12-0605_MICHAEL SCHWARTZ_Agenda Report_D5TO:
FROM:
City of Sa
Ag
DATE: August 19, 2014
Capistrano
port
8/19/2014
05
SUBJECT: Consideration of Termination of the Site License and Use Agreement for
use of the Roller Hockey/Multipurpose Facility at Marco Forster Middle
School (Michael Schwartz)
RECOMMENDATION:
By motion, approve the termination of the Site License and Use Agreement, with
Michael Schwartz for the use of the Roller Hockey/Multipurpose Facility at Marco
Forster Middle School.
EXECUTIVE SUMMARY:
On June 5, 2012, the City entered into a Site License and Use Agreement with Michael
Schwartz to refurbish, operate and maintain the Roller Hockey/Multipurpose Facility at
Marco Forster Middle School. The City may terminate the Site License and Use
Agreement for any reason following thirty (30) days written notice. The City recently
learned that Mr. Schwartz pleaded guilty to two counts of fraud in the United States
Central District Court of California for defrauding investors and financial institutions of
approximately $1,800,000. Because of the crimes committed by Mr. Schwartz, staff
recommends that the City Council approve terminating the Site License and Use
Agreement.
DISCUSSION/ANALYSIS:
The City and the Capistrano Unified School District (District) have a Joint Facility Use
Agreement for the Roller Hockey/Multipurpose Facility (Facility) at Marco Forster Middle
School. The Joint Facility Use Agreement provides the District exclusive use of the
Facility during normal school hours. The City may use the Facility to coordinate,
schedule and conduct recreation activities at the Facility during non-school hours. The
City may charge a fee for the use of the Facility to recover use and maintenance costs.
The City may also contract with an operator to manage the Facility. The Joint Facility
Use Agreement requires the City pay the District 20% of the revenue the City receives
from a contracted Facility operator.
City Council Agenda Report
August 19, 2014
Page 2 of 3
On June 5, 2012, the City entered into the Site License and Use Agreement
(Agreement) with Michael Schwartz to refurbish, operate and maintain the Facility at
Marco Forster Middle School. Mr. Schwartz operates the Facility under the name of
SJC Sports Rinks. Per the Agreement, Mr. Schwartz provides a public program which
involves adult and youth competitive roller hockey leagues, clinics, tournaments and
private rentals.
The City recently learned that Mr. Schwartz pleaded guilty to two counts of fraud in the
United States Central District Court of California for defrauding investors and financial
institutions of approximately $1,800,000, for which he is scheduled to be sentenced on
October 20, 2014. Due to the nature and significance of the crimes, staff recommends
that the City Council approve terminating the Agreement. The Agreement may be
terminated by the City for any reason by providing Mr. Schwartz thirty (30) days written
notice. Upon City Council approval, Mr. Schwartz will be notified in writing that the
Agreement shall be terminated effective September 18, 2014. Additionally, Mr.
Schwartz was notified by the City Attorney on August 11, 2014, that this matter was
being considered at the August 19, 2014, City Council meeting and that it is the City's
intent to terminate the Agreement.
According to the SJC Sports Rinks website (as of August 4, 2014), a lacrosse league is
scheduled Monday through Friday from August 19, 2014, through November 28, 2014.
There were no other activities posted on the SJC Sports Rinks website. The final
operating day under the Agreement will be September 18, 2014. To minimize impact to
patrons of SJC Sports Rinks, signs shall be posted on the site notifying the public that
the Facility will be managed by the City as of September 19, 2014, and to contact
Community Services at 949-443-6393 for information.
Staff proposes that the Facility be available for public rentals through Community
Services while staff prepares a Request for Proposal for a new Facility operator and
evaluates other options for the on-going operations and maintenance of the Facility,
which will take approximately four months to complete.
FISCAL IMPACT:
The City receives a $250.00 monthly license fee, plus 2% of the gross revenue for all
activities conducted at the Facility; twenty percent (20%) of the license fees and
revenues are paid to the District. In Fiscal Year 2013-2014, the City received $4,147.60
in fees and revenue of which the District was paid $829.52.
The City may lose approximately $1,369.00 in fees and revenue from Mr. Schwartz, of
which $275.00 would be paid to the District, while staff evaluates proposals and other
options. The loss would be offset by any rental activity at $60.00 per hour to cover the
City's operating costs.
