SAN JOSE, CA—David A. Nilsen was sentenced today to 97 months in prison and ordered to pay $69,828,833 in restitution following his conviction for conspiracy to commit mail and wire fraud in connection with his operation of Cedar Funding, a Monterey-based hard money lender, United States Attorney Melinda Haag announced.
Nilsen pleaded guilty on October 24, 2011 to conspiracy to commit mail and wire fraud. According to the plea agreement, Nilsen founded Cedar Funding in 1980 and connected residential real estate developers seeking to borrow money using real property as collateral with individual investors who were willing to make such loans. Nilsen admitted that, from 2004 through 2008, an increasing number of borrowers defaulted on loans funded by Cedar Funding investors, due to market conditions and management and construction problems.
According to court documents, in response to those developments, and in an attempt to salvage the real estate projects that secured Cedar Funding loans, Nilsen and his loan servicing manager failed to inform investors of certain material facts about the true condition of their investments. In particular, they failed to inform investors that borrowers had defaulted, that Nilsen had taken over many of the loans, and that Cedar Funding had advanced substantial additional investor funds into those loans. Nilsen further admitted that the increasing loan balances, combined with the declining value of the underlying real estate collateral, resulted in the amount of the loan exceeding the value of the collateral. Nilsen also acknowledged that he and his loan servicing manager did not properly record investors’ fractional deeds of trust and did not inform investors that Cedar Funding had used a significant portion of the investment money to make interest payments to investors on those loans.
“Not every fraud begins as a criminal scheme,” United States Attorney Melinda Haag said. “This case is an example of what so often happens when, rather than address problems in an honest and forthright manner, a businessman instead decides, as the situation worsens, to deceive his investors. My office will continue to investigate and prosecute defendants who mislead investors in an attempt to ride out the storm.”
Nilsen, 61, of Seaside, California, was indicted with co-defendant Manoel Errico by a federal grand jury on September 8, 2009. Errico is a fugitive. Nilsen was charged with 31 counts of conspiracy, mail, wire, and securities fraud in violation of 18 U.S.C. §§ 1349, 1341, 1343 and 15 U.S.C. §§ 78j(b), and 78ff. After his initial appearance in federal court in San Jose in September 2009, Nilsen was released upon a secured $1 million bond and has remained out of custody.
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