You Can't Cheat an Honest Man - James Walsh [57]
Rosen did this dozens of times. He exploited the trust of friends, partners and political allies. If any of the lenders had contacted any of the supposed borrowers, the scheme would have collapsed. But people never made the connections. They trusted Rosen.
The bogus second mortgage business in Rohnert Park could only support a limited amount of fraudulent activity. As the 1980s turned into the 1990s, Rosen needed more room to keep his scheme growing. After listening and watching other real estate bigshots operate, he moved on to selling limited partnerships in real estate development projects—a relatively unregulated part of the market. Although the deals were different and the dollars larger, Rosen’s modus operandi was the same: He’d sell many times the value of the deals.
His centerpiece was a project called Sky Hawk. It was supposed to be a large development like Blackhawk, a successful subdivision of $1 million homes about an hour north of San Francisco. “I went out with Michael and his brother Chuck,” said one investor. “We physically looked at this property. We were walking around trails.”
But Rosen didn’t own the land. All he had—and even this would become a matter of dispute—was an option to buy the land. Most importantly, development agencies in the area never received plans for building Sky Hawk.
Rosen sold limited partnerships, anyway. And he even paid some distributions. He claimed these were from the early sale of Sky Hawk lots; in fact, they were from later investments. He planned his scheme carefully...and grew it slowly. But the most careful management only allowed Rosen to borrow more time. The inevitable outcome was the same.
There were some hints of trouble in early 1996. Several of Rosen’s interest checks bounced. He blamed the problems on a jam-up with his bank and made good on the payments.
His scheme finally collapsed at the end of August 1996. Despite the walking tours of the area, Sky Hawk wasn’t drawing enough new money to support the list of people who expected interest checks every month. Between 60 and 100 people had invested $6 million with Rosen. That meant monthly interest expenses of almost $100,000. And Rosen hadn’t made investments which could generate that kind of cash flow.
He filed for bankruptcy protection in September 1996. His company listed almost 200 creditors—and a negative net worth of several million dollars. Because Rosen had used the banking system to perpetuate his scheme, the FBI was called in by local law enforcement authorities to investigate. Rosen cooperated with the Feds from the beginning, providing what paperwork he had and explaining the details of his con. As a result, a month after his scheme collapsed, he still hadn’t been arrested.
“He should be in custody,” said William Duplissea, a former state assemblyman who lost several thousand dollars with Rosen. “There are a lot of records and things like that he could do away with.”
Duplissea had first met Rosen at a state Republican convention in the late 1980s. The two men turned out to have similar backgrounds, growing up in families that owned dry cleaning businesses in northern California. Soon they were attending baseball games at Candlestick Park, vacationing together in the Napa Valley, socializing with fellow Republicans. Rosen eventually invited Duplissea to join his real estate ventures. “I’d been in and out of them,” he said. “They’d mature and I’d be paid, and we’d go into another one.”
Another investor said, “[Rosen]’s smart. Since he declared bankruptcy voluntarily, he could argue he’d surrendered. Since he cooperated with the FBI all along, he could say he was making amends. He can’t say his investments were legitimate,