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CASE OF INTEREST July 13, 2001 Contact: Terence M. Brown Dave Peters, Attorney Re: People v. Alden Jonathon Appleton, et al. Sacramento County District Attorney Jan Scully announced today the successful conclusion of a civil lawsuit filed against Jonathon Appleton and the companies he controls, First Financial and Capital Financial. Following a three month trial in Superior Court, Judge James Ford issued a judgment wherein the defendant, a Sacramento area loan broker was ordered to pay $1¼ million in civil penalties, and make restitution to hundreds of customers. Judge Ford ruled that Appleton had "engaged in a fundamentally fraudulent business for nearly a decade." At the heart of the scheme was First Financial's practice of advertising to refinance homes via a biweekly mortgage program offering a "current effective rate" which was lower than the actual annual percentage rate being charged. This was a violation of the Federal Reserve System's Regulation Z. Defendants' biweekly mortgage plan required the debiting of the victim's bank account twice a month for an amount approximately half the monthly mortgage payment. This amounted to the victims paying defendants an extra monthly payment per year. According to the defendants, they would retain this 13th payment, invest it, and use the proceeds to pay the victim's loan off early, thus providing their customers with an effective interest rate lower than the note rate. The typical victim was unaware that First Financial was retaining this money. In addition, defendants offered what was called a "ready reserve account" to prospective customers. This was described as a line of credit, and the victims were told that they were not responsible for it unless they "accessed" it. In fact, the amount of the ready reserve was fully funded at the close of escrow, with the money going to the defendants. The victims' homes were pledged as collateral for these monies. As a result of these machinations, defendants ended up with thousands of dollars (approximately $1½ million) belonging to the victims. When customers began receiving late notices from the lenders informing them that First Financial was not paying the customers' mortgages, the latter began asking for an accounting and the return of their money. Defendants have not provided the accountings or returned the money. The Court described the journey of the victims' money as a "twisted tale.." "It seems to have winded its way to a Cayman Islands company operating in Nevada which in turn lent it to various entities controlled by Mr. Appleton and then in turn invested in various real estate transactions resulting in trusts for his own children or annuities on his own life with his wife as beneficiary. In all, the matter was so convoluted that the defendant was himself hard-pressed to delineate with any particularity just where the money is and who is responsible for it. Also, but for defendant's own estimate of some $1½ million dollars, we do not have sufficient evidence of just how much money has gone missing or what is owed and to whom." In addition to the $1¼ million in civil penalties, Judge Ford ordered that restitution be made to the hundreds of individuals who were victimized by First Financial's business practices. The amounts of restitution will be determined by a receiver who is to be appointed on August 14. The trial attorneys who represented the People, Deputy District Attorney Terence M. Brown, and Department of Real Estate attorney David A. Peters, stated that the trial was the result of the joint efforts of their respective agencies, and that they "hope this judgment will serve as a deterrent to others who might be tempted to engage in predatory lending practices." Read the full text of the judgment against First Financial here. It is also linked from the District Attorney home page.
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