Good Deal Gone Bad : Investors in Firm May Have Lost as Much as $50 Million

Two years ago, John Condon of Woodland Hills thought he had his retirement plan all figured out.

An advertising manager for a trade newspaper, Condon had saved $76,000 toward his retirement and intended to leave his job early this year. All he thought he needed was a safe IRA investment with high returns.

A friend told him about the Wellington Group, a South Bay-based investment firm that promised returns of 15% to 20% on seemingly solid second-trust deeds, which are issued to investors to secure their real estate loans.

“I honestly didn’t think it was high risk,” Condon said. “They said our money was protected by the real estate, and that sounded safe.”

Condon invested $33,000, and monthly interest checks quickly began filling his IRA account at the Bank of Beverly Hills. Encouraged by the returns and urged on by Wellington sales representatives, Condon last year invested the rest of his money.

But last fall the checks stopped arriving. Condon’s worried phone calls to Wellington produced promises of payment that never materialized. Then he learned the chilling news: Wellington had declared bankruptcy and his retirement fund might be gone.

“I am a little embarrassed to tell you that I did such a thing now,” Condon said of his Wellington investments. “I’m still working, of course. I can’t retire.”

Condon is among hundreds of investors statewide who poured their money--sometimes their life savings--into Wellington, a riches-to-rags real estate loan and brokerage firm.

The company, first headquartered in Rolling Hills Estates and later in Torrance, filed for bankruptcy Aug. 3 without notifying its investors. The firm stopped paying interest on its investments in September and closed its doors in November.

Angry investors, who once affectionately knew Wellington president Morris D. English Jr. as “Morrie,” now are urging on investigations of him by the state Department of Corporations, the U.S. attorney’s office and the FBI.

The state agency, which last fall ordered Wellington to stop selling securities, in a lawsuit recently accused the firm of widespread fraud and mismanagement. In addition, English faces criminal contempt charges for failing to turn over records sought by the state.

Officials say they can only guess how many people invested in Wellington or how much they may have lost. Estimates have run as high as $50 million, involving as many as 1,500 investors from San Jose to San Diego.

English, who did not respond to messages left at his Torrance home, has denied any wrongdoing. His father, Morris D. English Sr., who is listed as president of a Wellington affiliate, also denied last week that Wellington had done anything wrong.

But investors are telling tales of trust deeds never recorded, loans never made and developments never built.

From 1977, when English opened Wellington--which is not associated with the Boston-based Wellington Management Co.--the charismatic businessman promised investors high returns--ranging from 15% to 20%--on short-term real estate loans.

For a few years, investors eagerly collected their interest and rolled their investments over into new Wellington projects.

The projects ranged from large developments, such as condominium complexes and apartment houses, to single-family homes, including simple additions to smaller homes and refurbishing of larger estates.

In return for their money, investors were to receive monthly interest payments and second-trust deeds securing their investment. If the borrower didn’t pay, Wellington would foreclose and pay back the loan, they were told.

But investors say Wellington sales representatives swore the investments were so solid that foreclosure was rarely necessary.

“The property was supposed to have deeds in our name. . . . I knew if something went wrong I would lose some of my money, maybe, but not all of it,” said Richard Bowser, 65, who invested $133,000 of his family’s savings in Wellington.

“I’ll be frank with you. Before this, my investments were all in banks and Treasury bills . . . but I got greedy.”

Now it appears that in Bowser’s case, as in many others, trust deeds assigning him legal interest in the projects he invested in were never properly recorded--making them worthless, authorities say.

Many investors first heard English’s voice on the radio, through such financial talk shows as Glendale-based KIEV’s “The World of Investors,” a program sponsored by Wellington, and various shows on Pomona-based KMNY, also known as “Money Radio.” Both radio stations now are listed as creditors of the bankrupt company.

Linda Peruski of Hawthorne liked what they heard.

“We were saving for a house, and this seemed like a good way to do it,” said Peruski, who in 1989 invested her first $26,000 with Wellington in a San Ramon project called Sandiview.

“It all looked perfectly good on paper. They sent us receipts and told us we would be getting recorded copies of our deeds as soon as they were ready,” Peruski said.

Folksy seasonal newsletters began arriving, with chatty columns called “A Message from Morrie” highlighting new projects, articles by office staff touting the safety of trust deed investments, and friendly photographs of sales representatives with their families.

The newsletters did not tell investors, however, that projects such as Sandiview were owned by English himself. In essence, investors were being asked by English’s investment firm to lend money to another of his companies.

