O.C. Trial Opens in Condo Scam

Money-hungry conspirators or the hapless victims of clever crooks?

Lawyers in federal court Tuesday painted sharply divergent portraits of two men accused in a condominium conversion scam that ended the political career of a Huntington Beach mayor.

In opening statements during the trial of investors Jeffrey Crandall, 45, and Michael McDonnell, 38, both sides acknowledged that the defendants were involved in the fraudulent conversion and sale of several Huntington Beach apartments. But defense lawyers said the men did not know their actions were illegal.

“They relied on the word of all these people in positions of authority,” said McDonnell’s lawyer, Dirk Bruinsma. “None of the sharks” -- Bruinsma’s term for the former mayor and others -- “are here.”

Five of the defendants, including former Mayor Pam Julien Houchen and mastermind Phil Benson, pleaded guilty in September to wire and mail fraud in the case. One or more of those defendants are expected to testify in the ongoing trial in exchange for reduced punishment at their February sentencing.

Trial for a remaining defendant, Howard Richey -- another investor -- was rescheduled for December after his attorney fell ill.

Defense lawyers described Benson as the “Pied Piper” of Huntington Beach, misleading his investors and leaving nearly 150 condo buyers on the hook for thousands of dollars each.

Benson devised the scheme to convert more than a dozen Huntington Beach apartment buildings into condos by falsifying documents, then sold the units while working with Houchen, a real estate agent, at Pier Realty. The deal was worth about $11 million.

A city official testified Tuesday that the arrangement stood out because planners had approved only two condo conversions in the last 10 years.

The city began investigating the apparent fraud in 2002 after building inspectors issuing permits to homeowners discovered that county records on condo ownership conflicted with Huntington Beach’s property records.

At a June 2004 community meeting, owners of the converted apartments were told that their units had been turned into condos without city approval. They learned that they faced thousands of dollars in fees and that they would not be allowed to resell their properties.

“There were a lot of irate homeowners” at the meeting, city planning manager Scott Hess testified Tuesday. “The majority of them were surprised.”

Houchen resigned that September, and she and the other defendants were charged in December.

In his opening statement, Assistant U.S. Atty. Andrew D. Stolper told the eight-woman, four-man jury that the two men on trial have admitted knowing they did wrong.

Stolper said that in addition to converting complexes as Crandall did, McDonnell posed as the buyer of a property in a redevelopment zone so Houchen could buy it through him despite her elected position prohibiting her from doing so.

McDonnell didn’t profit from signing his name on the deed but did it “to curry political favor in the city,” Stolper said.

During Stolper’s 20-minute statement, he displayed enlarged copies of the straw-buyer agreement between Houchen and McDonnell and checks totaling $50,000. One that Houchen wrote to McDonnell read “Check #2522” on the memo line, corresponding to the number of the check that McDonnell wrote for a building down payment.

He also showed jurors enlarged copies of false documents signed by both defendants, all bearing forged notary signatures and stamps.

“These defendants wanted to make a lot of money quickly,” Stolper said. “These defendants were able to convert apartments to condos and make millions.”

Defense attorneys did not dispute the phony documents but said Benson cajoled the men into signing them.

That a document exists showing McDonnell’s agreement with Houchen shows his client’s gullibility, Bruinsma said. “He’s not yet a shark” like the other players, the lawyer said. “He likes it to be written on a piece of paper.”

Crandall’s attorney, H. Dean Steward, dubbed Benson “the Pied Piper of Huntington Beach ... who led many, many people down the path of fraud.” Benson, Steward told the jury, had told Crandall that they were converting the apartments through a city loophole, which the lawyer said Crandall, a tax preparer, was happy to exploit.

When Crandall asked for references, Steward said, Benson sent him to Houchen, then the mayor. The two went to lunch, and Houchen showed Crandall a complex she was in the process of converting and vouched for its legality.