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Developer Agrees to Plead Guilty to Ponzi Scheme

Fraud: Donald Hill Williams also promises to repay $30.5 million to the 2,500 investors of his now-defunct Anaheim Hills firm. He faces 3-year prison term.

May 09, 1998|DAVAN MAHARAJ | TIMES STAFF WRITER

Donald Hill Williams Jr., the real estate developer who operated one of the state's largest Ponzi schemes targeting elderly investors, agreed Friday to plead guilty to 11 counts of investment fraud. He faces about three years in federal prison.

Williams also promised to repay $30.5 million to 2,500 investors of his now-defunct Anaheim Hills firm, according to a plea agreement with federal prosecutors.

The agreement, filed in U.S. District Court in Santa Ana, marked the first time Williams has confessed to operating a Ponzi scheme in which he solicited money from new investors to pay off earlier obligations.

The 50-year-old Lake Forest resident had consistently denied any wrongdoing. Several state and federal agencies launched a massive investigation into his Hill Williams Development Corp. after he filed for liquidation five years ago.

Williams' anticipated guilty plea on May 18 will close the book on a sordid enterprise that raked in $89 million from about 5,000 investors, many of them retirees.

Elderly investors said Williams charmed them into investing their nest eggs. He guaranteed them hefty 15% annual returns on their investments.

Many elderly investors came from the Leisure World retirement community in Laguna Hills. Buses chartered by Williams would take them and others to construction sites, model homes and raw land. Williams' personal sales pitches on these tours created the impression that his firm provided a stable investment, authorities say.

Many retirees died without recouping a cent of their losses.

Assistant U.S. Atty. John C. Hueston, who was preparing to prosecute Williams before the plea agreement was signed, said the case was unusual because the developer did not set out to defraud investors--at first.

"The hallmark of a successful investment scheme is the appearance of legitimacy," Hueston said. "Precisely because this real estate venture began as a legitimate enterprise enabled Williams at the later stage to lull and deceive thousands of investors to invest and reinvest collectively tens of millions of dollars."

A former real estate broker, Williams set up his firm in 1985 to build and sell affordable homes, mainly in Orange, Riverside and San Bernardino counties. He served as the company's chairman, chief executive and sole shareholder.

Williams had good intentions when he launched his firm, according to court papers.

In the late 1980s, when commercial loans for real estate building became increasingly difficult to obtain, Williams raised capital by selling limited partnership interests to the general public, Hueston said in court papers.

By September 1991, through two "income funds," Williams raised $55 million from 3,500 investors. The company built fewer than 50 homes, authorities say. Most of the money was spent to pay investors. A large portion was used to cover high overhead and bad business deals and to support Williams' family members.

Williams did keep part of his promise. He sent investors their generous dividend checks on the first of every month.

In October 1991, Hill Williams was virtually bankrupt.

Instead of admitting to his bad business deals, Williams launched a Ponzi scheme, Hueston said.

The developer launched two limited partnerships that collected an additional $34 million.

Williams now admits in court papers that he defrauded investors in his final two partnerships by diverting the funds to earlier investors.

The Ponzi scheme finally collapsed in January 1993, when Williams filed for Chapter 7. The bankruptcy filing sparked an outcry from angry investors, many of whom lived on fix incomes and depended on interest earnings from Hill Williams to pay their bills.

Investors became more irate during hearings in Bankruptcy Court when Williams acknowledged that his family in Utah and Southern California were on his firm's payroll, they drove corporate cars--including Lincoln Continentals--and his mother lived in a company-owned house in Utah.

The outcry by angry investors sparked an investigation by the state attorney general's office, the Internal Revenue Service's criminal investigative division and U.S. postal inspectors, which ended in Friday's plea agreement.

Williams apparently decided it was better for him not to fight the charges. Under terms of the plea agreement, Williams could face from 37 to 46 months in jail. A judge will make the final decision.

It remains uncertain whether Williams has the money to repay the $30.5 million he agreed to in the plea.

Hueston said Williams could have acknowledged his bad business decisions and walked away from the losses when his first two partnerships went sour.

"Instead, he chose to defraud investors," Hueston said. "He took the wrong path."

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