Last fall, state officials say, Wellington’s portfolio of properties began to collapse. Within one month of the firm’s Aug. 3 filing for Chapter 11 bankruptcy protection, interest payments to investors stopped. Those whose loans had matured could not collect their principal.

At first, English sent investors reassuring letters, blaming the stopped payments on the Department of Corporations lawsuit, but failing to mention that the company had filed Chapter 11 bankruptcy. English assured “the Wellington Family,” as he called his investors, that their interest money would be held in trust until the problem was cleared up.

Condon believed him.

“At first, I felt sorry for you,” Condon wrote in a February letter to English, pleading for his money back. “You were a victim of government bureaucracy. I even called at first to offer my support.”

Condon said English assured him in several telephone calls that the money would be available in 30 to 60 days.

But by the beginning of this year, English, 50, had stopped returning telephone calls.

“I wish I’d never heard of him, like 800 other people do,” said investor Donald McDowell, who now fears he may never see his $45,000 nest egg again.

Investors now spend their time talking to state and federal investigators and anxiously sitting through bankruptcy hearings and informational sessions.

“There is just a horrible, horrible depressing mess out there,” says Jeffrey Coyne, the court-appointed trustee administering the Wellington bankruptcy. “I have said it before, but at the moment we have nothing we can give all the investors in the way of hope about recovery.”

Although the precise reason for Wellington’s failure remains unclear, the company’s troubles with the state began last July when it was named in a wide-ranging lawsuit alleging investment fraud by a Beverly Hills-based real estate consortium. The lawsuit led to the closure of one of the companies, the Pentagon Investment Group, and records show that hundreds of Pentagon’s property holdings were later transferred to Wellington.

Although the state Department of Corporations was then focusing on Pentagon, staff attorney Mark Harman says agency officials now believe Wellington’s allegedly fraudulent practices were far more widespread and costly than Pentagon’s.

In recent documents filed with the bankruptcy court to support the appointment of a trustee, the state agency accused Wellington of fraud and mismanagement dating to at least 1985. “The number of Wellington’s victims is not known,” the agency said, “but may be in the thousands.”

The agency’s allegations against Wellington are numerous, including misrepresentation of property values, failure to record official trust deeds, failure to tell investors about Wellington’s links to borrowers, endangering investments by over-encumbering properties and switching investors’ money between projects without telling them.

One example of Wellington’s fraudulent practices, according to the state, was Sandiview Inc.--the San Ramon condominium development. Wellington told one investor the project was worth $13.9 million while telling another its value was $18.6 million.

The company led investors to believe that the appraisals by an in-house Wellington staff member were for the land value before construction began. In fact they were projected appraisals of the completed project.

Ultimately, Wellington collected between $5 million and $10 million from investors for Sandiview, said Coyne, the bankruptcy trustee. But, because the project has yet to be completed, the San Ramon development may be worth no more than $5 million.

In other instances, Coyne has discovered, properties to be purchased with investors’ money were never acquired. Among them was Bethel Wood, a purported condominium project in the Sacramento Delta that turned out to be vacant land, a portion of it under water.

Borrowers who dealt with Wellington also say they have lost money.

After hearing praise of Wellington from friends who had invested with the firm, Laurie Dawson of Redondo Beach decided last year to seek a loan from Wellington to add on to her home of 27 years.

Within a few weeks, she said, Wellington had lined up enough investors to approve a $195,000 loan to Dawson. After she signed a second-trust deed against the home for the entire amount, she said, Wellington representatives told her they could only give her the money in phases as construction work progressed.

In August, Dawson said, she collected just under $38,000 from Wellington. It was the last money she would see from the firm.

After she pleaded for the rest of her loan, she said, English suggested she find bank financing to handle the rest of the remodeling and repay the $38,000 to Wellington.

Dawson did secure a bank loan, she said, but began to get foreclosure notices on her Wellington loan.

Checking her home’s property records, she discovered that Wellington had recorded a second-trust deed for the entire $195,000 loan amount against her house and that the firm had signed the deed over to seven investors in January.

Those investors now are trying to foreclose on her home for the entire amount.

“Wellington has it. Not I,” Dawson said. “These people evidently put this money out that was supposed to be going to me, but who knows where it went to?”

Now Dawson, who lives on a limited income, is worried she may lose her home--her only significant asset.

“I’m in a real bind. It’s been horrible,” Dawson said. “I just don’t know what I’m going to do.”