SANTA ANA, CA—One of the owners of a now-defunct Southern California real estate investment firm pleaded guilty today to perpetrating a fraudulent scheme that ended with the bankruptcy of the company, in which investors and banks collectively lost more than $110 million.

John Packard, 64, of Long Beach, pleaded guilty to one count of mail fraud before United States District Judge Cormac J. Carney.

During today’s hearing, Packard admitted bilking investors in Pacific Property Assets (PPA), which had offices in Long Beach and Irvine. Packard and his co-defendant, Phoenix resident Michael J. Stewart, created PPA in 1999 to purchase, renovate, operate and resell or refinance apartment complexes in Southern California and Arizona. Typically, PPA financed property acquisitions through mortgages, and it raised money from private investors to pay for renovations to the properties. After several years, PPA would usually refinance (or sometimes sell) each property.

Although PPA’s apartment rental operations were not profitable, it was able to raise cash through refinancing and selling properties. As real estate values were generally increasing until approximately 2007, the properties were refinanced at ever-higher values, which enabled PPA to use the extra refinancing proceeds to not only pay off the original mortgages, but also to make payments on other loans, make payments to investors, and to pay Stewart and Packard. In its 10 years of operations, PPA acquired more than 100 real estate properties and raised tens of millions of dollars from hundreds of investors.

By the end of 2007, when the real estate market began to decline and credit became scarce, PPA’s business model was no longer feasible. To keep PPA afloat, from late 2007 through April 2009, Stewart admitted today that he and Packard continued to raise tens of millions of dollars from new investors. The defendants used those new funds to pay earlier investors, mortgage lenders, other company expenses, and Stewart and Packard themselves. Packard admitted that by October 2008, he and Stewart knew that PPA was dependent on these investor loans to make its monthly debt payments and continue operating, and was unable to raise money through other means.

Packard also admitted that during the course of this continued fundraising effort, Stewart—with Packard’s knowledge and consent—misrepresented PPA’s financial condition, claiming that its business model was still working, and that PPA was still financially stable and able to raise money through refinancing. Stewart and Packard concealed from investors the fact that the business had effectively become a Ponzi scheme, using new investors’ funds to pay back earlier investors. Moreover, following PPA’s final investor offering in 2009, virtually none of the investors’ approximately $9.23 million in funds were used to invest in new property purchases, as had been promised to investors; instead, the money was used to pay earlier investors and banks, to pay Stewart and Packard, and to pay PPA’s bankruptcy attorney.

PPA and a group of related companies filed for bankruptcy in June 2009. When the bankruptcy was filed, PPA owed 647 private investors more than $91 million, and it owed banks approximately $100 million. In the bankruptcy proceedings, the private investors received nothing, while banks lost an estimated $24 million.

Packard faces a statutory maximum sentence of 20 years in federal prison when he is sentenced by Judge Carney on May 18, 2015.

Stewart is scheduled to go on trial on April 14, 2015.

The investigation in this case was conducted by the Federal Bureau of Investigation, which received assistance from the United States Trustee’s Office.