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."

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.)

Pastor Stacy Lee at his church in Peoria.
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.
An artist's rendering of the Hotel Monroe, one of the multimillion-dollar projects now stalled because Mortgages Ltd. couldn't fund 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.

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13 comments
Sure Thing
Sure Thing

The people above are just more of Scott's type of phony thousandaires who live in Scottsdale. "Charity?" Sure, it's real easy when you are giving away other people's money and taking credit for it.I had the unfortunate chance to meet and deal with Scott 11 years ago on a $1M loan deal where he was asking me for money to invest with him to buy one of his "bad" loans. Scott personally explained to me his scheme of essentially "loan-sharking" the borrowers by jacking up expenses and legal fees the moment a loan came up or late and that we were all but guaranteed 15-20% returns on our money. I ran the other way.

Karma is a bitch; he was a scumbag and, like Obama and his cronies, you lie down with dogs you wake up with fleas. Anyone who claims that they knew the man and uses words like "honest" and "upstanding" to describe him is the same scum that he was.

Sure Thing
Sure Thing

The people above are just more of Scott's type of phony thousandaires who live in Scottsdale. "Charity?" Sure, it's real easy when you are giving away other people's money and taking credit for it.I had the unfortunate chance to meet and deal with Scott 11 years ago on a $1M loan deal where he was asking me for money to invest with him to buy one of his "bad" loans. Scott personally explained to me his scheme of essentially "loan-sharking" the borrowers by jacking up expenses and legal fees the moment a loan came up or late and that we were all but guaranteed 15-20% returns on our money. I ran the other way.

Karma is a bitch; he was a scumbag and, like Obama and his cronies, you lie down with dogs you wake up with fleas. Anyone who claims that they knew the man and uses words like "honest" and "upstanding" to describe him is the same scum that he was.

Heartbroken
Heartbroken

Scott would never have pulled out of the deal for no reason. Anyone who knows him knows that about him. He was an honest businessman. He was a good, beautiful person, who gave a lot to the community, and you were right in saying he committed suicide because he cared so much about his investors he could not live with himself to fail them in this way. We all took a risk investing in the way we did, and losing it all is a part of that risk. Scott did what he could to try to keep things afloat, but no one could accomplish that in this market - look at all the other companies, much larger, that are failing and need to be bailed out by the Fed.

As for Ashley Coles, she was just riding on the coat-tail of a good man. There is nothing noble or good about her. She is a gold-digger who cared only about herself. The only reason she joined Childhelp and Boys and Girls Club was because she found out Scott's ex was involved in these and she wanted to outdo her. But her commitment to these faded away soon after her marriage. The gloves came right off as soon as she felt she had Scott nailed. Now that he has passed and left what he had to his children (and despite that he did leave her with a lot), she is fighting to take all the money away from Scott's children. That is not a good person. All who know her should condemn her because she has the audacity to do such a horrible thing, not to mention that she was a main cause of his death.

K. Chamberlain
K. Chamberlain

I am really disappointed in regards to the article written by John Dickerson on September 18, 2008 about Scott Coles.I knew Scott and I know his wife Ashley and I consider them to be two of the most considerate, respectful and kind people I have ever met. They are kind to anyone and everyone they meet and they have been extremely generous in their contributions back to our Valley's charities.How often do you, John, spend large portions of your income with local or national charities? And, if income is not an option do you donate your time? Mortgages Ltd gave out high risk loans to clients that could not get loans through typical banking establishments. Therefore Mortgages Ltd.charged higher interest rates for those borrowers because they were considered high risk and not necessarily reliable. This is the exact reason we all have credit reports. Increased interest rates for high risk borrowers are incredibly common when people buy cars, buy houses (now) or sign up for credit cards...etc.I would like to know why the conventional lender pulled out of Pastor Stacy Lee's loan agreement at the last minute. I'm sorry but don't play naive, something was wrong and that quite possibly had something to do with why Scott raised his interest rate. Plus, you have to remember Scott is no longer with us to tell us his side of the story. I have seen many prestigious companies file for bankruptcy in the last 6-7 months- Scott is not an anomaly. We passed a $700 billion dollar bail out plan just so that we don�t loose our banks- which would include our personal savings, retirement�etc.John Dickerson, Seth Goldberg, Susan White and the person that refused to give their name though I�m not sure why since she obviously wanted to express her hatred for Scott but then required that her identity be kept "Anonymous." (She needs to grow a spine- that's pathetic).I would like to know if the clients that said such hurtful things about Scott in your articles were invested with him during the economic boom in Arizona. If they were, I guarantee that they were not complaining then! In addition do they give back time or money to the community like Scott and Ashley did?John, your July 31st article was much less biased though it still included some ridiculous comments like Mike Denning's comment about Scott stating that "He kind of turned into a wanna-be rock star there for a while" which caused me to laugh out loud because it was so far from the truth. Mike was the former president of Mortgages Ltd (do you think he may be a bit angry with his current financial situation now that the company is Bankrupt?!)I am not sure what has happened since your first article on July 31, 2008 because your most recent article in my opinion was obviously meant to damage his reputation even worse. I sensed a bit of anger in that article- was that because you believed every awful thing you were told about Scott by bitter ex-employees or investors, or is it simply because if the article "bleeds it leads?"Scott took his own life which I honestly believe he did because he could not face all of his friends and business partners that had invested a good portion of their life savings with him. Scott has a wife and three children who no longer have a husband/father, and not one person in your articles even mentioned how devastating that is because, in my opinion, they are too self absorbed to have an ounce of remorse for his family and their loss. I personally believe that Scott Coles was a legitimate business owner and like many of us he did not see the economy taking such a fast and drastic down turn and he quickly found himself in a position he simply could not envision himself recovering from. He did live a lavish lifestyle; however you reported that he was constantly having parties at his estate but what you failed to mention is that any parties that we not small, involving close friends, were in his guest house and guests had to pay admission. If I remember correctly the Super Bowl party at his estate last year was around $1,000 a ticket.Lastly I would like to condemn anyone who gave their life savings to Mortgages Limited and is crying about it now- everyone knows that you never put all of your eggs in one basket. Always diversify! Buy a home you can afford (roughly 3 times your annual income) and diversify your savings. And when it all goes to Hell�blame yourself for overextending.

