SEC Sues Walter, Kelly and Bruce for Fraud

By now, you’ve all likely heard the great news.  Stories are everywhere.

Here

Here

Here

and

Here (my personal favorite as it calls them “fraudsters”)

So…

What’s it mean for Mortgage Fund ’08 investors?

What’s it mean for RE Loans investors?

Does it mean anything for RE Reno investors?

Weigh in….

Advertisements

36 thoughts on “SEC Sues Walter, Kelly and Bruce for Fraud

  1. Does anyone have the real reason BARNEY NG has escaped investigation or being named in the SEC lawsuit. Is Barney working with the government? Is Barney a confidential informant? What’s up with this and I am not the only one asking!

    • If you want the “real reason,” ask Erin Schneider, the attorney who led the SEC investigation and drafted the complaint. Her e-mail is: SchneiderE@sec.gov.

      My “opinion” is:

      1. The SEC case is about fraud, fraud directed at investors. Those of you who attended the McGuire trial may remember that I talked about the R.E. Loans and Mortgage Fund ’08 operations as “upstairs-downstairs.” “Downstairs” was investor related. Walter, Kelly and Bruce worked downstairs. “Upstairs” was borrower related, Barney, when he was there, worked upstairs. A case about fraud directed at investors necessarily was directed at conduct “downstairs.”

      2. The SEC worked on the case with the FBI. The FBI sent out questionnaires to investors. The questionnaires gave investors the opportunity to report investor fraud. The FBI reviewed hundreds of questionnaires and none of them had any facts implicating Barney Ng in investor fraud.

      3. Many investors supplied copies of letters to the FBI that they had received promoting R.E. Loans and/or Mortgage Fund ’08. Walter Ng, Kelly Ng and/or Bruce Horwitz signed the letters, Barney Ng did not.

      4. The FBI interviewed many investors. The investors gave testimony about fraud by Walter Ng, Kelly Ng and/or Bruce Horwitz, but not Barney Ng.

      5. In the McGuire case, Bruce Horwitz’s attorney produced the typewritten speech that Walter Ng gave to the investors at the Silver Dragon dinners in 2007 and 2008. Barney Ng did not give a speech to the investors at those dinners.

      6. On paper, Walter Ng, Kelly Ng and Bruce Horwitz were the managers of B-4 Partners. Walter Ng and Kelly Ng were the managers of Mortgage Fund ’08. Those managers worked with investors. Barney Ng was president of Bar-K, the loan servicer. As loan servicer, he worked with borrowers, not investors.

      7. Before the Commission, Walter Ng, Kelly Ng, and Bruce Horwitz refused to give their side of the story asserting their Fifth Amendment right to remain silent. Barney Ng testified, he appeared without an attorney, he answered every question, and told the Commission his side of the story.

      8. Since the SEC case is all about investor fraud, Barney Ng should not have been named as a defendant.

      Robert W. Brower

      • The Great and Powerful Oz has spoken. He knows all. The SEC and FBI have informed him (while asserting their inability to share any information with complainants) that none of the hundreds of investors questionnaires implicated Barney, that none of the investors interviewed by the FBI accused Barney of any fraud and that Barney testified truthfully before “the Commission”.

        It’s interesting that while the SEC swallowed the story that Barney was telling, after hearing Barney’s testimony before the California Department of Corporations, In the Matter of the Desist and Refrain
        Order issued to:R. E. LOANS, LLC, B-4 PARTNERS, LLC, MORTGAGE FUND ’08, LLC, THE MORTGAGE FUND, LLC, BAR-K, INC., WALTER NG, BRUCE HORWITZ, KELLY NG, AND BARNEY NG, Case. No. 10591; OAH No. 2011100588, it entered its decision:

        The evidence establishes that respondent [Barney Ng] was intricately involved in the operation of these funds, both as a member of B-4 Partners, the manager of R.E. Loans, and his ownership and operation of Bar-K. As evidenced by the testimony of Collins, respondent was one of the many faces of these funds to investors, and the documentary evidence establishes that his name was prominently displayed on investor correspondence.

        Respondent’s attempt to distance himself from the operation of the funds by defining his role as a mere servicer of the loans is unpersuasive at best. The evidence amply demonstrates that respondent substantially assisted in the operation of R.E. Loans and Mortgage fund ’08. Such is sufficient under the law to render him liable for the violations of Corporate Securities Law of 1968 as set forth in the Desist and Refrain Order.

        By virtue of the foregoing, cause exists to affirm the Desist and Refrain Order. Affirmed 6/18/12 by California Department of Corporations Commissioner Jan Lynn Owen.

