State Accuses O.C. Builder of Massive Fraud : Courts: Hill Williams Development charged with operating ‘classic Ponzi scheme’ that cost investors $89 million.

In massive documentation filed Thursday in Orange County Superior Court, the state Department of Corporations accused Anaheim Hills home builder Hill Williams Development Corp. of operating “a classic Ponzi scheme”--using new investors’ money to pay monthly distributions to earlier investors.

The department filed a temporary restraining order against the company and 28 related companies and individuals barring them from soliciting more funds. Over a three-year period, it said, Hill Williams raised $89 million from about 5,000 investors through four partnerships allegedly formed to lend the company money to build and sell houses.

The injunction came a day after a filing by Hill Williams and eight of its affiliates for liquidation under Chapter 7 of the U.S. Bankruptcy Code. Last Friday, the company’s four fund-raising partnerships had filed for liquidation at U.S. Bankruptcy Court in Santa Ana.

Hill Williams promised investors, many of them elderly people, a hefty annual return of 15% on a minimum investment of $5,000. President Donald H. Williams personally hosted bus tours of his company’s projects to woo new investors.

In cheerful newsletters, Williams continued to solicit investments almost up until his sudden announcement in January that the company had “temporarily suspended” dividend payments. Two lawsuits, including a class-action suit, have since been filed against Hill Williams.

Ronald Rus, attorney for the court-appointed trustee for the estate in the bankruptcy filing by the four partnerships, said in court Thursday that the state’s injunction was late in coming. “The Department of Corporations stood by while Hill Williams sucked money out of elderly people,” he said.

Rus and Theodor C. Albert, trustee for the estate in the bankruptcy filing by Hill Williams Development Corp., asked the court to amend the injunction to specify that the trustees, rather than the state, would act as receiver in the administration of the estates.

Mark Harman, attorney for the Department of Corporations, accepted their request. “The state does not want to interfere with the operation of the bankruptcy court,” he said.

Investor money went toward about 25 properties, most of them partially developed lots and raw land in Riverside and San Bernardino counties.

Lawyers representing Hill Williams said Thursday that the state’s restraining order is a moot point. “What a waste of time,” said Robert M. Silverman, a Century City attorney. “Nobody’s trying to raise more money from investors anyway.”

While the civil action indeed may be somewhat irrelevant, allegations made by the state are anything but trivial.

“Defendants failed to disclose to prospective investors that other investors’ funds were the sources of the return of monthly interest payments,” the documents state, adding that Hill Williams made distributions “without regard to the progress of construction or other improvements on the property.”

Furthermore, the state accuses Hill Williams of securing loans using as collateral properties worth less than the amount borrowed.

The injunction could pave the way for a criminal investigation of Hill Williams by either the Department of Corporations or by the Orange County district attorney’s office.

“There’s an element in all of us that feels a little ashamed for having been hoodwinked into this,” said Huntington Beach resident Carole Coleman, 54, a teacher who invested $23,000 in Hill Williams. “It’s a personal affront, but more than that, I feel so badly for all the elderly people who lost their life savings in this scheme.”