Philip R. Lochmiller, 61, Mack, Colorado, and Philip R. Lochmiller, II, 38, presently of Olathe, Kansas, who are both owners and operators of Valley Investments, as well as a Valley Investments employee, Shawnee N. Carver, 33, Grand Junction, Colorado, were indicted by a federal grand jury in Denver, Colorado on conspiracy and fraud charges. The indictment was sealed pending the defendants’ arrest.
According to the indictment, Valley Investments (which was first called Valley Mortgage) was incorporated in Colorado in 1994, and was originally engaged in the business of originating or brokering home mortgages. The business was located in Grand Junction, Colorado. From its inception until it closed in May 2009, Lochmiller and Lochmiller, II operated and controlled Valley Investments. Beginning in approximately 1999, the Lochmillers and others entered into the affordable housing real estate development and housing sale business. The business primarily involved the acquisition, using investor funds, of vacant land or existing mobile home parks, converting them to mobile or manufactured home subdivisions.
Between November of 1999 through April 2008, Valley Investments acquired five properties purportedly to develop affordable housing subdivisions. To finance the properties, Lochmiller and Lochmiller, II, advertised and solicited investments from individuals by promising a short duration high percent interest rate to be paid monthly. The advertisements characterized the investment as a “solid security” secured and recorded by a Deed of Trust in the investor’s name. The Lochmillers also represented to investors that Valley Investments used investor funds exclusively to acquire the properties and finance the development of the subdivisions they owned. Further, they represented that the company generated large profits by selling manufactured homes together with lots within their subdivisions. They later promised investors a return as high as 18 percent on their investments. In exchange, investors were to receive a promissory note and a recorded first Deed of Trust on individual lots, worth a minimum of $20,000 at a 50 percent loan-to-value ratio.
From 2005 through May 2009, defendant Shawnee Carver was a full-time employee of Valley Investments, and a personal assistant to Lochmiller, II. She had full and exclusive access to data and interacted with investors.
The indictment alleges that Lochmiller failed to disclose a prior conviction for securities fraud in California. It also states that they failed to disclose that the Colorado Division of Securities issued a letter in June of 2001 insisting Valley Investments to cease the offering and advertising of unregistered securities. Both Lochmiller and Lochmiller, II failed to disclose prior Bankruptcy filings.
All three defendants were salaried employees. The indictment alleges that Lochmiller and Lochmiller, II directed and caused Valley Investments to pay numerous personal expenses on their behalf. Lochmiller, II also received bonuses of 1 percent of the amount invested through him. Between 2000 and 2009, Lochmiller and Lochmiller, II caused Valley Investments to receive approximately $31,000,000.00 from approximately 400 investors.
The indictment alleges that from 1999 through May of 2009, the three defendants did knowingly and willfully conspire to devise a scheme to defraud, and obtain money or property by means of false and fraudulent pretenses, representations and promises. It also alleges that the defendants engaged in a scheme to commit securities fraud.
As part of that scheme, Valley Investments did not own sufficient property or assets to secure the investments as represented. Despite this fact, the defendants continued to solicit investor funds for several years despite knowing that the business was not generating sufficient profit. Because the business operation was not sustainable, the three defendants allegedly used new investor funds to make interest payments to existing investors, operate the daily activities of the business, and fund the Lochmillers‘ personal expenditures. The defendants continued to misrepresent to investors that the business was thriving, and did not disclose to new investors how their money was being used. Also, because there were not sufficient funds, the defendants did not file all of the Trust Deeds on behalf of investors, and most of the filed Trust Deeds were not the first encumbrance of the properties named and were thus worthless. The indictment further alleges that Carver notarized forged signatures of investors for fraudulent releases of Deeds of Trust.
In May 2009 the State of Colorado Division of Securities issued a Cease and Desist order to Valley Investments. Less than two weeks later Valley Investments closed its doors. Further, a Denver District Court Judge appointed a Receiver over Valley Investments and all related entities.
U.S. Attorney David Gaouette and Federal Bureau of Investigation (FBI) Special Agent in Charge James Davis announced the indictment.
“Investors should always remember the old saying that if it looks too good to be true, it probably is,” said U.S. Attorney David Gaouette. “Unfortunately, there are many people out there who are unscrupulous and tempting potential investors with false claims. Law enforcement will investigate these criminals and our office will prosecute them, but the public needs to be wary and only invest after thoroughly checking out these claims of large profits.”
“These arrests demonstrate the FBI’s continuing commitment to aggressively investigate complex financial crimes, especially when the targeted victims are vulnerable and elderly,” said FBI Special Agent in Charge James Davis. “We are especially appreciative of the tremendous cooperation from the victims in this case. The success of this investigation to date is tribute to the combined efforts of our federal law enforcement partners, including the IRS-CID, U.S. Postal Inspection Service, and the U.S. Attorney’s Office in Grand Junction.”
“Money laundering creates an untaxed economy that uses legitimate businesses to conceal criminal activity,” said Christopher M. Sigerson, Special Agent in Charge of IRS Criminal Investigation, Denver Field Office. “IRS-CI has the financial investigators and expertise to follow the money and deprive criminals of their gains.”
“Postal Inspectors partnered with fellow law enforcement agencies in this investigation to assure the arrest of individuals utilizing the U.S. Mail for fraudulent means,” said U.S. Postal Inspector In Charge Shawn Tiller. “This is an offense the Postal Inspection Service takes very seriously.”
Philip Lochmiller faces one count of conspiracy to commit mail fraud and securities fraud, one count of conspiracy to commit money laundering, 20 counts of money laundering, and 10 counts of mail fraud.
Philip Lochmiller, II, faces one count of conspiracy to commit mail fraud and securities fraud, one count of conspiracy to commit money laundering, eight counts of money laundering, and 10 counts of mail fraud.
Shawnee Carver faces one count of conspiracy to commit mail fraud and securities fraud, one count of conspiracy to commit money laundering, and 10 counts of mail fraud.
Conspiracy carries a penalty of not more than five years’ incarceration, and up to a $250,000 fine. Conspiracy to money laundering carries a penalty of not more than 20 years in federal prison, and a fine of up to $500,000. Money laundering carries a penalty of not more than 10 years’ incarceration and a fine of up to $250,000. The penalty for mail fraud is up to 20 years incarceration and not more than a $250,000 fine.
This case was investigated by the Federal Bureau of Investigation (FBI), the Internal Revenue Service – Criminal Investigations (IRS CI), and the U.S. Postal Inspection Service, with substantial assistance from the State of Colorado Division of Securities and the Mesa County Sheriff’s Office.
The case is being prosecuted by Assistant U.S. Attorney Michelle M. Heldmyer.
These charges are only allegations and the defendants are presumed innocent unless and until proven guilty.