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SEC Investigating Mortgage Firm in Orange

April 12, 2006|Josh Friedman | Times Staff Writer

Federal securities regulators are investigating an Orange County mortgage brokerage that is seeking bankruptcy protection after revealing that its former investment manager made "unauthorized withdrawals" of $8 million.

Sam Favata, 46, who left Orange-based National Consumer Mortgage several weeks ago, took the money in 2005, according to the company's Chapter 11 bankruptcy filing this month in Santa Ana.

The company, whose majority owner is Favata's wife, Sandra Favata of Yorba Linda, listed $32.8 million in liabilities and $1.1 million in assets.

National Consumer Mortgage ran up the debt selling more than $20 million in unsecured investment notes to some 250 individuals, mostly in California and Colorado, said attorney Lorraine L. Loder of Los Angeles, who represents the company.

The Favatas could not be reached for comment.

Loder, who said Tuesday that she was cooperating with a Securities and Exchange Commission investigation of the firm's financial troubles, said Sam Favata took the money from the assets of the company's investment business without his wife's knowledge.

An SEC spokesman declined to comment on the probe.

Sam Favata is a former baseball star at Cal State Fullerton. A second baseman, he hit .417 to help lead the 1979 Titans to their first NCAA championship in the sport, according to an athletic department website.

Former Los Angeles Dodgers star first baseman Steve Garvey is a spokesman for National Consumer Mortgage. Garvey threw out the first pitch at Cal State Fullerton's first home game this season, an event sponsored by Favata. Garvey, who is struggling with financial woes of his own, was the special guest at the family's FavataFest soiree last summer in Yorba Linda.

Loder said she was preparing a plan that would repay investors from the assets of the company's core mortgage brokering business, which is run separately from the recently shuttered investment operation. However, that plan could take a year to get court approval, she said.

Investor Albert Armstrong of Gardena, who bought a $50,000 note in November 2004, said the company "paid off just like a slot machine" until this month, when he was told that his regular $500 monthly check would be indefinitely delayed. He said a company representative assured him that he would eventually get his money back.

Loder said the notes she had reviewed thus far were for terms of two to four years and promised annualized returns of 8% to 12%.

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