In a recent report, Gill said Friedman diverted $57million of investor money for himself and others. Friedman spent $16.8 million on real estate for himself, friends and family, and $8.9million on private jet travel, the report said.
He also bought a fleet of luxury cars for $1.4 million, including a $250,000 Bentley, the receiver said in a March 25 report.
Gill's report noted that some of the money went to legitimate investments including apartment buildings, a business park in San Diego County and start-up ventures such as Kidfresh, a company that sells healthful children's meals.
But he concluded that Diversified Lending Group "was a classic Ponzi scheme, where earlier investors were paid fictitious returns with the funds generated from new investors."
Friedman, who lives in Woodland Hills, declined to be interviewed for this article. But he defended himself in written responses filed in federal court.
"I strongly disagree with the receiver's statement that DLG was a Ponzi scheme," Friedman said in an April 6 filing. "The receiver's own report reflects that $129.8 million of the funds received by DLG was invested in real estate and other investments. I remain confident that some of these assets have the potential to generate substantial returns."
Friedman also defended his use of private aircraft, saying it was "used primarily to find additional investments for the company, as some days I had to be in two or even three states on the same day." He acknowledged giving hundreds of thousands of dollars of investors' money to his children, but said "they were valid gifts and are includable in my income."
Friedman also gave generously to charities — nearly $5 million, by Gill's reckoning. One of his favored charities was the Dodgers Dream Foundation, which the baseball team founded to benefit underprivileged youth.
On March 29, 2008, the Dodgers invited Friedman to throw the first pitch at an exhibition game against the Boston Red Sox at Los Angeles Memorial Coliseum to mark the 50th anniversary of the Dodgers' move from Brooklyn to L.A.
After the SEC filed its complaint, a Dodgers spokesman said the team hoped the allegations were unfounded. The team declined to comment further.
Lawton, the insurance broker, said he first met Friedman in 2007 at a seminar at the Valley Inn restaurant in Sherman Oaks, where Friedman was recruiting sales agents.
"He had it nailed. He was very convincing," Lawton said of Friedman. "He had us all going. We genuinely believed he was doing what he said."
Friedman was a charmer, according to one of his former employees, Bertha Roman. Roman said she was working as a receptionist for a landscaping company in 2003 when she ended up on the telephone with Friedman.
"I can hear your smile through the phone," Friedman said, according to Roman. "I need someone like you at my company. Whatever they're paying you, I'll pay you more."
Within a few weeks she was part of his staff of about 16 employees working out of handsome offices on Ventura Boulevard in Sherman Oaks.
Roman said that whenever an employee had a birthday, Friedman took the entire staff out to lunch to celebrate. "We could order whatever we wanted," Roman said, "and he would pay."
After Friedman sent his letter to clients, Barry Nevins said, he called Diversified Lending Group in hopes of getting his mother-in-law's $50,000 investment returned.
"They said they had to sell some properties and cars in order to get the money. Cars? I said, 'What? This isn't a real company,' " said Nevins, of Franklin, Mass. "She never got a penny back."
Gill has filed lawsuits against Friedman, his family and friends to recover assets he said were looted from investors. Friedman's brother, Mark, has agreed to repay $6million in installments over the next six years, according to the receiver's report.
The receiver has also sued brokers, including Lawton, to recover commissions they got from Friedman. Gill said in a lawsuit that Lawton got $1.5 million from Friedman. Lawton declined to comment on that suit.
Investors hope Gill can recover their losses but say they might receive only pennies on the dollar.
"That was my life savings. I didn't really have anything else," said Hank, 63. "We had a lot of plans. They're gone now.... It's a sad thing."