David Arthur Nilsen, 58, and Manoel Antonio Errico, 55, both of Monterey, Calif., were indicted by a federal grand jury with conspiracy to commit mail and wire fraud, mail fraud, wire fraud, and securities fraud.
The indictment, which was issued Tuesday, September 8, 2009, remained under seal until Nilsen was arrested after surrendering to authorities in San Jose, Calif.
The indictment accuses Nilsen and Errico of defrauding investors in Cedar Funding, a Monterey-based “hard money” lender, in connection with investments in loans purportedly secured by deeds of trust and in a fund that invested in those same loans. According to the court document, Cedar Funding had more than 1,000 investors and the loss to those investors could exceed $100 million.
The indictment further alleges that Nilsen and Errico defrauded investors in fractional interests in loans secured by deeds of trusts, and in Cedar Funding Mortgage Fund, LLC, by making materially false statements, failing to disclose material facts, and creating a materially deceptive and misleading scheme, plan and artifice to defraud. The indictment alleges in part that, through, among other things, documents provided to investors, advertisements, interest payments and verbal communications, Nilsen and Errico created the false and misleading appearance that the investors’ funds were invested in sound, secured real estate loans, which offered high returns and safety of principal. In truth, by in or about 2004 and increasingly thereafter, most of the loans were not performing, and the investors’ funds were not secure. As borrowers increasingly failed to pay off loans, Nilsen and Errico, without the investors’ prior knowledge or consent, extended the loan maturity dates and advanced more investor funds, which caused the loan balances to balloon beyond the initial loan amounts, diluted the investors’ fractional interests in the loans and increased the likelihood that they would lose some or all of their principal.
The indictment also alleges that, unknown to investors, the source of a substantial part of the interest that Nilsen and Errico caused Cedar Funding to pay to existing investors came from new investors’ funds rather than from performing borrowers.
Nilsen made his initial appearance in federal court in San Jose, and has been released after executing a co-signed bond of $1 million. The defendant’s next scheduled appearance is at 9:30 a.m. on Sept. 28, 2009, for identification of council and bail review before Magistrate Judge Howard R. Lloyd.
Errico is a fugitive.
Nilsen and Errico are named in each of the 31 counts alleged in the indictment. The maximum statutory penalties for each count in the indictment are:
Count 1, 18 U.S.C. § 1349 (Conspiracy): 20 years’ imprisonment, a fine of $250,000 or twice the amount of gain or loss, whichever is greater, three years supervised release, and a special assessment of $100
Counts 2 through 12, 18 U.S.C. § 1341 (Mail Fraud), and Counts 13 through 20, 18 U.S.C. § 1343 (Wire Fraud): each count carries the same maximum penalties as Count 1
Counts 21 through 31, 15 U.S.C. §§ 78j(b) and 78ff, 17 C.F.R. §§ 240.10b-5 and 240.10b5-2 (Securities Fraud), 18 U.S.C. § 2 (Aiding and Abetting): each count carries the same penalties as Counts 1 through 20, except that the maximum fine is $5,000,000.
The court may also order that the defendants to pay restitution, if appropriate. However, any sentence following conviction would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.
Thomas E. Stevens is the Assistant U.S. Attorney who is prosecuting the case with the assistance of Special Assistant U.S. Attorney Annie Michaels of the Monterey County District Attorney’s Office, and legal assistant Elizabeth Garcia. The prosecution is the result of a 16-month joint investigation by the United States Postal Inspection Service, the Federal Bureau of Investigation and the Monterey County District Attorney’s Office. The U.S. Attorney’s Office recognizes the substantial assistance provided by the Monterey County District Attorney’s Office in this case.
Please note, an indictment contains only allegations against an individual and, as with all defendants, Nilsen and Errico must be presumed innocent unless and until proven guilty.
United States Attorney Joseph P. Russoniello and Monterey County District Attorney Dean D. Flippo announced the indictment.