Ex-Mortgage Broker Accused of Theft, Fraud

In a criminal case that Orange County’s bankruptcy nearly killed, former Newport Beach mortgage broker Kenneth E. Sarvak has been charged with 30 counts of grand theft and securities fraud stemming from the $30-million collapse of his Lincoln Mortgage & Loan Co. three years ago.

Sarvak, 70, is free on his own recognizance after pleading not guilty to the charges last Thursday in Superior Court. The charges carry a maximum penalty of 14 years in prison.

The criminal warrant accuses Sarvak of selling interests in trust deeds to investors, failing to record their property interests with the county and then, without their knowledge, selling their interests to others.

He then used newly invested money to pay interest to earlier investors in a Ponzi-like scheme until the money ran out, according to the criminal complaint filed by the Orange County district attorney’s office.

“A major, major factor here was the recession,” Sarvak’s attorney, Allan H. Stokke, said Tuesday. He would not discuss the charges further. Sarvak has said previously that he never lied to his investors.

The case against Sarvak barely made it to court. Charges were filed on March 14, a day before the three-year statute of limitations apparently was to expire.

“The Orange County bankruptcy really slowed us down,” said Deputy Dist. Atty. Joseph D’Agostino, who had said two years ago that the investigation would take three to six months.

“We were investigating in-house and making great headway,” he said Tuesday. “Then the bankruptcy hit. A lot of our resources were transferred over to the bankruptcy case. This [Sarvak] investigation is the one that was most impacted.”

Nevertheless, there likely will be a dispute over when the alleged fraud was first detected, which would set the three-year statute of limitations in motion.

D’Agostino said the earliest that investors could have surmised they were being defrauded was March 15, 1993, when Sarvak sent a letter to them saying he could no longer pay interest. Most never suspected anything wrong until the fall of 1993, D’Agostino said.

One investor, Linda Herrin, now of Ft. Lauderdale, Fla., said Sarvak had reassured her and others that he would refund their investments. He even made a few payments in some cases, she said.

But Stokke may challenge the prosecution’s position. He said that after he reviews the documents and the charges, he may ask the court to bar the complaint because, had any fraud or theft occurred, investors should have learned about it in October 1992. He didn’t elaborate.

Sarvak, a former car salesman who then sold real estate investments for more than 20 years, had his heyday in the 1980s. Lincoln Mortgage flourished then, and he counted among his investors such sports personalities as former Ram football Coach Chuck Knox. Lincoln’s fortunes declined as the recession took hold.

Herrin and her husband, William, are believed to have the biggest single loss--$1.16 million--among about 500 investors. Many had turned over their life savings to Sarvak, Herrin and D’Agostino said.

Lincoln Mortgage, which was not related to the infamous Lincoln Savings & Loan scandal of 1989, was never incorporated. Its assets are being liquidated in Sarvak’s personal bankruptcy.

Investors such as Herrin and Derold Peck of Earp, Calif., said they expect any proceeds will go only to those few whom Sarvak protected by recording their trust deeds to secure their interests in real estate.