At the height of the real estate boom last year, a group of investment promoters crisscrossed California, touting a plan to build rental duplexes in distant states.
Mile High Capital Group's scheme generated so much interest that its executives said they were interested only in buyers who were willing to take a risk. And after investors handed over a $16,500 down payment for each duplex, Mile High founder Rick Dryer warned: "It's no longer your money. It's our money."
That turned out to be all too true for hundreds of Mile High buyers, who fear they will never see the money again.
The Denver company filed for bankruptcy protection last month and is all but defunct. It collected deposits on nearly 1,200 duplexes but finished building only 55 of them. Regulators say the company's files are in such disarray that it will be a long time before they know exactly what happened and who was responsible.
Allegations of real estate fraud have tripled in the last two years, the FBI says. As a hot housing market becomes tepid, economists and other observers warn that many of those who bought speculative properties could wind up losing a bundle -- some because of the market downturn, others because of frauds coming undone.
Mile High Capital stands as a vivid example of the latter. A court-appointed receiver says the company's books provide indications of "fraudulent and deceptive conduct by one or more of the company's current or former officers, directors, shareholders or employees."
The 57-year-old Dryer, celebrated at Mile High's sales seminars as a millionaire home builder and author of a book on real estate investing, turned out to have a record of securities fraud stretching back a quarter of a century.
His book didn't exist either, despite the fact that it was pictured on promotional materials at the seminars.
Dryer's lawyer said in an interview that his client was being made a scapegoat for the problems at Mile High and that the person to blame for any fraud was Andy McFaul, the former chief operating officer who, the attorney said, had control of the firm's day-to-day operations.
McFaul joined Mile High in late 2004, a few weeks after he pleaded guilty to felony theft for stealing more than $10,000 of tools from the workers building his house.
McFaul's lawyer said the 41-year-old executive left Mile High last summer after realizing that "he and many others had been the victims of an enormous scam orchestrated by Mr. Dryer and Mr. Dryer alone."
Michael Noone, a lawyer for the receiver who took control of Mile High in October after complaints were made to Colorado regulators, said the company had almost no money at that time, despite claims of $175 million in revenue during the prior six months.
Noone compared the structure of Mile High to a Ponzi scheme, saying investors' money was used to pay operating costs rather than build $330,000 duplexes. "The first time anyone decides not to send money in, it all comes crashing down," he said.
To thousands of investors who attended the Mile High seminars, the pitch was irresistible.
Massoud Balbas, a Laguna Niguel computer consultant, went to three seminars last winter. He bought a duplex each time -- one in Colorado, one in Texas, one in "North Carolina or South Carolina or one of those places."
Those first few months of 2005 were a heady time, a moment when it seemed more important to buy real estate immediately, before it went up again, than to think too much about where the property was or how much it cost. Homeowners were refinancing and taking cash out at unprecedented levels. Some of the money was invested in projects like Mile High's.
The Mile High executives "knew where the money was," Balbas said. "People were vulnerable, and fell into their trap."
The 60-year-old's own fall was particularly hard: "I was a brand-new investor. I thought I was doing the right thing, but it looks like I lost everything. My wife is mad at me."
Several factors combined to make Balbas and the other investors so eager to surrender their money.
First and most elemental was the siren song of real estate. The metaphors at the seminars may have been mixed -- "Our duplexes are appreciating like an avalanche and cash-flowing like a freight train," a promotional film asserted -- but the message was clear.
"If you don't have several million dollars' worth of real estate working for you by the time you retire, you're going to condemn yourself to a life of struggle," Dryer said at a San Francisco seminar.
Prospective buyers were advised that they should refinance their duplexes every year, taking money out to buy another. "Appreciation projections" were handed out showing that, under that method, an investor would have as much as $2.5 million in equity after a decade.
"You're in the harvesting business," Dryer said. "You're harvesting money."
