PacEquities, owners indicted in real estate fraud
Federal charges - A Bend couple are accused of overvaluing property and swindling hundreds
Saturday, December 17, 2005
JULIE TRIPP

A Bend investment firm, PacEquities Inc., has been indicted in an alleged securities scheme that defrauded as many as 200 investors, including dozens of Oregonians, out of $17 million.

Also indicted Thursday in U.S. District Court in Eugene on securities fraud were Michael Marks Rich, 68, and Phyllis Marks Rich, 69, officers and owners of PacEquities. The two are married and have a house in Bend.

The indictments culminate a two-year investigation by state and federal regulators into the Bend firm, which used advertising in Oregon newspapers and on the Internet to pitch real estate investments that it touted as high-interest and low-risk. The firm had a Portland office.
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In May, PacEquities said it had 200 investors, many in Oregon. The firm has stopped paying either interest or principal on the investments, regulators and investors say.

The federal grand jury indictments allege PacEquities and the Riches misrepresented real estate projects in Oregon and Washington with promises to investors of annual returns of 10 percent or more. PacEquities, the indictments allege, misdirected funds into the Riches' personal accounts and didn't generate enough money to pay its interest obligations.

New investor money was used to pay earlier investors, "creating the perception of a successful business," the indictments allege. The company and the Riches inflated the worth of properties, and loans on the properties in some cases far exceeded the properties' value, the indictments allege.

Securities fraud is punishable by as many as 20 years in prison. If convicted, the Riches also would be required to forfeit all assets related to fraud, including real and personal properties, cash and bank accounts.

On Friday, Michael Rich said he hadn't seen the indictments and had no comment on behalf of himself or his wife. PacEquities attorney Robert C. Weaver Jr. of Portland said he hadn't seen the indictments either, but he expected the company to enter a plea of not guilty at a Dec. 27 arraignment.

A former employee of PacEquities in Bend, who left in late 2003 when she became suspicious about the investments, said she was pleased about the indictments.

"Thank heavens," Jan Bryant said. "It's been a long road for these investors, at least the ones I knew when I worked there. Many were elderly and not very savvy or sophisticated about investing. That is the heartbreak of this situation. My hope is that somehow, they will be made whole."

Investors interviewed by The Oregonian since the paper's first article on the investigation in May had invested from $20,000 to more than $500,000 in PacEquities.

In one type of alleged fraud, the indictments say, the Riches inflated property values to secure loans and more investors.

The indictments allege, for example, that the Riches bought 6 acres on Baxter Road in Salem for $320,000, then sold the property a month later to PacEquities for $480,000. They also executed two trust deed loans on the property, which "caused the Baxter Road property that was purchased for $320,000 just one month earlier to be encumbered by first and second trust deeds totaling $755,000. These loans exceed the value of the property by more than $400,000," the indictments allege.
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In addition, the Riches took in $615,000 from investors for the Baxter Road property, securing the investments with more deeds, which exceeded the value of the property by almost $300,000, according to the indictments. Later, the Riches transferred the investor trust deed interests into fund shares, claiming that the Baxter Road property was appraised at $2.2 million "when PacEquities knew that it had a market value of only $320,000."

The indictments, which came out of a joint investigation by the FBI, Internal Revenue Service and Oregon's Division of Finance and Corporate Securities, also allege that the Riches have used several aliases and that Michael Rich misrepresented his resume and experience to prospective investors.

For example, Rich claimed in brochures that he had served in the U.S. Army and studied law and accounting at the University of Washington, the indictments say. But, they say, he never served in the armed forces, and he "flunked out of the University of Washington during his freshman year and did not study law or accounting."

Ned Powers of Bend, who put $125,000 into PacEquities, said he had regarded the Riches as friends. He said he would be disappointed if they were found guilty of securities fraud.

"We all went in there trusting them," he said. "But I'm not into retribution. I just want to get my money back."

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