City Council Agenda Report
August 19, 2014
Page 3 of 3
ENVIRONMENTAL IMPACT:
Not applicable.
PRIOR CITY COUNCIL REVIEW:
• On June 5, 2012, the City Council approved the Site License and Use Agreement
for the use of the Roller Hockey/Multipurpose Facility.
COMMISSION/COMMITTEE/BOARD REVIEW AND RECOMMENDATIONS:
Not applicable.
NOTIFICATION:
·Michael Schwartz
Jack Schwartz
Capistrano Unified School District
ATTACHMENT(S):
Attachment 1 -Site License and Use Agreement
Attachment 2-August 11, 2014, Notice to Michael Schwartz
Attachment 3-United States District Court-Criminal Minutes Dated June 23, 2014
SITE LICENSE AND USE AGREEMENT
THIS AGREEMENT is made, entered into, and shall become effective this 5th
day of June, 2012, by and between the CITY OF SAN JUAN CAPISTRANO (hereinafter
referred to as the "Citt) and MICHAEL SCHWARTZ (hereinafter referred to as the
"Contractor").
RECITALS:
WHEREAS, in 2011 the City entered into a Joint Facility Use Agreement with the
Capistrano Unified School District (CU~D) for the use of the Roller Hockey/Multi
Purpose Facility located at 3 Via Positiva, in the City of San Juan Capistrano, County of
Orange, State of California (hereinafter referred to as the "Facility"). The Facility is
located within the grounds of Marco Forster Middle School and is depicted on Exhibit
"A".
WHEREAS, City desires to make the Facilities available to Contractor to
refurbish, operate, and maintain the Facility as provided for in this Agreement: and
WHEREAS, Contractor is qualified by virtue of experience, training, education
and expertise to accomplish the services required under this Agreement.
NOW, THEREFORE, City and Contractor mutually agree as follows:
Section 1. Scope of Work.
· The scope of work to be performed by the Contractor shall consist of those tasks
as set forth in Exhibit "8," attached hereto and incorporated herein by this reference. To
the extent that there are any conflicts between the provisions described in Exhibit "B"
and those provisions contained within this Agreement, the provisions in this Agreement
shall control.
Section 2. Grant of License/Site Plan.
City hereby grants to Contractor a license granting Contractor the right to
refurbish, operate, and maintain the Facility subject to the conditions set forth in this
Agreement.
Section 3. Refurbishing of the Facility.
3.1. The refurbishing· of the Facility shall be performed in strict accordance with
the design attached as Exhibit "C."
3.2. Contractor shall coordinate with CUSD and City during the refurbishing
phase so as to avoid an interruption in planned CUSD functions at Marco Forster Middle
School.
ATIACHMENTl
3.3. Contractor shall provide a schedule of planned refurbishing activity which
shall be reviewed and approved by City prior to the commencement of the work.
3.4. Contractor shall be solely responsible for providing all utilities to the
Facilities.
Section 4. The Facility Programs Implementation and Review.
4.1. When the Facility becomes operational, Contractor shall develop and
provide to the public a program which involves competitive roller hockey leagues for
youth and adults, as well as clinics, tournaments and public and private rentals for
community use (which may include birthday parties, corporate events, and other social
gatherings).
4.2. The program shall be submitted to City in writing for approval prior to its
implementation.
4.3. The program shall be periodically reviewed at City's discretion to ensure
that the program is not causing an undue nuisance, including but not limited to, noise
impacts, excessive parking demands, or other public health and safety issues.
4.4. In the event that City determines at its discretion that health and safety
problems do exist, Contractor agrees to make reasonable changes as needed pursuant
to City's direction.
Section 5. Term.
The term of this Agreement shall be five (5} years and shall expire on June 30,
2017. Contractor shall have the right to exercise an option to renew the Agreement for
an additional two (2) years by giving written notice of renewal to City not later than
January 31, 2017.
Section 6. License Fee.
6.1 Amount. City shall receive a license fee from Contractor for the
privilege of operating the Facility in the amount of $250 per month, plus 2% of the gross
revenue for all activities conducted on the Facilities.
