David A. Nilsen, 61, Seaside, California, was sentenced to 97 months in prison, and ordered to pay $69,828,833 in restitution following his conviction for conspiracy to commit mail and wire fraud in connection with his operation of Cedar Funding, a Monterey, California-based hard-money lender,
Nilsen pleaded guilty on Oct. 24, 2011, to conspiracy to commit mail and wire fraud. According to the plea agreement, Nilsen founded Cedar Funding in 1980, and connected residential real estate developers seeking to borrow money using real property as collateral with individual investors who were willing to make such loans. Nilsen admitted that, from 2004 through 2008, an increasing number of borrowers defaulted on loans funded by Cedar Funding investors, due to market conditions and management and construction problems.
According to court documents, in response to those developments, and in an attempt to salvage the real estate projects that secured Cedar Funding loans, Nilsen and his loan servicing manager failed to inform investors of certain material facts about the true condition of their investments. In particular, they failed to inform investors that borrowers had defaulted, that Nilsen had taken over many of the loans, and that Cedar Funding had advanced substantial additional investor funds into those loans.
Nilsen further admitted that the increasing loan balances, combined with the declining value of the underlying real estate collateral, resulted in the amount of the loan exceeding the value of the collateral. Nilsen also acknowledged that he and his loan servicing manager did not properly record investors’ fractional deeds of trust, and did not inform investors that Cedar Funding had used a significant portion of the investment money to make interest payments to investors on those loans.
Nilsen was indicted with co-defendant Manoel Errico by a federal Grand Jury on Sept. 8, 2009. Errico is a fugitive. Nilsen was charged with thirty-one counts of conspiracy, mail, wire and securities fraud in violation of 18 U.S.C. – – 1349, 1341, 1343 and 15 U.S.C. – – 78j(b) and 78ff. After his initial appearance in federal court in San Jose in September 2009, Nilsen was released upon a secured $1 million bond and has remained out of custody.
The sentence was handed down by U.S. District Judge Edward J. Davila following Nilsen‘s guilty plea to one count of conspiracy to commit mail and wire fraud, in violation of Title 18, United States Code, Section 1349. Judge Davila also sentenced the defendant to a three year period of supervised release, and ordered him to pay $69,828,833 in restitution. The court ordered the defendant to report to begin serving the sentence on June 1, 2012.
Thomas E. Stevens and Jonathan D. Schmidt are the Assistant U.S. Attorneys who are 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 Rawaty Yim. The prosecution is the result of a sixteen-month joint investigation by the United States Postal Inspection Service, the Federal Bureau of Investigation, and the Monterey County District Attorney’s Office.
United States Attorney Melinda Haag announced the sentence.
“Not every fraud begins as a criminal scheme,” United States Attorney Melinda Haag said, “This case is an example of what so often happens when, rather than address problems in an honest and forthright manner, a businessman instead decides, as the situation worsens, to deceive his investors. My office will continue to investigate and prosecute defendants who mislead investors in an attempt to ride out the storm.”
US Attorney Haag thanked the Monterey County District Attorney’s office for its substantial assistance in the investigation and prosecution of this case. “My office stands ready to work in partnership with our state and local counterparts,” Haag said. “We are grateful for the opportunity this investigation provided to join forces with District Attorney Dean Flippo and the outstanding members of his office.”
This law enforcement action is part of President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.