Why
Why

Let the man rest in peace. If God can forgive him then we should to. What's done is done move on this is starting to get old now.

Mr broke
Mr broke

Another story about Coles but Hirsch keeps Coles Ideas alive by wanting to allow a 75 million $ dip loan on centerpoint. Putting 1/2 the 200 million radical bunny money at risk by putting ML in 2nd position on the deed. Centerpoint will be worth half of what they think. The state needs to put RB into receivership and get someone that doesn't keep Coles ideas going.

JW
JW

I take great pride in stating that Pastor Stacy is a GREAT man and never once stole any of the churche's money! Obviously the person who commented in #2 has no clue!! 1st of all Pastor Stacy does not beg for money because he knows that God will provide for the church and the people in it! The people in the church who gave money, gave because they either felt led to, wanted too, or because that is what the bible tells us to do. The family at CCCI is close knit and even though people come and go through the years - we are faithful and know that what God started in the building we now have church in, will be completed and we will grow and expand beyond any of our imaginations.

Before you comment on a Pastor you dont know, please make sure you have all the facts straight. We give because WE WANT too! Pastor Stacy and his wife are incredible people with a great blessing on their lives, and I plan to be around and ministering with them for as long as I possibly can!

God Bless!

JW

TOM
TOM

sCOTT TOOK THE EASY WAY OUT AND TOOK HUNDERED OF REGULAR WORKING CLASS PEOPLE WITH HIM. HIS ACTIONS CAUSED MY CO TO close down. I am out of a job with two kids and a mortage to pay much like everyone else I worked with. I cant tell you how much I hat this man I and the rest of the people who were hert by this will move on and rebuild our lives with our wonderful families. That is the good news the other good news is when we all look back and realize we have pulled up our boot straps and fixed out lives he will still be dead and the world is a better place because of it.

Reed
Reed

Ask Pastor Stacy Lee about the thousands of dollars church parishioners gave to pay for the completion of the church but yet the church is not complete? Where did the money go�.? Not only was Scott Coles a theft Pastor Stacy Lee is the worse theft of them all stealing from his own church. Yes he will give you a good song and dance and led in into another direction but will not give you a straight answer. There are many people from his own church he has defrauded just like Scott Coles. He did lose parishioners because of the court case he lost parishioners because he did not pay back the thousands of dollars people �loaned� to him not gave. He does not like to give people their money back he has a good track record for this just look at the many law suites against him for not paying back.

seth Goldberg
seth Goldberg

Total crook and the New Times should win an award for their reporting..Fraud is fraud he was a dishonest scumbag who took advantage of many people. I now many people who would not do business with him and are hardly surprised..hopefully the Radical Bunny folks go to jail and the investors get something out of this.

Coach Heemel
Coach Heemel

One week after the company assured investors that all was well, Mortgages Ltd. vice president Phillip Sollomi, Jr. wrote a letter on November 15, 2007, to a wealthy borrower, pleading to borrow $2 million so the company could fund another borrower's loan.

Coach Heemel
Coach Heemel

One week after the company assured investors that all was well, Mortgages Ltd. vice president Phillip Sollomi, Jr. wrote a letter on November 15, 2007, to a wealthy borrower, pleading to borrow $2 million so the company could fund another borrower's loan.

 
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