6.2 Method of Payment. Contractor shall remit payment to City within
thirty (30) days of the fifth day each month. Contractor shall provide financial
documentation of all revenues for the monthly period with the payment remittance.
6.3. All costs for services provided under this Agreement shall be
incurred by Contractor with no financial obligation or reimbursement of costs from the
City or the CUSO.
2
Section 7. CUSD Exclusive Access to Facility During School Hours.
Notwithstanding the rights granted to Contractor under this Agreement, the
parties agree that the CUSD shall have the right to control, coordinate, and/or schedule
all use the Facility during regular school hours pursuant to the Joint Facility Use
Agreement, as more specifically defined in Section 8 below. Contractor hereby
acknowledges receipt of a copy of the 2011 Joint Use Agreement. CitY, Contractor and
CUSD shall mutually work together to coordinate use of·the Facilities by CUSD and
Contractor.
Section 8. Operation and Maintenance of Facilities.
8.1 Operation of Facilities.
Contractor shall be responsible for the supervision and management of
the Facilities pursuant to this Agreement. Contractor shall perform all operations in a
competent manner, consistent with the standards of the industry and in accordance with
all applicable Federal, State and local regulations, including the City's Municipal Code.
Contractor shall obtain, at its sole cost and expense, all governmental permits and
authorizations of whatever nature required by any governmental agencies having
jurisdiction over Contractor's use of the Facilities.
8.2 Hours of Operation.
The hours of operation are within the hours of 4:00 p.m. to 9:30 p.m.,
Monday through Friday, 8:00a.m. to 9:30p.m. on Saturdays, and 9:00a.m. to 9:30p.m.
on Sundays, and subject to the hours for which the CUSD has exclusive use of the
Facilities.
8.3 Exclusive Use by School District
The CUSD shall have exclusive use of the Facilities during normal school
hours for Marco Forster Middle School, from 8:00 a.m. to 3:30 p.m., Monday through
Friday, for each day that school is in session, including the lunch hour. CUSD may
extend the scope of school hours by as much as 30 minutes before the start time of
classes or after the end time of classes, or both, in order to allow sufficient time for
students to arrive at or leave the School before Contractor commences its use of the
Facilities.
8.4 Condition of Facilities.
Contractor accepts the Facility in its present condition, "as is", upon
execution of this Agreement. City makes no warranty of the suitability of the Facility for
Contractor's operations or other use of the Facility by Contractor and expressly
disclaims any warranty or representation with regard to the condition, safety, security or
suitability for Contractor's intended use of the Facility. The duly authorized
3
representative of City may enter upon the Facility and all structures and buildings
thereon, or any portion thereof, at any time, and from time to time.
8.5 Maintenance of Facility.
Contractor shall maintain, at Contractor's expense, the Facilities, including
all existing structures and all equipment owned and furnished by Contractor, in a
reasonable state of repair and working order. Contractor agrees, at Contractor's
expense, to keep the Facilities clean of trash, debris and rubbish; and to keep fences,
and borders of the Premises in good condition and repair at all times, reasonable wear
and tear excepted.
8.6 Liens.
Contractor will fully and promptly pay for all materials joined or affixed to
the Facilities under the authority or direction of Contractor, and fully and promptly pay all
persons who perform labor upon the Facilities. Contractor shall not allow or permit to
be filed or enforced against the Facilities, or any part thereof, any mechanics',
materialmen's, contractors', or subcontractors' liens or stop notices arising from, or any
claim for damage growing out of, any testing, investigation, maintenance or construction
work, or out of any other claim or demand of any kind. Contractor shall pay or cause to
be paid all such liens, claims or demands, including sums due with respect to stop
notices, together with attorney's fees incurred by the City or CUSD with respect thereto,
within ten (10) business days after notice thereof and shall indemnify, hold harmless
and defend the City and CUSD from all obligations and claims made against City or
CUSD for the above described work, including attorney's fees. Contractor shall furnish
eviaence of payment upon request of the City. Contractor may contest any lien, claim
or demand by furnishing a statutory lien bond or equivalent with respect to stop notices
to the City in compliance with applicable California law. If Contractor does not
discharge any mechanic's liens or stop notice for works performed for Contractor, the
City shall have the right to discharge same (including by paying the claimant), and the
Contractor shall reimburse the City for the cost of such discharge within ten (10)
business days after billing. The provisions of this subsection shall survive the
termination of this Agreement.
