Guilty Plea in $11.4-Million Metals Fraud

The former president of what federal authorities say was a widespread Orange County precious-metals scam pleaded guilty Thursday in U.S. District Court here to charges that he helped defraud more than 1,000 investors of $11.4 million, prosecutors said.

James H. Harvey, formerly of Mission Viejo and now living in Woodland in Yolo County, pleaded guilty to mail and wire fraud and agreed to testify against three former associates at Capital Trust Inc.

Harvey, 49, faces up to 15 years in prison and a fine of $750,000. He is scheduled to be sentenced Aug. 7 by U.S. District Judge J. Spencer Letts.

Capital Trust--which purportedly sold precious metals including gold and silver coins and bullion--had offices in Newport Beach, Irvine and El Toro.

Capital told investors that their money was being invested in precious metals, but a federal indictment filed in 1989 alleged that most of the money was embezzled and then used to pay for the lavish lifestyles of Capital executives.

Federal investigators alleged that Capital officials used varied methods to embezzle the money, including “churning,” in which brokers constantly made unnecessary trades to generate large commissions.

Capital also allegedly told investors, wrongly, that their accounts were insured.

Capital, the indictment alleged, provided customers with phony transaction statements and profit-and-loss figures to cover up the embezzlement.

Some investors made more payments to Capital beyond their original investment after they were told by the company that the market value of their precious metals had dropped. They allegedly were told that more money was needed to maintain a minimum equity.

This is known in the securities industry as a margin call, but the indictment alleged that the tactic was in this case bogus because the money was never invested in precious metals. The scheme operated from March 1, 1984, until January 31, 1987, according to the indictment.

Harvey was Capital’s president and became its owner in January, 1986. The firm declared bankruptcy in November, 1986, and closed the following January.

The victims included some elderly people who invested their life savings, prosecutors said.

Harvey has agreed to testify against Richard O. Kelly Sr., Capital’s former owner; Randle W. Villa of Costa Mesa, a Capital vice president, and account executive Alexander D. McCord of Laguna Beach, all of whom are scheduled to go to trial June 4.