        Please stop being such a Barney Ng sycophant.

        • Monagesque,

          Thank you for reminding me about the Department of Corporations hearing, the exhibits introduced at that hearing, and the decision. As a result of your reminder, I need to add two more items to my list, above.

          9. On January 31, 2012, there was a hearing on Barney Ng’s appeal of a cease and desist order issued by the California Department of Corporations. I was present at that hearing; Monagesque was not there. There was no testimony at the hearing that Barney Ng committed investor fraud. There were two binders of exhibits for the hearing. There was no evidence in the binders that Barney Ng committed investor fraud. I have those two binders.

          Although the FBI and the SEC were not present at the hearing, they obtained a copy of the Reporter’s Transcript of Proceedings and copies of the two binders of exhibits. The FBI and the SEC reviewed all of this material and they could not find any evidence that Barney Ng committed investor fraud.

          10. As you know, Monagesque, on December 3, 2009, the SEC investigation was terminated with no enforcement action. The SEC’s investigation was dead in the water.

          During the first week of July 2011, Barney “self-reported” to the SEC. Barney Ng’s “self-report” reopened the SEC investigation, which resulted in the filing of the complaint against Walter Ng, Kelly Ng, Bruce Horwitz and The Mortgage Fund, LLC. It would be very difficult to name a “self-reporter” as a defendant in an investor fraud case. The law encourages “self-reporting.” The law does not punish it.

          Monagesque, if you think of anything else that I have omitted, please let us know. I am ready to go with 11, 12, 13, and so on.

          In the meantime, please don’t give up hope.

          There is still an outside chance that Barney Ng will be indicted by the Grand Jury for conspiracy to commit mail fraud, conspiracy to commit wire fraud, and/or conspiracy to commit money laundering.

          • You are correct. I did not attend the January 31, 2012 DOC hearing of THE CALIFORNIA CORPORATIONS, COMMISSIONER, Complainant, vs. BARNEY NG, Respondent. OAH CASE NO. 2011100588. I did read the 189 page transcript and all of the exhibits admitted into evidence. While you state definitely that there was no evidence of Barney committing investor fraud, obviously the Administrative Law Judge Melissa Crowell disagrees with your interpretation of the oral testimony and evidentiary exhibits.

            Her decision stated on page 8, ¶38:

            The Commissioner found that Bar-K and respondent committed a series of trust fund violations in connection with its affiliation with R.E. Loans and Mortgage Fund ’08. Specifically, the Commission found the following violations: failing to maintain required trust fund records (Cal. Code Regs., tit. 10, § 2832); failing to record deeds of trust in the name of the lenders/beneficiaries before loan proceeds were to were transferred to the borrowers (Bus. & Prof. Code, §10234, subd. (a); Cal. Code Regs, tit. 1 0, § 2841.5); failing to timely provide disclosure statements (Bus. & Prof. Code. §I 0232.44, subd. (a)); failing to secure completed income/net worth statements from investors (Bus. & Prof. Code, §10238, subd. (f)); and, failing to obtain an independent appraisal or providing a written broker evaluation regarding the secured real property (Bus. & Prof. Code, §l 0238, subd. (h)).

            In addition, the Commissioner found that Bar-K and respondent had committed fraud or dishonest dealing in violation Business and Professions Code section 10 I 76, subdivision (i), in connection with the funding of a construction loan.

            As to respondent individually, the Commissioner made the additional finding that he had failed to exercise reasonable supervision over the activities of Bar-K in violation of Business and Professions Code section l 0177, subdivision (h).

    • The last sentence of Paragraph 28 of the SEC complaint states: ”In August 2008, on Walter Ng’s behalf, Walter Ng’s other son emailed R.E. Loans’ commercial lender to ask for more funds because MF08 was not raising money as quickly as investors were asking for distributions from R.E. Loans.

      That e-mail, dated August 30, 2008, was from Walter Ng’s other son, Barney Ng, to the Dallas account manager for the Wells Fargo Foothill line of credit, Tami Barrows. This is the sentence from that e-mail:

      “The new fund has been raising money but not at the pace that people are requesting their investments back from RE LOANS.”

      The sentence would not have come as a surprise to the Wells Fargo Foothill account manager for the line of credit. Wells Fargo Foothill had been actively involved in assisting Walter Ng and Kelly Ng to move “new” money from Mortgage Fund ’08 investors to pay “old” investors in R.E. Loans.

