Ulmers, 2 others convicted of fraud
2/14/2009The onetime leaders of Lucas County's largest residential property-investment group - which for nearly a decade garnered millions of dollars from hundreds of investors - were convicted in Lucas County Common Pleas Court Friday of defrauding those investors to the tune of more than $15 million.
John Ulmer, the founder of Westhaven Group, LLC; his son, Scot Ulmer, and Roger Morr, an investment adviser for the company, each entered no-contest pleas to multiple charges of securities fraud and making false statements. Each faces time behind bars when sentenced March 24.
A fourth defendant, Anthony Garzony, who was president of Westhaven prior to Scot Ulmer taking the job in 2002, pleaded no contest to one felony count.
Because of Garzony's cooperation during the investigation, prosecutors will recommend a sentence of community control.
Each of the men was convicted for roles in defrauding investors who, in some cases, gave their entire savings to the company on a promise of high returns on their investment. The plea agreement staved off a possible lengthy and costly jury trial and ensured $15,065,692.88 from both Ulmers in restitution - an amount that would cover most of what was lost by investors but which is significantly more than the $1.5 million lost by the victims specifically listed in the indictment.
"I invested $140,000 in the company. That's a lot of money," said lifelong Toledoan James Bohnsach, 77, the only victim to appear in court yesterday. "I had been taught to save all my life. You don't bounce back, you just tighten your belt more."
The convictions end a lengthy criminal investigation begun when the Ohio Department of Commerce shuttered the company in late 2005.
In the business of buying, fixing, and selling properties, Westhaven was investigated by the state and shut down after it was discovered that representatives were selling promissory notes on properties without having the actual real estate to back them up.
"It's a classic Ponzi scheme," said John Weglian, chief of the special units division for the prosecutor's office. "Rather than use the profits made in the investment of real estate, they were paying off investors with the capital contributions of other investors."
Westhaven was founded in 1996 and was incorporated in 1999. The premise of the company was to buy property, fix it up, and either rent or sell the houses.
Assistant County Prosecutor Kevin Pituch explained that Westhaven would pitch above- market interest rate payments in exchange for money loaned to the company. The company distributed marketing material, ran radio spots, and spoke on the seminar circuit to gather investors.
To make the investment seem less risky, representatives would make various promises, including a pledge that there was a mortgage on the property so that if the company defaulted, the investor would be able to foreclose on the land and recoup the money.
But while each investor was told that their money was secured in the form of a mortgage, the company stopped buying real property and used the money instead to "pay themselves and then pay the interest to the first investors."
"They were betting there would be an infinite supply of people willing to invest," Mr. Weglian said.
The criminal charges were a result of an 81-count indictment filed in April charging that each of the men violated state securities laws in defrauding nearly two dozen people who invested more than $1.5 million from 2002 to 2005.
The victims listed in the indictment were just a fraction of the investors who were bilked during Westhaven's existence, prosecutors said.
Had the prosecutor's office gone after multiple charges for each victim in the Westhaven scheme, the indictment would have consisted of more than 2,000 counts, Mr. Weglian said.
John Ulmer, 62, originally was charged with 37 counts, including racketeering. He pleaded no contest yesterday to 12 counts.
The charges carry a maximum penalty of 108 years in prison and a $210,000 fine but as part of the plea agreement, the state will recommend a
10-year prison sentence and will not object to judicial release after five years.
Ulmer, who declined to comment after the lengthy hearing, will also be liable for $15,065,692.88 in restitution.
Attorney Jerry Phillips called the resolution "fair." Adding that his client "feels bad for his investors," Mr. Phillips pointed out that at its roots, Westhaven was a legitimate business that made a significant amount of money for its investors.
"The unfortunate part of the case is that for in excess of 20 years, this business was operating efficiently and effectively and the payments were being made to investors," he said. "It just got into a situation between the housing market and some other things where they were no longer operating efficiently. It was inefficient and then it became illegal."
Groomed to take over the family business, Scot Ulmer, 32, was president of Westhaven from November, 2002, through December, 2005. Yesterday he pleaded no contest to 6 of the 23 counts with which he was originally charged. He faces up to 48 years in prison and a $90,000 fine.
The younger Ulmer was convicted of knowingly selling promissory notes that were not registered with the state nor exempt because there was no mortgage or real property to make the note a secure investment. He also was convicted of making misrepresentations, including the promise that the note would be secured by a first mortgage in real property and that the investor would be protected from loss.
The recommended sentence for the younger Ulmer, who was president from 2001 until the firm's collapse, will be four years in prison with no objection for judicial release after two years. He would also be liable for the more than $15 million in restitution.
"Scot is deeply remorseful for his role, he truly is," attorney Alan Konop said. He declined additional comment on the plea.
Also entering no contest pleas was Roger Morr, 65, who served as an investment adviser for the company between January, 2004, and July, 2005. Morr was found guilty of four counts of the original 17 counts charged against him and could face up to 36 years in prison and a $70,000 fine.
The state recommended a sentence for Morr of four years in prison with no objection of judicial release after two years. Because he was with the company for a much shorter time, his restitution would equal $1,561,000.
The five-count case against Garzony was dismissed yesterday and a new charge was filed against him. President of the company from 1996 until 2002, when Scot Ulmer took over, Garzony, 48, pleaded no contest to one count of the sale of unregistered securities and faces up to five years in prison.
Because of Garzony's cooperation with the investigation, the judge will consider a recommended sentence of community control. He will also be ordered to pay $20,000 in restitution.
Assistant County Prosecutor Larry Kiroff told Judge Stacy Cook during the plea that each of the victims involved in the indictment was contacted about the plea.
"Many of them are fine with it, some are less happy," he said. "There are some investors who are quite angry about the losses that they have sustained and wish to seek conviction on all 81 counts."
Mr. Bohnsach, a Toledo Edison retiree, said he invested with the company because of its positive reputation in the community and the fact that it was helping low-income people obtain housing by renting or selling the fixed-up homes. He said at one time he believed in what the company was doing.
Now, many of those who believed they were renting to own their homes have been kicked out.
"All of a sudden everything stopped and I had no idea they were out that money," he said of the company. "All of us were going to suffer."
When shut down in 2005, Westhaven ceased payments of monthly and quarterly checks to investors who had been receiving annual returns of 8 percent to 12 percent. Afraid of losing their money, many investors filed lawsuits against John Ulmer and his company.
During the past three years, a court-appointed receivership has liquidated the company's assets and distributed the money in accordance with a court order. An Order of Distribution was created Dec. 15 by former Common Pleas Judge Thomas Osowik and outlined how West-
haven's $16 million in assets was to be distributed among the banks, creditors, and as many as 280 investors who are owed more than $28 million.
As of yesterday, only nine properties remain to be sold, said Gerald Kowalski, Westhaven's court-appointed receiver.
"To date we have distributed to the investors about $7.5 million," Mr. Kowalski said.
Attorney Thomas Pigott, who represents 15 secured and unsecured investors, said many people were financially ruined because of their investments in Westhaven.
"I would assume that most of my clients are not going to be happy with the relatively small jail sentence that will likely be imposed, but from a judicial and economic standpoint, I'm surprised that the plea wasn't tendered earlier," he said. "There was no way for these guys to get out of this."
Contact Erica Blake at:
eblake@theblade.com
or 419-213-2134.