Was it the real estate downturn, or were people misled into a risky investment scheme?
That's the question at the center of a lawsuit filed Tuesday that accuses Orange County real estate lender Dan J. Harkey of bilking dozens of investors out of more than $15 million.
In an added twist, the investors claim that their money helped fund the election of Harkey's wife, state Assemblywoman Diane L. Harkey (R-Dana Point).
The lawsuit accuses Dan Harkey of using slick marketing techniques -- including mass mailings and DVDs of sales meetings -- to attract investors in short-term, high-interest loans to real estate developers. It contends that Harkey exaggerated the value of the properties used as collateral by borrowers, making the individual investments appear much safer than they were.
Dan Harkey denied wrongdoing, saying any losses were related directly to the downturn in the real estate and financial markets.
Assemblywoman Harkey declined to be interviewed. A spokesman disputed the lawsuit's claim that she used investor money to bankroll her campaign.
"She had a 30-year career in business and banking in which she acquired substantial financial resources of her own," said Dave Gilliard, the assemblywoman's political consultant. "She used her personal resources to help fund her political campaigns."
Campaign finance records show that Diane Harkey contributed $1.1 million of her own money to two recent campaigns -- an unsuccessful bid for the state Senate in 2006 and last year's winning run for the Assembly.
Gilliard added that Diane Harkey had no ownership interest in her husband's company, Point Center Financial Inc. of Aliso Viejo.
The allegations center on a little-known and lightly regulated segment of the real estate industry known as "hard-money" lenders. These lenders often provide financing for high-risk projects that banks won't touch, such as speculative housing developments.
Wealthy individuals looking for outsized returns often provide the investment capital. The lawsuit alleges that many investors were retired people who entrusted Dan Harkey and Point Center with their life savings.
The lawsuit, filed in Orange County Superior Court in Santa Ana, claims that Point Center made millions of dollars by charging broker fees upfront to borrowers, allowing the company to profit regardless of whether the loans were repaid.