      Barney Ng was questioned about this sentence by the attorneys for the SEC, the Special Agents for the FBI, and by Julie, the incredibly beautiful investigator for the IRS. His willingness to voluntarily testify about this sentence was, in my opinion, a significant factor in his not being named as a defendant in the SEC case.

      • Monagesque, I really appreciate your reminders.

        The paragraph that you selectively quote from the March 2012 Administrative Law Judge Proposed Decision has the title: “2009 Disciplinary Action by the Department of Real Estate against Bar-K and Respondent.” The word “Commissioner” in the section you quote is the “Commissioner of the Department of Real Estate.”

        This reminds me of two other points to add to my list.

        11. On June 10, 2010, there was another administrative hearing. This hearing concerned Bar-K’s appeal of the Commissioner of Real Estate’s license revocation decision.

        I was present at that hearing; Monagesque, you were not there. I know that as a fact because I knew every single person who attended that hearing. The witness produced by the Department of Real Estate was an auditor, who had conducted a forensic audit of the legally mandated trust accounts of Bar-K and other books and records of Bar-K. After that June 2010 hearing, I obtained a complete copy of the exhibits produced by the Department of Real Estate, that is, the auditor’s file.

        No investor testified at that June 2010 hearing. There was no evidence of investor fraud at the hearing. I confirmed that there was no investor fraud in the exhibits when I read the auditor’s file.

        Quite simply, Monagesque, had you been at that June 2010 hearing, you would not have selectively quoted from the March 2012 Proposed Decision as a post on this blog. The use of “Commissioner” in your post must have been unintentionally misleading.

        I am happy to clarify this fact for the readers of this blog.

        12. The FBI and the SEC were following the involuntary bankruptcy case brought against Barney Ng, filed by three investors (“Kurtin, Farley, and Keaton” for short). After they dismissed their petition, Barney Ng sought damages and punitive damages under Section 303(i) of the code against Kurtin, Farley and Keaton. Keaton settled before Judge Efremsky announced his decision on damages. In that decision, Judge Efremsky awarded $148,372.15 against Kurtin and Farley, and $10,000 punitive damages against each of them. A judgment was entered. Earlier in the case, Judge Efremsky awarded $8,395.06 in sanctions against Kurtin, Farley and Keaton. When the judgment, the award of sanctions and the settlement are totaled, Barney Ng walked away from the case with more than $300,000 paid by Kurtin, Farley and Keaton.

        Judge Efremsky also made a finding that the petition filed by Kurtin, Farley and Keaton contained false or materially false, fictitious or fraudulent statements and after the judgment was entered, under section 303(k) of the code, Judge Efremsky ordered that the case file be sealed to protect Barney Ng from any future improper use of the file by Kurtin, Farley, Keaton or anyone else.

        Because Kurtin’s, Farley’s and Keaton’s credibility was reduced to zero as a result of the judgment and the sealing of the file, I am sure that the FBI and SEC severely discounted any complaints that they may have reported during the reopened investigation. In addition, their testimony would have no value, and if called as witnesses, Kurtin, Farley and Keaton would have been significant negative factors in prosecuting the case.

        Monagesque, I am still saving 13, 14 and 15 and so on. If you have any other posts that might trigger my recollection about facts that support my opinion concerning the SEC’s decision not to name Barney Ng as a defendant in the case, please let us know.

        • To set the record straight:

          In the April 2012 Administrative Law Judge’s Proposed Decision. (later affirmed by the Commissioner of the Department of Corporations (DOC) she summarized Barney’s previous violations of California codes and regulations from both the DOC and the Department of Real Estate (DRE). I realize that the number of different actions taken against Barney is confusing.

          In my prior post I failed to include that part of the opinion entitled “2001 Disciplinary Action by the Department of Real Estate Against Bar-K and Respondent”, wherein the judge wrote,

          “Bar-K and respondent [Barney Ng] were found to have violated California Code of Regulations, title 10, section 2832, which sets forth the rules for handling trust funds, providing cause to suspend or revoke their real estate licenses pursuant to Business and Professions Code section 10177, subdivision (d).” Decision, p.4, ¶ 15.

          While I may not have been present at the June 10, 2012 hearing where Barney’s appeal of his license revocation was heard and later denied, there must have been evidence submitted that established that Barney “had committed fraud or dishonest dealing” since that was one of the bases for the Commissioner of the (DRE), Preston DuFauchard ‘s accusation entitled. “2009 Disciplinary Action by the Department of Real Estate against Bar-K and Respondent” . It was summarized in the 2012 Department of Corporations decision:

          On August I 0, 2009, the Department of Real Estate issued another accusation against Bar-K and respondent, alleging new violations in their operation of the mortgage loan brokerage business with the public in California. Following a full administrative hearing on the merits of the allegations, the Commissioner rendered a decision effective September 30, 2010, finding that Bar-K and respondent had violated numerous rules and regulations regarding the handling of trust funds over an audit period of January l, 2007 through May 30, 2008, in connection with its affiliation with R.E. Loans and Mortgage Fund ’08. Decision, p.8, ¶ 36.

