Hard Money Lender Sentenced for Lying to his Investors

Mortgage Fraud Blog - Hard Money Lender Sentenced for Lying to his Investors:

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David A. Nilsen, 61, Seaside, California, was sentenced to 97 months in prison, and ordered to pay $69,828,833 in restitution following his conviction for conspiracy to commit mail and wire fraud in connection with his operation of Cedar Funding, a Monterey, California-based hard-money lender,

Nilsen pleaded guilty on Oct. 24, 2011, to conspiracy to commit mail and wire fraud. According to the plea agreement, Nilsen founded Cedar Funding in 1980, and connected residential real estate developers seeking to borrow money using real property as collateral with individual investors who were willing to make such loans.Nilsen admitted that, from 2004 through 2008, an increasing number of borrowers defaulted on loans funded by Cedar Funding investors, due to market conditions and management and construction problems.

According to court documents, in response to those developments, and in an attempt to salvage the real estate projects that secured Cedar Funding loans, Nilsen and his loan servicing manager failed to inform investors of certain material facts about the true condition of their investments. In particular, they failed to inform investors that borrowers had defaulted, that Nilsen had taken over many of the loans, and that Cedar Funding had advanced substantial additional investor funds into those loans.  

Nilsen further admitted that the increasing loan balances, combined with the declining value of the underlying real estate collateral, resulted in the amount of the loan exceeding the value of the collateral. Nilsen also acknowledged that he and his loan servicing manager did not properly record investors' fractional deeds of trust, and did not inform investors that Cedar Funding had used a significant portion of the investment money to make interest payments to investors on those loans.

Nilsen was indicted with co-defendant Manoel Errico by a federal Grand Jury on Sept. 8, 2009. Errico is a fugitive. Nilsen was charged with thirty-one counts of conspiracy, mail, wire and securities fraud in violation of 18 U.S.C. •• 1349, 1341, 1343 and 15 U.S.C. •• 78j(b) and 78ff. After his initial appearance in federal court in San Jose in September 2009, Nilsen was released upon a secured $1 million bond and has remained out of custody.

The sentence was handed down by U.S. District Judge Edward J. Davila followingNilsen's guilty plea to one count of conspiracy to commit mail and wire fraud, in violation of Title 18, United States Code, Section 1349. Judge Davila also sentenced the defendant to a three year period of supervised release, and ordered him to pay $69,828,833 in restitution. The court ordered the defendant to report to begin serving the sentence on June 1, 2012.

Thomas E. Stevens and Jonathan D. Schmidt are the Assistant U.S. Attorneys who are prosecuting the case with the assistance of Special Assistant U.S. Attorney Annie Michaels of the Monterey County District Attorney's Office, and legal assistant Rawaty Yim. The prosecution is the result of a sixteen-month joint investigation by the United States Postal Inspection Service, the Federal Bureau of Investigation, and the Monterey County District Attorney's Office.