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Ex-Athlete to Plead Guilty in Ponzi Case

A Cal State Fullerton baseball star who hired Steve Garvey to promote his loan business cost investors more than $20 million, SEC says.

October 11, 2006|E. Scott Reckard | Times Staff Writer

A former Cal State Fullerton baseball star who hired Steve Garvey to promote his mortgage company has agreed to plead guilty to an investment scam that raised more than $30 million, authorities said Tuesday.

From 2000 until this year, Salvatore "Sam" Favata, 46, promised investors returns of 30% to 60% a year, the Securities and Exchange Commission said. He said their money would be loaned at high rates to borrowers who needed short-term funding for real estate developments, construction projects and other ventures, according to his plea agreement with federal prosecutors.

In reality, Favata was paying earlier investors with funds from new investors, employing a method known as a Ponzi scheme, the SEC said in a lawsuit filed along with the criminal case. The SEC and the U.S. attorney's office in Santa Ana estimated the total losses to investors at more than $20 million.

The SEC lawsuit and Favata's plea agreement, filed Friday and announced Tuesday, said he persuaded clients of his Orange-based National Consumer Mortgage firm -- which had a legitimate home loan business -- to use cash from refinancing their homes to buy investment notes issued by another arm of the company.

There was no indication that Garvey, hired as a pitchman for the legitimate loan business, knew anything was amiss, authorities said. The former Dodgers star couldn't be reached for comment.

A second baseman on Cal State Fullerton's NCAA championship team in 1979, Favata was drafted by the Milwaukee Brewers in 1980 but didn't go far as a professional player.

At National Consumer Mortgage, where he was president, Favata and his sales staff solicited investors face to face, at seminars and at a church in Colorado, and also advertised on the radio, federal officials said.

Little of the money was invested, according to the SEC, which said Favata used much of the funds to pay his living expenses and debts, including more than $10 million in gambling losses, and the expenses of his mortgage company.

He also threw lavish parties and put on oldies music festivals he called "Favata Fests," often in his spacious Yorba Linda backyard, at which Garvey, who appeared in a National League record 1,207 straight games, glad-handed Favata clients and had his picture taken with them, federal authorities said.

Favata's attorney, Nathan J. Hochman of Beverly Hills, described his client as a "gambling addict" who dug himself an ever deeper hole trying to cover his losses and "is extremely sorry for what he has done."

Assistant U.S. Atty. Brent Tabacchi said Favata agreed to plead guilty to a fraud charge carrying a maximum sentence of five years. Favata, who has remained free while cooperating with investigators, is scheduled to be arraigned by a federal magistrate judge in Santa Ana on Monday, Tabacchi said. Sentencing is expected early next year.

To settle the SEC lawsuit, Favata agreed to attempt to make full restitution to his victims, including forfeiting his house to help repay them, and to be banned from associating with investment brokers and dealers for the rest of his life.

Tabacchi and SEC officials said Favata told his more than 200 investors that their money was safe because he made sure his loans were secured by property worth much more than the loan amount. That way, he said, even if the projects went into default the investors would still be protected against losses.

That promise, along with his reputation as an athlete and his link to Garvey, apparently lulled the investors until this year, when tips to the SEC triggered an investigation, said John Reed Stark, chief of the SEC Office of Internet Enforcement.

"As is the case in many Ponzi schemes, Mr. Favata used his association with prominent figures -- athletes and clergy are very common -- to create an aura of legitimacy," Stark said.


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