8.7 . Third Party Liability.
The Contractor shall be responsible and liable for all acts and omissions of
all of Contractor's contractors, agents, employees, representatives and any other
person or party entering upon the Facilities under the authority or color of this
Agreement.
8.8 Surrender Upon Termination.
The Contractor shall, at the termination of this Agreement, vacate the
Facilities in as good condition as they are in at the time of entry thereon by the
4
Contractor, and shall leave the Facilities free and clear of all rubbish and debris.
8.9 Taxes.
· Pursuant to Revenue & Taxation Code §107.7, should a property interest
be created herein, it may be subject to property taxation and the Contractor may be
subject to property taxes levied on such interest. In no event shall the City or CUSD be
liable for any taxes owed as a result of this Agreement or the Contractor's use of the
Facilities.
8.10 No Relocation Benefits.
This Agreement is not intended to convey a property interest but to permit
the Contractor to use the Facilities as provided for herein. Contractor acknowledges the
rights granted by State and/or Federal Relocation Assistance Laws and regulations and,
notwithstanding any other provision of this Agreement, expressly waives all such past,
present and future rights, if any, to which the Contractor might otherwise be entitled
from the City or CUSD with regard to this Agreement and the operations on the
Facilities. Contractor shall not be entitled to relocation assistance, relocation benefits,
or compensation for loss of goodwill upon the termination of this Agreement.
Section 9. Time of Essence.
Time is of the essence in the performance of this Agreement.
Section 10. Default.
1 0.1. If Contractor defaults in the payment of the license fee due to the
City, or any additional applicable payments, or defaults in the performance of any of the
other covenants or conditions hereof, City may give Contractor notice of such default
and if Contractor does not cure any such default within three (3) days, or such other
time period as specified in the notice of default, after the giving of such notice, then City
may terminate this Agreement on not less than ten (1 0) days' notice to Contractor. On
the date specified in such notice the term of this Agreement shall terminate, and
Contractor shall then quit and surrender the Facility to City, but Contractor shall remain
liable as hereinafter provided. If this Agreement shall have been so terminated by City,
City may at any time thereafter resume possession of the Facility by any lawful means
and remove Contractor or other occupants and their effects.
1 0.2. If the Contractor breaches any covenant or condition of this
Agreement, the City may, on reasonable notice to the Contractor (except that no notice
need be given in case of emergency), cure such breach at the expense of the
Contractor. The reasonable amount of all expenses, including attorney's fees, incurred
by the City in so doing shall be deemed additional fees payable on demand.
5
Section 11. Termination Due to Bankruptcy or Insolvency.
In the event proceedings in bankruptcy are commenced by the Contractor, or the
Contractor is found to be in a state of insolvency, then in such event, the City shall have
the right to terminate this Agreement and all further rights and obligations thereunder,
by ten (1 0) days' notice in writing to Contractor, in which event, on the expiration of the
ten (10) days from mailing of the notice, this Agreement shall automatically terminate.
Section 12. Termination for Convenience.
This Agreement may be terminated for any reasons by the City following thirty
(30) days written notice. City incurs no liability whatsoever for termination of this
Agreement at any time
Section 13. No Assignments.
Contractor may not assign, sublet or otherwise transfer its interest under this
Agreement without the prior written consent of the City. Any'attempted assignment,
sublet or transfer made in violation of this provision shall be null and void.
Section 14. Independent Contractor.
It is agreed tha~ Contractor shall act and be an independent contractor and not
an agent or employee of City.
Section 15. Limitations Upon Subcontracting.
The experience, knowledge, capability and reputation of Contractor were a
substantial inducement for City to enter into this Agreement. Contractor shall not
contract with any other entity to perform the services required without written approval
of the City. If Contractor is permitted to subcontract any part of this Agreement by City,
Contractor shall be responsible to City for the acts and omissions of its subcontractor as
it is for per.sons directly employed. Nothing contained in this Agreement shall create
any contractual relationships between any subcontractor and City. All persons engaged
in the work will be considered employees of Contractor.
Section 16. Maintenance Cost Records.
