Johnsen says the company has made a significant turnaround under the leadership of its new CEO, Richard Feldheim. She adds that allegations of fraud and deceit are bogus.
"Those claims have no merit at all," she says. "I've looked at a lot of documentation here in the company . . . I think this is a company that is just trying to do a straight-up, straightforward business."
Pastor Stacy Lee at his church in Peoria.
An artist's rendering of the Hotel Monroe, one of the multimillion-dollar projects now stalled because Mortgages Ltd. couldn't fund the loan.
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For his part, Reeder still stands by the pattern of deceit he was documenting before he landed his clients their sweet settlement. (In the settlement, Mortgages Ltd. acknowledges the loan was not fully funded and gives Rightpath more time and better terms under which to repay the loan.)
"We always felt very good about our case, and it got progressively stronger. When you see the settlement terms, you will see why we settled," Reeder wrote in an e-mail after the settlement.
The question a number of Phoenix attorneys and investment brokers are asking now is this: In the same city where Charles Keating lived, and just 10 years after the Baptist Foundation defrauded investors of $590 million, where were state regulators when Arizona residents were pouring their millions into Mortgages Ltd.?
"There's a whole bunch of us saying, 'Didn't the regulators think this felt like the late '80s in Arizona again?'" says a senior investment broker at a large brokerage firm in Phoenix.
She says she steered her clients away from Mortgages Ltd. in recent years, but that one of her clients still had $800,000 invested when the company filed for bankruptcy.
"The letters he was sending to investors were misleading," she says. "I have been really curious how any regulator in this town could go down there and look at the books and not know that they're broke. Too often, the regulators get involved after every cent is gone."
The simple answer to how Mortgages Ltd. got away with it is that no single state or federal agency is required to monitor local investment pools such as Mortgages Ltd.
One regulatory agency was responsible for monitoring loans with borrowers.
Another two regulators were responsible for monitoring dealings with investors.
But no single regulator examined the big picture, including what was done with investors' money. And the one agency with the power to take such a global look — the Arizona Corporation Commission's Securities Division — apparently didn't.
(Attorney Donald Gaffney did not send his 2006 letters to the Securities Division because he had documented fraud with loan borrowers, not loan investors.)
In effect, the bulk of Mortgages Ltd.'s business was not regulated at all — even as the company grew to be a juggernaut among Phoenix's aristocracy.
All three of those regulatory bodies are now investigating or examining Mortgages Ltd. Regulators who spoke with New Times said unofficially that their separate investigations are complex. It could take months for any one regulator to build a strong case for fraud, if evidence for such a case exists.
Now that Coles is dead, the Attorney General's Office doesn't have one palpable defendant to prosecute criminally, even if it does find criminal behavior.
By most accounts, Coles was a financial genius. He may have been too smart for his investors' own good, knowing exactly how to abide by the letter of the law while still misleading some borrowers and investors.
Take the Covenant Community Church loan, for example. Though Mortgages Ltd. allegedly took advantage of a borrower and charged unspecified fees (totaling charges of $2.5 million on a $1 million loan), it did not obviously break Arizona law. In this state, a mortgage broker can lend at 200,000 percent interest, so long as the borrower agrees to it.
"If agreed on, any rate is allowed, more or less," says Jack Hudock, spokesman for the Arizona Department of Financial Institutions (ADFI), which is responsible for monitoring Mortgages Ltd.'s dealings with borrowers — like the Covenant Christian Center.
The loan paperwork Covenant signed didn't show one default interest rate. Instead, it listed one rate on one page and an additional rate on a second page. Combined, the rates equaled 67.75 percent APR — a rate that would be considered criminal usury in some other states.
ADFI confirmed that it received Gaffney's letter about Covenant back in 2006, but Hudock said state law keeps him from saying much more, other than confirming that the ADFI is now examining Mortgages Ltd.'s records — almost two years later.
"An examination is just a compliance exam . . . to ensure they were conducting business in accordance with state law," Hudock says. (ADFI is not in any way responsible for Mortgages Ltd.'s dealings with investors, Hudock adds.)
Mortgages Ltd.'s apparent compliance with the letter of the law on the Covenant loan is one example of how Coles knew how to appease regulators by dotting every "i" and crossing every "t."
Similarly, Mortgages Ltd.'s investors told New Times that they were misled about the company's status as a "licensed securities broker." That title gave some investors the impression that their investments were being monitored by the U.S. Securities and Exchange Commission.
"We thought this was the most conservative kind of investment we could make," says investor Sydney Madson, who put much of her retirement into Mortgages Ltd.
