Former USA Capital Officer Sentenced For Fraud Conviction

Allison Tussey —  April 15, 2010 — Leave a comment

Joseph D. Milanowski, 48, former officer of the real estate development investment company USA Capital, was sentenced to 12 years in prison and ordered to pay $86.9 million in restitution to over 1,000 victims, for his guilty plea to one count of wire fraud. 

Milanowski’s sentence included enhancements because the loss was greater than $50 million, and because the defendant abused a position of private trust to facilitate the commission of the offense. Milanowski was allowed to self-report to federal prison by August 6, 2010, at noon, but must continue to cooperate with the government and U.S. Bankruptcy trustees during that period of release.

As previously reported on Mortgage Fraud Blog, Milanowski was the President and de facto Chief Operating Officer of USA Commercial Mortgage Company, which did business as USA Capital from 1998 through April 2006. USA Capital raised money from investors to loan to developers for the construction of real estate. In May 2000, USA Capital created the Diversified Fund to make secured loans to the developers and to pay the investors interest on the loans. Milanowski and others represented to investors that all of the loans made by the Diversified Fund would be secured by first deeds of trust. Investors were also advised that no loans would be made to company insiders, that no loans larger than $20 million would be made once the Diversified Fund reached a certain value, that no loan would exceed 15 percent of the value of the Fund, and that the Fund would not loan more than 25 percent of its funds to a single borrower.

On about April 15, 2002, Milanowski created a loan known as the “10-90 Loan” which he used to fund private developments and investment projects for himself and other company insiders and affiliates. From about March 27, 2003, to about November 12, 2004, Milanowski transferred approximately $22 million to 10-90 Inc. and to another entity he controlled to fund his own development projects. Milanowski and others concealed the existence of the 10-90 Loan from investors until September 30, 2005, when Milanowski included the 10-90 Loan on a list of the Diversified Fund’s loan portfolio in which he claimed that the 10-90 Loan was secured by three master-planned communities in Southern California when he knew that the loan was not secured by three communities. When USA Capital Mortgage Company and the Diversified Fund filed for bankruptcy on April 13, 2006, Milanowski had caused the Diversified Fund to attribute $55.9 million of its principal to the 10-90 Loan. The investigation of USA Capital is ongoing.

Milanowski was sentenced by Chief U.S. District Judge Roger L. Hunt. Daniel G. Bogden, U.S. Attorney for the District of Nevada made the announcement.  The case was investigated by the FBI, and prosecuted by Assistant United States Attorneys Daniel R. Schiess and Roger Yang.

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Allison Tussey

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