Contractor shall maintain all books, documents, papers, employee time facility
sheet, accounting records, and other evidence pertaining to fees and revenues
generated in the~operations of the Facility by Contractor, and sh_all make such records
and materials ava,tlable at its offices for inspection by City at all reasonab·le· times during
the term of this Agreement and for three (3) years from the date of final payment under
this Agreement. Contractor shall furnish copies of all such materials to City upon
request.
6
Section 17. Indemnity.
To the fullest extent permitted by law, Contractor agrees to protect, defend, and
hold harmless the City and its elective or appointive boards, officers, agents, and
employees from any and all claim.s, liabilities, expenses, or damages of any nature,
including attorneys' fees, for injury or death of any person, or damages of any nature,
including interference with use of property, arising out of, or in any way connected with
the negligence, recklessness and/or intentional wrongful conduct of Contractor,
Contractor's agents, officers, employees, subcontractors, or independent contractors
hired by Contractor in the performance of the Agreement. The only exception to
Contractor's responsibility to protect, defend, and hold harmless the City, is due to the
negligence, recklessness and/or wrongful conduct of City, or any of its elective or
appointive boards, officers, agents, or employees.
This hold harmless agreement shall apply to all liability regardless of whether any
insurance policies are applicable. The policy limits do not act as a limitation upon the
amount of indemnification to be provided by Contractor.
Section 18. Insurance.
On or before beginning any of the work called for by any term of this Agreement
or use of the Facilities, Contractor, at its own cost and expense, shall carry, maintain for
the duration of the Agreement, and provide proof thereof that is acceptable to the City,
the insurance specified below with insurers and under forms of insurance satisfactory in
all respects to the City. Contractor shall not allow'any subcontractor to commence work
on any subcontract until all insurance required of the Contractor has also been obtained
for the subcontractor. Insurance required herein shall be provided by Insurers in good
standing with the State of California and having a minimum Best's Guide Rating of A-
Class VII or better.
18.1 Comprehensive General Liability.
Throughout the term of this Agreement, Contractor shall maintain in full
force and effect Comprehensive General Liability coverage in an amount not less than
three million dollars per occurrence ($3,000,000.00), combined single limit coverage for
risks associated with the work contemplated by this agreement. If a Commercial
General Liability Insurance form or other form with a general aggregate limit is used,
either the general aggregate limit shall apply separately to the work to be performed
under this agreement or the general aggregate limit shall be at least twice the required
occurrence limit.
18.2 Comprehensive Automobile Liability.
Throughout the term of this Agreement, Contr~ctor shall maintain in full
force and effect Comprehensive Automobile Liability coverage, including owned, hired
and non-owned vehicles in an amount not less than one million dollars per occurrence
($1 ,000,000.00).
7
18.3 Worker's Compensation.
If Contractor intends to employ employees to perform services under this
Agreement, Contractor shall obtain and maintain, during the term of this Agreement,
Worker's Compensation Employer's Liability Insurance in the statutory amount as
required by state law.
18.4 Proof of Insurance Requirements/Endorsement.
Prior to beginning any work under this Agreement or use of the Facilities,
Contractor shall submit the insurance certificates, including the deductible or self-
retention amount, and an additional insured endorsement naming City and CUSD, their
officers, employees, agents, and volunteers as additional insured as respects each of
the following: Liability arising out of activities performed by or on behalf of Contractor,
including the insured's general supervision of Contractor; products and completed
operations of Contractor premises owned, occupied or used by Contractor; or
automobiles owned, leased, hired, or borrowed by Contractor. The coverage shall
contain no special limitations on the scope of protection afforded City and CUSD, their
officers, employees, agents, or volunteers.
18.5 Notice of Cancellation/Termination of Insurance.
The above policy/policies shall not terminate, nor shall they be cancelled,
nor the coverage's reduced, until after thirty (30) days' written notice is given to City,
except that ten (1 0) days' notice shall be given if there is a cancellation due to failure to
pay a premium.
Section 19. Notices.
