Ponzi schemes — in which early investors are paid off with funds from later investors — are most often tied to stocks, commodities, and currencies. But just a few years ago, when Southern California real estate was sizzling hot, Ponzi schemes made the scene, at least according to two San Diego–related lawsuits filed recently, one by the federal government.
Richard La China (pronounced La-KEEN-a and also spelled LaChina and Lachina) once made a big splash in San Diego as proof that a young entrepreneur doesn’t need a college degree to succeed. He set up a tech company, AXXIS, in 1996, claiming to have great inventions, including a computerized grocery cart. The big accounting firm Ernst & Young awarded him the San Diego Young Entrepreneur of the Year Award in 1999, when he was only 25. (Those Ernst & Young annual awards have spotty records.)
But according to a civil suit filed by irate investors in superior court late last year, AXXIS was facing lawsuits from vendors, the landlord, and unpaid former employees in the late 1990s. So La China, boasting of his great inventions, sold as much as $20 million of AXXIS stock to investors. But the technologies were “a bust, nothing more than vague ideas,” according to the recent suit, filed by attorneys Scott Dreher and Bryan Snyder. AXXIS and related companies moved from Ridgehaven Court to Convoy Street to El Cajon and finally to La China’s Montgomery Field airplane hangar. He secretly sold AXXIS’s assets in 2000, leaving the investors with “an empty shell,” according to the suit.
Those investors, who had been promised ten percent per year until the company went public, wanted their money back. So, facing a cash shortfall, La China began selling investments in a Big Bear condo operation called Last Resort, according to the suit. It was to run a fractional condominium ownership project called the Club at Big Bear Village. Ironically, its previous owners had run afoul of the Securities and Exchange Commission for running a Ponzi scheme. According to the suit, La China used the investors’ money to buy an airplane and shares of another computer company. He used investors’ money to buy a Scripps Ranch home, then parlayed that into a fancier house there, and finally rose to a lavish home with an ocean-view bathroom in the Santa Fe Valley area of Rancho Bernardo, charges the suit.
Not surprisingly, “when he needed money to actually operate the Last Resort project, he raised it by selling another fraudulent Big Bear real estate investment called Wildwood,” according to the suit. “Then he used the Wildwood investors’ money to pay his own real estate loan obligations and to quietly repay some family members who had invested in Last Resort. He got further and further behind, and when he needed more money, he secretly sold Wildwood and kept the proceeds. He bought himself a condo in Costa Rica and began selling investments in a project there called Tranquilo.
“La China is a serial Ponzi schemer and career impostor,” says the suit.
Investors tell Dreher that La China hasn’t been seen at the Club for many months. His lawyer, Steve Wilhelm, says in a statement that La China “vehemently denies the allegations” by investors, will “vigorously defend” the suit, and may pursue a cross-complaint against those who filed it.
Ponzi has found its way to other corners of Southern California. In February, the Securities and Exchange Commission filed a complaint against James Duncan, Hendrix Montecastro, and Maurice McLeod and their firms for a fraud based largely in Murrieta but with fingers reaching throughout Southern California, including San Diego. At piety-dripping seminars, the promoters recruited investors to get in on the housing boom by speculating on homes. They would be paid annual returns of 13 to 19 percent.
But, says the commission, “they operated a Ponzi-like scheme by using money from new investors to make mortgage payments on previously purchased investment homes.” To do so, says the commission, they falsified loan applications. The scheme unraveled, leaving 75 investors short of $10 million. Some were forced into foreclosures and bankruptcy.
This one was also an affinity-group scam. The three fast-buck artists would prey on Filipinos and members of the military, according to the commission. In selling the program, McLeod would talk about “God’s will” but never mention that he had been convicted of fraud and burglary in 1998. Nor did Duncan disclose that he had been punished for violating securities laws in three states.
Carlsbad attorney Paul Runes, who represents one of the firms, won’t comment.