Did Assemblywoman Diane Harkey’s husband run a Ponzi scheme?

(Video Courtesy of NBC News)

Uh oh!  Another black eye for the OC GOP has emerged as the husband of Assemblywoman Diane Harkey has been accused of running a Ponzi scheme – and some are alleging that her campaigns have been funded by ill-gotten gains.  Here is the information I found at “the Point Center Investigation web site:”

Our mission, as investors at Point Center, has been to understand how our investments were treated by Point Center Financial and Dan Harkey as our money manager. We have made many requests over the past 6 months to obtain and study the loan files to ascertain if the funding of individual loans was sensible at the time they were funded. To determine if loans were made without fully disclosing the risks of non-payment to the investors. To obtain information regarding the borrower’s history and credit worthiness. To fully examine appraisals and loan to value ratios. To review the financial records of what has happened to our investments with independent experts and other standard “check and balance” procedures used regularly in business transactions.

To determine how much money Dan Harkey has taken off the top of failed loans for himself.

And investigate if DIANE HARKEY had herself elected to office using a million dollars she may have taken from Point Center leaving it unable to pay back mortgage note holders.

We wish to determine our options and review them with our co-investors.

We have been concerned with the failure of PCF to provide access to our business records. We have been alarmed at the game of “hide the ball” Mr. Harkey has been playing so we had no choice but to sue him in October of 2008 to obtain access to business records. He still has refused to produce many of those records.

Before resorting to the courts we have provided Dan Harkey with many opportunities to provide access to the records and loan files the law says all of his investors are entitled to review, and his refusal to allow this has resulted in the actions he forced us to take. And we find it suspicious and alarming.

Our review of over 150,000 documents that Mr. Harkey was forced to turn over to us has revealed a pattern of problems which we perceive as manifesting a business plan where Dan Harkey enriched himself at our expense by making very risky loans which were represented to be very safe. And taking large commissions and fees from those failed investments.

Even worse, perhaps, is the continued failure on his part to provide reasonable assessments and valuations of our assets as they currently stand.

We are now attempting to determine what options we have as an alternative to current management.

And we are consulting appropriate real estate experts to determine what the proper steps are for protecting our portfolio investments.


The L.A. Times has published an article about this scandal.  Here are a few excerpts:

The lawsuit accuses Dan Harkey of using slick marketing techniques — including mass mailings and DVDs of sales meetings — to attract investors in short-term, high-interest loans to real estate developers. It contends that Harkey exaggerated the value of the properties used as collateral by borrowers, making the individual investments appear much safer than they were.

Dan Harkey denied wrongdoing, saying any losses were related directly to the downturn in the real estate and financial markets.

Assemblywoman Harkey declined to be interviewed. A spokesman disputed the lawsuit’s claim that she used investor money to bankroll her campaign.

The allegations center on a little-known and lightly regulated segment of the real estate industry known as “hard-money” lenders. These lenders often provide financing for high-risk projects that banks won’t touch, such as speculative housing developments.

Wealthy individuals looking for outsized returns often provide the investment capital. The lawsuit alleges that many investors were retired people who entrusted Dan Harkey and Point Center with their life savings.

The lawsuit, filed in Orange County Superior Court in Santa Ana, claims that Point Center made millions of dollars by charging broker fees upfront to borrowers, allowing the company to profit regardless of whether the loans were repaid.

When the borrowers defaulted, the lawsuit alleges, the investors were often left with foreclosed properties worth a fraction of the money they had invested.

The suit cites a $19.3-million loan in 2006 to Burnett Development Corp., which planned to build 451 homes surrounding a golf course at the Palm Springs Country Club. The loan was made near the peak of the real estate boom, but conditions soon changed. Burnett Development defaulted on the loan in 2007 and Point Center foreclosed, according to court records. Burnett officials could not be reached.

The now-closed country club has fallen into such disrepair that the city of Palm Springs filed a lawsuit last year — naming individual Point Center investors as defendants — seeking immediate repairs to a property filled with weeds, polluted ponds and graffiti.

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