Philip R. Lochmiller, Jr. Pleads Guilty to Conspiracy to Commit Securities and Mail Fraud and Money Laundering
|U.S. Attorney’s Office November 17, 2010|
DENVER—Philip R. Lochmiller, Jr. pled guilty yesterday afternoon to conspiracy to commit securities and mail fraud and money laundering, U.S. Attorney John Walsh, FBI Special Agent in Charge James Davis and IRS - Criminal Investigation Special Agent in Charge Christopher M. Sigerson announced. Lochmiller, Jr. entered his guilty plea before U.S. District Court Judge Philip A. Brimmer. Judge Brimmer has not yet scheduled a sentencing hearing date for Lochmiller, Jr., although he did state that the sentencing hearing will take place in Grand Junction. The defendant appeared at the hearing free on a $100,000 unsecured bond.
According to the stipulated facts contained in the plea agreement, 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. then changed the name to Valley Investments. 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 could not secure traditional sources of funding for their projects, primarily because Lochmiller, Sr. had a prior fraud conviction and a bankruptcy. Instead, the company often 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. Investors were also promised that the lot values would be “verified by a licensed appraiser.” 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 about Lochmiller Sr.’s prior felony conviction or 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 420 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. Lochmiller, Jr. 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.
“In cases like this, where investment schemers who take people’s hard earned money—particularly their retirement money—on the basis of false promises and representations, federal law enforcement and the U.S. Attorney’s Office will prosecute them aggressively,” said U.S. Attorney John Walsh. “We will prosecute criminals who steal with the pen and the computer with the same vigor as we prosecute criminals who steal by other means.”
“This guilty plea reflects the tremendous dedication of our agents and the cumulative commitment of the FBI, U.S. Attorney’s Office, and IRS - Criminal Investigation to aggressively investigate and prosecute white collar criminals that prey on innocent victims,” said FBI Special Agent in Charge James Davis. “Our efforts will continue to focus on seeking justice on behalf of the more than 400 victims throughout Colorado that have experienced financial devastation as a result of their involvement with Valley Investments.”
“Defrauding investors is a serious offense and IRS Criminal Investigation is committed to working with the U.S. Attorney’s Office and other law enforcement partners to prosecute those who victimize clients,” said Christopher M. Sigerson, Special Agent in Charge, IRS Criminal Investigation, Denver Field Office.
Lochmiller, Jr. faces not more than five years' imprisonment, and up to a $250,000 fine for conspiracy to commit securities and mail fraud. He faces not more than 10 years in federal prison, and up to a $250,000 fine, or twice the amount of the criminally derived property, for money laundering. Accordingly, in total, Lochmiller, Jr. faces not more than 15 years' imprisonment, up to a $500,000 fine, or twice the amount derived from the crimes.
This case was investigated by the Federal Bureau of Investigation and the IRS Criminal Investigation and prosecuted by Assistant U.S. Attorneys Michelle Heldmyer and Pegeen Rhyne.
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.