattuck, alleging securities fraud, racketeering and conspiracy. The case is pending.

“It’s pleasant to see the reach of the law is finally grasping some of the people involved in Newport Interstate,” said Jeffrey M. Howard, an attorney representing hundreds of the company’s investors. “We are looking forward to the day Mr. Lorenat and Mr. Joyce are indicted.”

Howard said Lorenat and Joyce lived the high life for much of the 1980s; at one point they purchased matching Rolls-Royces, he said.

“They lived very well off the investors’ money,” Howard said.

Newport Interstate investors range from retirees who invested their life savings to wealthy professional athletes, such as former Rams running back Wendell Tyler.

The Securities and Exchange Commission three years ago filed securities fraud charges against Lorenat, Joyce and Shattuck, claiming that there had been “commingling, misuse and misappropriation of investor funds.”

The three men later agreed to a preliminary injunction in which they acknowledged no past wrongdoing but promised not to violate federal securities laws in the future. They also agreed to take Newport Interstate into bankruptcy. The firm has since been liquidated.

Shattuck’s guilty plea on Monday pertained to bogus tax returns he prepared that overstated Lorenat’s and Joyce’s incomes by $600,000. The exaggerations allowed the two men to obtain a $135,000 letter of credit from California City Bank in June, 1985.