Any notice required to be given under this Agreement shall be in writing and shall
be deemed to have been duly given and received if and when personally served, or
forty-eight (48) hours after being deposited in the United States mail, first class, postage
prepaid, addressed to the intended party at:
To City:
To Contractor:
City of San Juan Capistrano
25925 Camino del Avion
San Juan Capistrano, CA 92675
Attn: Cynthia Alexander
Michael Schwartz
31831 Peppertree Bend
San Juan Capistrano, CA 92675
Section 20. Attorneys' Fees.
If any action at law or in equity is necessary to enforce or interpret the terms of
8
this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs
and necessary disbursements in addition to any other relief to which he may be entitled.
Section 21. Dispute Resolution.
In the event of a dispute arising between the parties regarding performance or
interpretation of this Agreement, the dispute shall be resolved by binding arbitration
under the auspices of the Judicial Arbitration and Mediation Service ("JAMS").
Section 22. Entire Agreement.
This Agreement constitutes the entire understanding and agreement between the
parties and supersedes all previous negotiations between them pertaining to the subject
matter thereof.
Section 23. Miscellaneous.
a. This Agreement may be modified only by written instrument
executed by both parties hereto.
b. Any failure by the City to insist upon a strict performance by the
Contractor of any of the terms and provisions hereof shall not be deemed to be a waiver
of any of the terms and provisions hereof.
d. This Agreement shall be governed by the construed in accordance
with the laws of the State of California.
e. The parties executing this Agreement warrant that they have
authority to bind the respective parties thereto.
[SIGNATURE PAGE FOLLOWS]
9
IN WITNESS WHEREOF, the hereto have executed thls Agreement.
CITY OF SAN JUAN GAPIST ANO
By:
CONTRACTOR
10
THE
1\l JU N
Marco Forster Middle School
Roller Hoekey/Multlpurpose Facility
3 Via Posidva
CA 92675
I..OCAT.ION
Exhibit A
RUTAN & TUCKER, LLP
Mr. Michael Schwartz
31831 Peppertree Bend
San Juan Capistrano, CA 92675
August 11, 2014
Mr. Michael Schwartz
21 Santa Barbara
Aliso Vi~jo, CA 92656
Hans Van Ligten
Direct Dial: (714) 662-4640
E-mail: hvanligten@rutan.com
Re: Site License and 1Jse Agreement -Roller Hockey/Multipurpose Facility at
Marco Forester Middle School . -···--------------·-----------------------
Dear Mr. Schwariz:
This letter is to inform you that the City of San Juan Capistrano intends to consider
termination of the Site License and Usc Agreement (Agreement) with you for the operation of
Roller Hockey/Multipurpose Facility located at Marco Forester Middle School.
This matter will be considered by 1he San Juan Capistrano City Council at the Aug·ust 19,
14, City Council meeting in accordance with Section 12, which states, "This Agreement may
be tenninatedfor any reasons by the City following thirty (30) days written notice. City incurs no
liability whatsoever for termination of this Agreement at any time. "
Please direct any questions regarding this letter to my attention.
Sincerely,\
RUT AN ~ TU?KER, LLP
~~-(.\j -~~ l~JJJ)JJ()~~~:::: ____ /
Hans Van Ligten
HVL:kfw
611 Anton Blvd, Suite 1400, Costa Mesa, CA 92626
PO Box 1950, Costa Mesa, CA 92628-1950 I 714.641.5100 I Fax 714.546.9035
Orung0 County I Palo Alto I www.rutan.com
ATTACHMENT 2
235/028428-0002
7351430.1 a08/ll/J4
RUTAN
ftUTA.N &: TUCKE:R, LLP
Mr. Michael Schwartz
Mr. Michael Schwartz
August 11, 2014
Page 2
bee: Karen Brust
Tom Bokosky
Cynthia Alexander
Cindy Russell
235/028428-0002
7351430.1 a08/l 1/14
Case No.
Case 8:14-cr-00069-DOC Document 19 Filed 06/23/14 Page 1 of 1 Page ID #:54
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CRIMINAL MINUTES-GENERAL
SACR 14-0069-DOC Date June 23, 2014 ----------------------------------------------
Present: The Honorable David 0. Carter, U.S. District Judge
Interpreter None --------------------------------------------------------------------
Julie Barrera CIS 6-23-14 Jennifer Waier
Deputy Clerk . Court Reporter/Recorder, Tape No. Assistant U.S. Attorney
U.S.A. v. Defendant(s): Attorneys for Defendants:
MICHAEL WILLIAM SCHWARTZ X X Diane Bass X X
Proceedings: CHANGE OF PLEA
Defendant moves to change plea to Counts One and Two of the Information.
