Investors snared in real estate scam

07/15/2020

A number of West Marin residents invested in companies that are now under investigation by the Securities and Exchange Commission after their owner, Novato real estate mogul Ken Casey, died from a heart attack in May. Attorneys told investors that two of his companies, Professional Financial Investors and Professional Investors Security Fund, engaged in serious misconduct over the nearly three decades prior to his death, and the companies do not have enough value to allow for a full return of investments.

“Shortly after Mr. Casey’s death, it came to light that interest payments could not be funded without new investment, but accepting new investments would have been a continuation of the misconduct,” consultant Michael Hogan wrote in a letter to investors. “As such, within days of Mr. Casey’s death the companies put a halt to the misconduct, which has resulted in the suspension of new investment and interest payments, and the request for a SEC investigation.”

Mr. Casey’s companies pulled in hundreds of millions of dollars and more than 1,500 investors. The companies owned 30 properties in Marin and southern Sonoma County, consisting of over 600,000 square feet of commercial space and over 750 apartments, according to its now-shuttered website. 

Investors were given a deed of trust for one or more properties or a straight note, and annual interest payments fluctuated between five and 10 percent. But while investors believed the returns were from collateral for their loan, in fact a substantial amount of interest payments were funded by new investments, Mr. Hogan wrote.

Some local investors were given a commission to bring in others. The company’s pitch was that development in Marin is almost nonexistent, so property values reliably increase because of stagnant supply. 

Investments took a variety of forms, with some people directly sending their money, while others invested through a partnership or a limited liability company. The structure of the companies is quite complex. 

One local resident, who requested anonymity while the situation plays out, told the Light that she invested her $50,000 inheritance with Professional Financial Investors in 2009 after a friend raved about Mr. Casey while waiting in line at the grocery store; it seemed better than keeping the money in the bank, she said. The investment yielded interest that complemented her social security income, and after receiving a gift of $80,000 last year, she wrote another check for that amount. Now, she is simply hoping for the principal loan to be returned.

The recovery of investor funds will be managed through either a receivership or bankruptcy, and although brokers have identified substantial financial value that will be allocated to the investors, it is insufficient to permit the return of all of the principal loans to some investors, Mr. Hogan wrote in a letter sent on Tuesday.

All of the corporate officers were asked to resign from the companies, and Mr. Hogan was brought on as the chief restructuring officer. He said his ultimate goal is to protect investments, and thus the underlying real estate assets, to the fullest extent possible. 

“Many investors entrusted Ken with their finances, including his employees and friends, as well as myself,” Charlene Albanese, Mr. Casey’s ex-wife, said in a statement. “We all deserve a full accounting of our investments.”

Lawyers representing the companies from the law firm Ragghianti Freitas discovered that the structure and history of Mr. Casey’s companies was worth investigating while assisting with the transition of ownership. Ms. Albanese, who had no control of the company prior to Mr. Casey’s death, has elected to resign as a director once restructuring officers find an independent director to fill the role.

Although the S.E.C. investigation does not necessarily mean that laws were broken, Mr. Casey has a criminal history in his financial dealings. After pleading guilty in 1997 to preparing false tax returns, he was convicted on 21 counts of bank fraud, five counts of tax evasion, five counts of filing false income tax returns and one count of conspiracy to defraud the United States. He was sentenced to 18 months in prison and three years of probation, and he lost his public accountant certification, according to court records.

Still, Mr. Casey had a good reputation locally. After he died on May 6, at the age of 73, he was remembered fondly at Board of Supervisors and Novato City Council meetings as a prominent businessman, outdoorsman and philanthropist. He moved from Manhattan to Novato in 1975 and served on the Marin County Human Rights Commission for the past five years. He recently purchased Dollhouses, Trains and More, a hobby store in Novato, with plans to turn it into a year-round Christmas house and music venue.  

Mr. Casey contributed to state and local elections in recent years, and he advocated for reduced building costs and housing development. In 2018, he donated to Republican gubernatorial candidates and a campaign to repeal a gas tax.