2 Defendants in $4-Million Land Fraud Case Post Bail

Two men accused in a land fraud scheme in which 186 investors lost $4.2 million were released on $50,000 bail Thursday, authorities said.

Carl A. Keith, 54, of Woodland Hills and Russell A. Guarino, 58, of Pasadena both posted $50,000 to secure their release pending trial, said Assistant U.S. Atty. Ronni B. MacLaren.

In U.S. District Court in Los Angeles, Keith and Guarino each asked that the government pay for their defense, a request that a judge denied, MacLaren said.

“The judge thought they could afford their own counsel,” said MacLaren.

Partners of a now-defunct Pasadena firm called California Resources Group, Keith and Guarino were indicted earlier this week for 32 counts of mail fraud.

From 1979 until they declared bankruptcy in 1988, the pair ultimately raised $46 million from 1,000 people who were allegedly promised that their investment in real estate in the San Gabriel Valley and in Dallas would yield both monthly interest payments and return of principal in three years.

Keith and Guarino told investors that their money would be used to pay off loans on apartment complexes and office buildings. The real estate was described as property in need of rehabilitation in California and Texas. Investors were guaranteed their money would be secured by new deeds of trust on the properties.

Ultimately, the firm did pay investors the interest on the properties. But the rest of the money was used to pay operating expenses, salaries, and other unauthorized expenses, according to prosecutors.

“Practically anything was paid for from money they got from the investors,” said attorney Steven E. Smith, who was appointed receiver after the pair filed for bankruptcy.

He explained that once Keith and Guarino received a check from a investor, it would be deposited into their main account.

“One of the guys thought it would be profitable to get into the pizza business,” said Smith. They opened three Bugatti Pizza Delivery Co. locations in the San Gabriel Valley in the mid-1980s.

“They absolutely lost money on that one,” Smith said.

The two face trial because “they used the mails to further the fraud,” MacLaren said. Keith and Guarino mailed the interest checks to the investors in order to persuade them that the investment was secure, and sent “progress reports” in which they would advise investors on the status of the properties.

Even though the firm had collected more than enough money to pay the loans, the loans on the properties went into default, according to MacLaren.

The pair filed for bankruptcy protection in 1988. A state judge issued an injunction against the firm, and ordered that all assets--a total of 36 properties in Dallas and 25 Southern California properties in Glendale and Pasadena, plus $20 million in capital--be turned over to Smith.

During a real estate depression in 1988, “all of the Texas properties were lost to foreclosure,” Smith said. The remaining properties were sold and after remaining debts were paid, including those to non-investor creditors and tax obligations, $4.3 million remained, which will be used to pay back investors, Smith said.

Some investors wondered what took so long.

“This thing has been dragging on since 1988,” said Roy W. Kee, 68. A retired architect who lives in Pasadena, Kee did not want to say how much money he had invested, “but a lot of money went down the tubes.”

Kee’s regrets extend to others who lost thousands of dollars.

“One lady put $70,000 into this thing,” he said. “They had already spent her money. For them to be free this long, it just isn’t justice.”

If convicted, the two men could face a maximum sentence of 80 years each and together be levied an $8-million fine.