Philip R. Lochmiller, Jr, and Shawnee Carver of Valley Investments Sentenced to Federal Prison
|U.S. Attorney’s Office October 18, 2011|
DENVER—Philip R. Lochmiller, Jr. and Shawnee Carver were sentenced late last week by U.S. District Court Judge Philip A. Brimmer, the U.S. Attorney’s Office, the Federal Bureau of Investigation, and the Internal Revenue Service - Criminal Investigation announced. Lochmiller, Jr. was sentenced to serve 96 months (eight years) in federal prison for conspiracy to commit securities and mail fraud and money laundering. Carver was sentenced to serve 24 months (two years) in federal prison for conspiracy to commit securities and mail fraud. Both defendants were also ordered to spend three years on supervised release following their imprisonment. Carver and Lochmiller, Jr. were ordered to report to a facility designated by the Bureau of Prisons on a date certain.
A hearing to address the issue of loss and restitution will be taken up a later date. After Judge Brimmer rules on the amount of loss and restitution, he will then schedule a sentencing hearing date for Lochmiller, Sr.
Philip Lochmiller, Sr., Philip Lochmiller, Jr., and Shawnee Carver were indicted by a federal grand jury in Denver on December 15, 2009. A superseding indictment was returned on October 18, 2010. Lochmiller, Jr. pled guilty on November 16, 2010. Carver pled guilty on December 9, 2010. Lochmiller, Sr. was found guilty by a jury following his trial on July 21, 2011.
According to evidence presented at the trial, the superseding indictment, plea agreements and other documents, Valley Mortgage, Inc. was incorporated in Colorado in September 1994 by Philip Lochmiller, Sr. The company originally engaged in the business or originating or brokering home mortgages. Lochmiller, Jr. owed 100 percent of Valley Mortgage’s stock and was principal, officer and director. Lochmiller, Sr.’s stepson, Philip Lochmiller, Jr., joined Valley Mortgage in 1999 as a mortgage officer. Lochmiller, Sr. later added the name Valley Investments as a does business as for Valley Mortgage. Lochmiller, Jr. eventually worked his way to become responsible for day-to-day operations of the company. Beginning in 2000, Valley Mortgage entered into the “affordable housing” real estate market by buying vacant land or existing mobile home parks, entitling the land so residential subdivisions could be built, and then selling lots with either a mobile home or a manufactured home on it.
Valley Investments purchased land with financing provided by the sellers in a “owner-carry” arrangement. Valley Investments then began to advertise in local newspapers and solicit investment funds from the public. The company promised returns from 10 percent to 16 percent, and in some instances, as high as 18 percent. In exchange, investors were promised a promissory note and a recorded first “Deed of Trust” on individual lots. The advertisements and verbal representations by both of the Lochmillers characterized the investment as a “solid security” secured and recorded by a Deed of Trust in the investor’s name. Both of the Lochmillers represented to investors that Valley Investments used investor funds exclusively to acquire property and finance the development of the subdivisions Valley Investments owned. Both the Lochmillers further represented that Valley Investments generated large profits by selling manufactured homes together with lots within the subdivisions. Investors were not told that Lochmiller Sr. had a prior felony conviction and a bankruptcy.
Between 2000 and 2005, Valley Investments acquired five properties purportedly to develop “affordable housing” subdivisions. Between 2000 and 2009, Valley Investments received over $30,000,000 from approximately 400 investor contracts. The government’s expert forensic accountants shows that this influx of investor funds kept Valley Investments operating, particularly in its later years, and without investor funding, Valley Investments would have failed. The Government accounting analysis also determined that investor funds were used by both of the Lochmillers for purposes other than what investors were told. Further, incoming investor funds were used to make interest and principal payments to existing investors. Once investor money started coming into Valley Investments, the funds went to personal expenses, family expenses and other non-business expenditures. Both Lochmillers then engaged in monetary transactions involving more than $10,000 of the proceeds of the fraud.
Valley Investments did not own sufficient property or assets to secure the investments as represented. Unbeknownst to investors, the amount of investment funds, which were supposed to be secured by real property, far exceeded the value of the encumbered property and the business assets. Valley Investments failed to file all of the Trust Deeds and behalf of investors as promised, and many of the filed Trust Deeds were not the first encumbrances on the properties named and were thus worthless. Despite these facts, the Lochmillers and Valley Investment employee Shawnee Carver continued to misrepresent to investors that the business was thriving, and never disclosed to new investors how their money was being used.
Carver was hired by the Lochmillers in August 2005 as a full-time employee and as the personal assistant to Lochmiller, Jr. Carver communicated with investors more than any other employee of Valley Investments and participated in providing false information to investors. Beginning in approximately 2007, Carver prepared documents for investors, and was fully aware that the specific real estate that was to secure the investments made by the investors was already encumbered despite representations to the contrary. Carver was also entrusted with investors’ financial records, which gave her access to information about investments, interest rates and calculations, payment schedules, dates of payment, and total amounts of principle and interest owed and paid. Carver repeatedly reassured investors that Valley Investments’ business was doing well even when she knew that was not true.
“Thanks to the hard work of the dedicated FBI and IRS-Criminal Investigation agents, working closely with the U.S. Attorney’s Office, two individuals who had a role in a multi-million dollar fraud will spend time in federal prison,” said U.S. Attorney John Walsh.
“Philip Lochmiller, Jr. helped orchestrate an investment scheme which defrauded over 400 victims out of more than $30 million,” said FBI Denver Special Agent in Charge James Yacone. “Several elderly victims were financially devastated. Today’s sentencing sent a strong message that white collar criminals will not be tolerated. The FBI will continue to aggressively investigate and seek prosecution against the groups and individuals who defraud unwitting victims out of their earnings.”
“Investment fraud is like a ‘house of cards’; the underlying structure can fall apart at any time leaving many investors in financial ruin,” said Sean Sowards, Special Agent in Charge, IRS-Criminal Investigation, Denver Field Office. “These sentences should remind us that defrauding investors is a serious offense and those who do will be held accountable.”
This case was investigated by the Federal Bureau of Investigation (FBI) and the IRS Criminal Investigation, and prosecuted by Assistant U.S. Attorneys Michelle Heldmyer, Pegeen Rhyne and Tim Neff.
This prosecution is part of President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud 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.