Defendant sworn and states true name as charged.
Defendant enters new and different plea of GUILTY to Counts One and Two of the Information.
The Court questions the defendant regarding plea of GUILTY and FINDS that a factual basis has been
laid and further FINDS the plea is knowledgeable and voluntarily made. The Court ORDERS the plea accepted
and entered.
The Court refers the defendant to the Probation Office for investigation and report and the matter is
continued to October 20, 2014 at 1:30 p.m. for sentencing. Defendant to remain on Bond under the same terms
and conditions as previously ordered. The Court finds defendant is not a flight risk or a danger to the
community.
The Court ORDERS the Jury Trial set on July 15, 2014, VACATED. The Court further ORDERS the
transcripts of the proceeding to be SEALED.
19
Initials of Deputy Clerk jcb ~----~-----------cc: USPO, PSA
CR-11 (09/98) CRIMINAL MINUTES • GENERAL Page 1 of I
ATTACHMENT 3
' case 8:14-cr-00069-DOC Document 1 Filed 05/07/14 Page 1 of 6 Page ID #:1
1
2
3
4
6
7
8 UNITED STA1'ES DISTRICT COURT
9 FOR THE CENTRAL DISTRICT OF CALIFORNIA
10 UNITED STA.TES OF AMERICA, No. l4-000
11 Plaintiff,
12 v.
I N F 0 R M A T I 0 N
[18 O.S.C. § 1343: Wire Fraud;
18 u.s.c. § 1341: Mail Fraud]
13 MICHAEL SCHWARTZ,
14 Defendant.
15
16 The United States Attorney charges:
1'7 COUNT ONE
18 [18 u.s.c. § 1343)
19 A. INTRODUCTORY ALLEGATIONS
20 At all times relevant to this Information:
21 ' .J... Defendant MICHA.EL SCHWARTZ ("SCHWARTZ") owned and
22 operated Service First Funding Group, Inc. ("Service rst")
23 located in San Juan Capistrano, Cali
24 2. Service First was a mortgage company that offered hard
25 money loan investments and loan modification services.
26 B. THE SCHEME TO DEFRAUD
27 3, Beginning in or around July 2008, and continuing to in
28 or around May 2013, in Orange County, within the Central
case 8:14-cr-00069~DOC Document 1 Filed 05/07/14 Page 2 of 6 Page ID #:2
1 District of California, and elsewhere, defendant SCHWARTZ,
2 knowingly and with the intent to defraud, devised, executed, and
3 participated in a scheme to defraud and to obtain money and
4 property by means of materially false and fraudulent pretenses,
s representations, and promises, and the non-disclosure and
6 concealment of material facts, in connection with a hard money
7 loan investment fraud scheme.
8 4. The fraudulent scheme operated, in substance, in the
9 following manner:
10 a. Defendant SCHWARTZ, through Service First,
11 solicited funds from investors to make hard money loans that
12 would be secured by real property. Defendant SCHWARTZ told
13 investors that he would use their funds to make loans to
14 individuals at a high interest rate. Defendant SCHWARTZ told
15 investors that he would keep a small portion of the interest for
16 himself and forward the remaining portion of the interest to
17 investors.
18 b. Rather than lending the investor funds as
19 promised, defendant SCHWARTZ misappropriated the investor funds,
20 and instead used them for the following: (1) to pay other
21 investors and his employees, and (2) for personal expenses
22 including over $11,000 a month in rent payments, auto lease
23 payments, and for shopping and dining expenses.
24 c. As a result of defendant's misappropriation,
25 defendant caused approximately five investors to lose
26 approximately $493,000.
