Man Must Repay Clients $2.9 Million for Metals Scam : Courts: Victims were told that their investments were insured when they were not. A prosecutor says sentence will depend on defendant’s ability to make restitution.

A former Irvine precious-metals dealer pleaded guilty in federal court Friday to felony mail and wire fraud charges and agreed to repay $2.9 million that he embezzled from clients between 1984 and 1987.

Richard O. Kelly Sr., 58, now a mortgage broker in Phoenix, faces a maximum of 20 years in prison and a $1-million fine when he is sentenced in U.S. District Court in Los Angeles later this year, said Jeffrey B. Isaacs, the assistant U.S. attorney who prosecuted the case.

Kelly owned Capital Trust Inc., a metals-investment firm with offices in Newport Beach, Irvine, Lake Forest and San Diego.

He is the fourth of five former Capital Trust officials to plead guilty to federal fraud charges since their indictments in 1989.

Isaacs said that Capital, which relied on telephone sales agents to persuade customers to purchase precious-metals investment contracts, solicited more than $11.4 million from investors nationwide between March, 1984, and January, 1987.

The company filed for bankruptcy in November, 1986, as federal investigators were intensifying their probe. It ceased operations in January, 1987, when federal and state agents raided its offices and seized records.

The government indictment alleged that Capital sold investments in gold, silver and other precious metals, telling customers that the investments were insured and that their money would be placed in separate accounts. In fact, the investments were uninsured and worthless. Client funds were mingled and used to finance the lavish lifestyles of Capital’s executives, prosecutors said.

Isaacs said the court instructed Kelly to pay $2.9 million in restitution to former Capital clients by Sept. 8. He is scheduled to be sentenced the same day and, Isaacs said, the severity of his sentence will depend in part on whether he makes restitution.

He said Kelly embezzled more than $2.2 million in client funds and used the money to start a mortgage brokerage, purchase a 500-acre farm in Alabama and a home in the North San Diego County community of Cardiff-by-the-Sea, and to make alimony payments to his ex-wife.

Other former Capital executives who have pleaded guilty in the case include James H. Harvey Jr., then a Mission Viejo resident and president of the firm; Randle W. Villa of Costa Mesa, a Capital vice president, and Dorothea Tomczyk of Fountain Valley, a Capital account executive.

All three are scheduled to be sentenced in a Los Angeles federal court in July.

The fifth defendant, Alexander McCord of Laguna Beach, is scheduled to go to trial April 21.