          The question of which Commissioner, DRE or DOC, found violations of the California Code of Regulations in 2001 and 2009 and the violations of the California Corporation Code in 2011 seems of no great moment. The fact that BOTH Commissioners determined that Barney had violated “numerous rules and regulations” spanning both the California DRE and DOC would be more significant. In fact, my prior post summarized the Commissioner of the DRE’s 2009 Disciplinary Action in which Barney’s and Bar-K’s Real Estate Broker’s licenses were revoked after finding that Barney “had committed fraud”. Decision, p.8, ¶ 38.

          You and I obviously have a different assessment of Barney Ng’s role in the demise of RE Loans and Mortgage Fund ’08 and the evaporation of close to a billion dollars in noteholder investments. I think he defrauded the investors and you seem to think that his hands are clean. Your constant portrayal of him as legally beyond reproach is baffling in light of all the evidence to the contrary. So at this point we’ll just have to wait and see how this shakes out in the legal system. Obviously, I’m not going to convince you of his misdeeds and you are not going to convince me of his innocence.

  2. I appreciate the posts. I invested on 9/9/08 and believe Bruce and Kelly were aware of the problems the fund had. Within one year the fund stopped paying interest. Bruce told me personally their investments had never lost money. What a farce. I never received any questionnaires from the FBI.

    • Your $150,000 investment was deposited in the Mortgage Fund ’08 operating account on September 9, 2009. Your money was withdrawn on September 10, 2008. It was either paid to Mitchell Levy, another Mortgage Fund ’08 investor, who was given a $215,000 capital disbursement (Mortgage Fund ’08 operating account check 1194), or it was transferred to The Mortgage Fund LLC (Mortgage Fund ’08 operating account check 1195), and then immediately transferred to R.E. Loans (The Mortgage Fund LLC check number 1088) and paid to R.E. Loans investors. Your money was never invested in anything.

      • Are you certain of the trail? The statements I received show interest through 6/09. Did they just “make up” the interest statements?

        • When you filled out page 8a of the Subscription Agreement, you checked the box “Investor Requests Reinvestment of Interest into Principal.” The interest was calculated, then added to your account balance, and reported on your quarterly Investor report. This was repeated every quarter, compounding the interest. According to the Mortgage Fund ’08 records, your net earnings totaled $9,942.50, and your paid out earnings totaled $0.00.

          Since you never asked that you be paid your interest, your account balance was just an ever increasing number on a piece of paper.

          • Thank you. I noticed Armanino McKenna CPA’s listed as being sued. Do you know if complaints were filed with the Department of Consumer Affairs which regulates CPA’s and CALCPA which is the state society?

        • Did Bruce sell his home in Piedmont, Ca.the city in which he has lived since a child and going to Piedmont Schools?

          • Lois Horwitz owns a house at 545 Blair Ave in Piedmont. I don’t know the relationship. Bruce doesn’t show ownership of property under his name in Alameda County.

          • Someone told me Bruce transferred his home to his children via a QPRT in 2009. If that is true, it was a great way to ensure he had no assets to pursue!

    • I have just heard that Kelly and Jenny have sold there home and split it 50/50. I believe they have put the money in a trust for their two children…can we ever get a hold of this??? What about the diamonds, watches, cars and jewelry????

  3. Lois is Bruce’s wife. Bruce and Lois are still married and live together. Just a bunch of crooks that took every possible advantage of their victims and felt no shame…just sorry they got caught. Let them all rot.

    • ServeItCold,

      The claims register for the R.E. Loans bankruptcy reflects that Bruce Horwitz is married to Jacquelyn Horwitz. What evidence do you have that Lois Horwitz is a crook?

  4. I won’t tolerate personal attacks. Robert Brower has been one of the very few people that has stood up for the investors. We’ve had very few friends and very few trusted sources. One might argue that we’re seeing action on many fronts due to the efforts of Mr. Brower.

    As for Barney, I don’t know him. I’ve never met him, and I cannot for the life of me believe he is an innocent actor. I simply think he’s smarter than his dad and brother and crafty enough to wiggle his way out of trouble. We’re headed in a positive direction whether or not Barney is involved or implicated in the scandal. Let’s not lose our focus on the big picture while worrying about what is or isn’t happening to Barney.

