Investors Fill Bankruptcy Hearing of Fraud Suspect

A hundred and fifty investors and their lawyers filled to overflowing a hearing Monday on the bankruptcy of Kenneth E. Sarvak and Lincoln Mortgage & Loan Co. of Newport Beach, accused by the state Department of Corporations of defrauding hundreds of elderly investors.

Through second trust deeds, Sarvak loaned millions of their dollars to homeowners hard up for cash. Many of the investors say Sarvak promised them that their investments were secure. Many of them say now that, if they can’t get their money back, they are ruined.

Sarvak says he didn’t defraud anyone; he merely fell victim to bad investments of his own and the real estate recession in Southern California.

Hearings like Monday’s session, held in U.S. Bankruptcy Court in Santa Ana, allow creditors to question under oath people or companies that file for bankruptcy. Several dozen investors or their lawyers questioned Sarvak, 68, in sometimes tense and angry interchanges.

The lawyers grilled Sarvak, too, about whether he diverted investors’ money to his children or their business; and whether he had lied when he allegedly promised investors that their money was recorded in county records and secured by trust deeds.

Also at the hearing were three lawyers for the Department of Corporations, one of whom questioned Sarvak. The state agency goes to bankruptcy court Thursday to ask that control of another Sarvak company, Washington Trust Deed Corp., be returned to a receiver picked by the Corporations Department.

Sarvak put that company, too, into bankruptcy.