In the early 1990s, Magellan found thousands of Canadians to invest an estimated $100 million in various real estate deals, including some apartment complexes in the Phoenix area. The investors would own a portion of the properties and collect interest as their values went up.

At least, that's the way it should have worked. Instead, some people lost 50 percent or more of their investments. They blamed Magellan for mismanaging the properties and misusing their money.

The complaints grew so loud that, by 1996, the Arizona Attorney General's Office had opened an investigation into Magellan. A search warrant issued in the case contained allegations of possible fraud and tax-law violations. The investigation didn't go very far.

Photos by Jamie Peachey
The unfinished state of the Centerpoint towers is obvious when you get close to them.
The unfinished state of the Centerpoint towers is obvious when you get close to them.

Investors made only slightly more headway in January 1999, when the Alberta Securities Commission found that Magellan had taken money from one investment property and spread it among other properties. The money was returned to the account, but the commission fined Magellan $44,000 and banned it from doing business in the province until 2001.

"We barred these individuals from our marketplace for two years, and, presumably, investors in the future will take some heed of that," commission spokesman Dave Linder told New Times at the time.

Investors didn't take heed, and for some, that was a good thing. Take the Third Avenue Lofts, for instance. Dewar and Losch reportedly made money for their investors on that project.

But success may be in the eye of the beholder: According to local real estate blogs, the investors flipped the condos before the crash, and the new buyers got burned when property values sunk.

No matter to Tempe Land Company. With a solid record of condo building behind it, the firm got $150 million in loan guarantees from Mortgages Ltd. to start building the first two condo towers.

In March 2008, Scott Coles, David Dewar, and Ken Losch flew to Toronto together for a desperate meeting with a capital investment company.

The conversation among the rich hipsters might have had its lighter moments. Coles, 48, had recently hosted a high-profile Super Bowl party at his mansion on the side of Camelback Mountain, featuring entertainment by rapper Ludacris. Losch might have reminisced about getting his souped-up off-roading truck stuck in the mud recently while racing the Baja 1000.

But the overall mood on the airplane must have been grim.

Coles must have known that the world would soon see him as a failure. He'd driven his dad's company, the 45-year-old Mortgages Ltd., into a quagmire — the lending company, which had acted as a bank to dozens of clients, was out of money. (See "Scott Coles: The Story Behind the Life — and Death — of the Flamboyant Owner of Mortgages Ltd.," July 31, 2008, and "Scott Coles, the Millionaire Owner of Mortgages Ltd., Leaves Behind Broke Investors, Unbuilt Buildings, and Lots of Unanswered Questions" September 18, 2008, both by John Dickerson).

The lender had given Losch's company only $120 million of the $150 million loan before running out of gas.

Now the men were traveling to Canada to beg for $60 million for Mortgages Ltd., which needed the money to keep pumping millions of dollars toward the completion of Centerpoint.

Losch had first learned Mortgages Ltd. was in trouble about six months earlier, he told the bankruptcy court during a hearing in March of this year.

He recalled that his account representative from the company, Laura Martini, came into his office one day in September and announced she would be out of a job in two weeks; Mortgages Ltd. no longer had liquidity, she told him.

Losch testified he'd met Coles only twice before that day, but he immediately set up a meeting. He said he was surprised to learn that the company had no reserves and was paying loan installments with collections from other borrowers.

It turned out that Martini's "two weeks" claim had been an exaggeration, but the company's problems were real. Losch talked to Coles nearly every day after that in a mad scramble for replacement financing. Starting the same month, the loan installments from Mortgages Ltd. suddenly began coming in short — or not at all.

Coles was flat-out lying to his investors, assuring them in a letter on November 7, 2007, that their money was safe. Meanwhile, he was frantically seeking more loans to pay off other loans.

Five months later, Losch had helped line up $60 million from Tricon in Canada. Negotiations went on for the better part of a day. Tricon was interested, but the deal depended on Coles. And soon after everyone came back to Arizona, Losch recalled, "Scott just said, 'Nope, I won't do it.'"

Tricon wanted a guarantee that if the condo project went belly-up, it would get first dibs at the collateral — the buildings themselves. Coles' investors already had the primary claim to the towers. Screwing them "would create more problems for me than I would know what to do with," Coles complained to Losch.

Yet Coles, the financial whiz kid, came up with a solution — or so it seemed. He went back to his own investors and found they were willing to kick in a few million more, as long as their money would be backed by the preferred "first" position among creditors in case of bankruptcy.

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