  5. What current effects (if any) do the SEC investigation/charges have upon… 1) IRS Madoff Rule, 2) Bankruptcy proceedings?

    • Do the SEC charges have the same impact/consequences on RE Loans and MF08 investors?

      With regards to the question about IRC165, it would need to be determined if a criminal complaint (vs a civil one filed by SEC) is necessary to trigger the rule. Does anyone know more?

    • I can answer the second part of the question. Right now, there is no answer.

      In the R.E. Loans and Mortgage Fund ’08 bankruptcy proceedings, the liquidating trustees have the right to sue third parties to recover money for the bankruptcy estates. There is one case pending, Uecker vs. Wells Fargo Capital. In that case, Susan Uecker stands in the shoes of Mortgage Fund ’08 and her attorney, George Trevor, has stated three claims for relief: (1) Avoidance and Recovery of Fraudulent Transfers (Actual Intent); (2) Avoidance and Recovery of Fraudulent Transfers (Constructive Intent); and (3) Aiding and Abetting Breach of Fiduciary Duty.

      Susan Uecker wants Wells Fargo Capital to pay back the $66 million that was taken from Mortgage Fund ’08 investors and given to R.E. Loans’ investors.

      Wells Fargo Capital will have several defenses. One is called “unclean hands.” The rule is this: If a plaintiff has unclean hands, then the plaintiff is not allowed to obtain relief in the court. The leading case is a 2005 case called Peregrine Funding vs. Sheppard Mullin Richter & Hampton LLP.

      Peregrine Funding involved a Ponzi scheme run by two managers of the company.

      The plaintiffs in the case were a bankruptcy trustee and the investors. The defendant was a law firm that allegedly “helped the perpetrators of the scheme avoid detection and prosecution by securities regulators.”

      The court threw out the bankruptcy trustee’s case against the law firm under the unclean hands rule. There were three factors that triggered the unclean hands defense: (1) whether the manager’s misconduct in running the Ponzi scheme could be imputed to the corporate entity; (2) whether the corporation’s misconduct could be imputed to the bankruptcy trustee; and (3) whether the misconduct was sufficiently related to the causes of action asserted in this case.

      At first glance, an investor might think that the SEC has done a great service to the investors. Not so. The SEC complaint has laid out for Wells Fargo Capital the unclean hands defense it needs to defeat Susan Uecker’s case. The allegations in the SEC complaint spell out in detail the managers’ misconduct. There are allegations that prove the managers’ misconduct is imputed to Mortgage Fund ’08 and, in turn, imputed to Susan Uecker. There is no doubt that the allegations in the SEC complaint are sufficiently related to the allegations in the complaint in Uecker vs. Wells Fargo Capital.

      In other words, Walter Ng and Kelly Ng have unclean hands. Their unclean hands are Mortgage Fund ’08’s unclean hands. Mortgage Fund ’08’s unclean hands are Susan Uecker’s unclean hands. Susan Uecker’s unclean hands relate to her lawsuit and she is thrown out of court.

      So is Uecker vs. Wells Fargo Capital over, before it starts. No. The allegations in the SEC complaint are just that, allegations. There is a very good argument that the SEC’s allegations about the Ponzi scheme, that is, the transfer of the first $40 million from Mortgage Fund ’08 to R.E. Loans are completely false. There is also a very good argument that the transfer of approximately $18 million to R.E. Loans through an all-inclusive deed of trust on Eagle Springs was legal.

      As strange as it seems, the investors in Mortgage Fund ’08 now need Walter Ng, Kelly Ng and Bruce Horwitz to vigorously defend the SEC case and defeat it, in order to save Uecker vs. Wells Fargo Capital.

      If you suspect that all of the legal maneuvering in the two cases will be much more complicated than what I have written, you are correct. So, right now, there is no good answer to Mr. Hoetker’s second question.

  6. Do the recent SEC investigation/charges have an effect IRS Madoff Rule? What would be needed to trigger this rule? Does anyone know?

    • Simply, the capital loss for 2012 taxes is important as an offset to all R.E. Loans investors that have a capital gain for 2012.

      In his letter last year, if I recall correctly, the trustee stated that the capital loss would be within a range, with a 6.7% guesstimate, that is, a 93.3% capital loss. The new figure in the letter is based upon the portfolio loss for last year. There will be a different number for your 2013 taxes, your 2014 taxes, and so on, until the case is over.

      Think of these numbers as a roller coaster. Up, down, up, down, down, until your car has come to rest near the bottom of a loop.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s