A former Novato executive pleaded guilty Wednesday in what authorities called a Ponzi scheme to embezzle tens of millions of dollars from hundreds of investors.
Lewis Wallach, 64, of Encino admitted to two felony counts of wire fraud and conspiracy to commit wire fraud during a hearing held online by the US District Court of Northern California.
The federal government charged Wallach on Sept. 29 after a months-long investigation following the death of his business associate, Kenneth Casey. The probe found that Wallach and Casey defrauded as many as 1,300 people who invested in their Novato real estate investment companies, Professional Financial Investors Inc., or PFI, and its associated fund, Professional Investors Security Fund Inc., or PISF.
Casey founded the companies in the 1980s and died of a heart attack in May. His death prompted the beginning of the federal investigation.
Wallach was PFI’s president and chief executive from 1998 until this summer. He admitted to embezzling $ 26 million from a PFI account and using the money to buy personal luxuries such as a Malibu vacation home formerly owned by actress Judy Garland and luxury cars.
Wallach also took money without the company’s permission to pay for personal real estate investments, pay off credit cards and pay the mortgage of his home, according to prosecutors.
Wallach admitted to being aware that the companies were not profitable as soon as the mid-2000s, but continued to obtain properties throughout Marin and Sonoma counties and assure investors of their financial stability up until Casey’s death. The companies took on new investors whose payments were used to pay interest to existing investors.
The US Attorney’s Office is recommending Wallach be sentenced to eight years in federal prison as part of a plea deal for his cooperation in the ongoing investigation. Wallach would pay at least $ 27.6 million in restitution under the agreement and surrender any funds and property he illegally obtained.
Under the charges, Wallach could face a maximum of 20 years in federal prison, a maximum fine of $ 250,000, a maximum of three years supervised release, a mandatory special assessment of $ 100 and restitution payments determined by the court.
The sentencing date has not been scheduled. A status hearing is set for March 24.
Before Wallach entered his plea, victims told the court how they had lost all their retirement savings; how investors who relied on the interest payments cannot afford their medicine or rent payments now; and how the crimes have caused them emotional and financial distress.
Lisa de Mondesir said she, her elderly mother and her daughter invested in the company this year when Wallach assured her of the company’s strong financial standing. She and two other investors called on the judge to impose a longer sentence than eight years.
De Mondesir questioned why Wallach is not being charged with other crimes such as embezzlement, especially when more than a thousand people will continue to suffer for many years after his sentence will end.
“There is no escape from our incarceration, if you will,” she said. “It does not feel like justice is well served for such a light sentence to be applied. And I share with many others that it’s a bit of cold comfort that Mr. Wallach might be remorseful. I hope for his own soul’s sake that he is. ”
Peter Bagatelos of San Mateo County said he and his wife expect to lose retirement savings they had built up for decades. Both in their 70s, they do not expect to recover it before they die, Bagatelos said, although investors hope to recoup some of their losses through the companies’ ongoing bankruptcy case.
“The word ‘betrayal’ hits home very strongly because I did consider Ken and Lewis to be friends, trusted friends,” Bagatelos said.
Judge Maxine Chesney said the word “betrayal” also came to her mind during Bagatelos’ testimony.
Hilary Winslow said she lost the entire retirement account she had been building for 30 years.
“Let me assure you, my life will change dramatically because of this loss, because of this fraud,” Winslow said. “And personally I consider Lewis Wallach to be a financial rapist.”
Wallach initially pleaded not guilty in federal court on Sept. 30. Later that day, Wallach’s attorney, Ed Swanson, said Wallach would plead guilty and had been cooperating with federal investigators.
Assistant US Attorney Lloyd Farnham said that the investigation is ongoing and that Wallach has been providing information and working to turn over assets. He urged the court to set a sentencing date beyond March so that Wallach can continue his cooperation.
“I think it would be best for the government and the court to have more information and have sentencing at a later date but with a status date in March,” Farnham said.