27
28 2
Case 8:14-cr-00069~DOC Document 1 Filed 05/07/14 Page 3 of 6 Page ID #:3
1 c. THE USE OF INTERSTATE WIRE COMMUNICATIONS
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
5. on or about October 16, 2012, within the Central
District of California, and elsewhere, defendant SCHWARTZ, for
the purpose of executing the above-described scheme to defraud,
transmitted, and caused the transmission of the following by
means of wire communication in interstate commerce: Victim
M.T., at defendant SCHWARTZ's direction, transferred by wire,
investment funds in the amount of $80,000 from her Bank of
America account in the Central District of California to an
account controlled by defendant SCHWARTZ at Wells Fargo Bank in
the Central District of California for a hard money loan
investment. In effectuating this wire transfer, on the same
date, defendant SCHWARTZ caused Bank of America to transmit an
interstate wire communication from the Central District of
California to the Federal Reserve Bank in East Rutherford, New
Jersey1 for the purpose of processing the wire transfer through
the Fedwire payment clearing system.
3
case 8:14-cr-00069-DOC Document 1 Filed 05/07/14 Page 4 of 6 Page ID #:4
1 COUNT TWO
2 [18 u.s.c. § 1341]
3 i 6. The United States Attorney repeats, re-alleges, and
4 incorporates by reference the al ions set forth in
5 Paragraphs 1 and 2 of this Information as if fully set forth
6 herein.
7 .A.. THE SCHEME TO DEFRAti'D ---·--------------·-------
8 7. Beginning or around July 2008, and continuing to in
9 or around May 2013, in County, the Central
Hl District of California, and elsewhere, defendant SCHWARTZ,
11 knowingly and with the intent to defraud, devised, executed, and
12 participated in, a scheme to defraud and to obtain money and
13 property by means of materially false and fraudulent pretenses,
14 ions, and promises, and the non-disclosure and
concealment of material facts, in connec ion with a loan
16 modification scheme.
1 8. The fraudulent scheme , in substance, in the
18 following manner:
19 a. Defendant SCHWARTZ, through Service First,
20 loca.ted homeowners, including friends and family members, who
21 were at risk of losing their homes or who desired better
2 financ terms.
23 b. Defendant SCHWJ\.RT'Z advised the homeowners that
24 their homes would be sold short sale to 8 Straw buyers,n
25 individuals who were will to mere the ies in
26 their names. Defendant SCHWARTZ advised the homeowners that
27 would not have to leave the property, but rather would make
28 4
Case 8:14-cr-00069-DOC Document 1 Filed 05/07/14 Page 5 of 6 Page ID #:5
1 rent payments to the straw buyers until their credit, or the
2 credit of a family member, was strong enough to purchase the
3 home back from the straw buyers. The straw buyers were supposed
4 to use the rent money to pay the financial institutions.
5 c. In order to obtain financing for the straw
6 buyers, defendant SCHWARTZ made false representations to the
7 financial institutions, including that the homes would be owner-
s occupied or would be financed as a second home. Defendant
9 SCHWARTZ did not disclose to the financial institutions that he
10 was using straw buyers to purchase the home from the original
11 owners.
12
13
14
15
16
17
d. Had the financial institutions known that
defendant SCHWARTZ made these material misrepresentations and
omissions, the financial institutions would not have financed
the transactions.
e. As a result of this scheme, defendant SCHWARTZ
caused four financial institutions to lose $1,307,579.
18 B. THE USE OF THE MAILS
19
20
21
22
23
24
9. On or about June 14, 2012, within the Central District
of California, defendant SCHWARTZ, for purposes of executing the
above-described scheme to defraud, caused the following item to
be placed in an authorized depository for mail matter to be sent
and delivered by the United States Postal Service, according to
the directions thereon: a recorded grant deed for 117 North
25 Morada Avenue, West Covina, California was mailed from the Los
26 Ill
27 , I I I
28 5
l
2
3
4
5
6
7
8
9
10
11
12
13
1.4
15
16
7
18
19
20
21
2
23
24
25
26
27
28
I case 8:14-cr-00069--DOC Document 1 Filed 05/07/14 Page 6 of 6 Page ID #:6
les
California.
ll
I I
I
Recorder's Office to M.C. in West Covina,
ANDRE BIROTTE JR.
United States Attorney
, .. , ~ ~ /'\
};-;-1tt~(;T~. ~,A) \G-W--.--
1 ~ / '
(
RO ER E. DUG. A E
A.s~:Ls "nt cU~t-d St';ltes Attorney
ChJ...e-f, t":tnnrnal Dr vr sron "'--·--_.,......-
DENNISE D. WILLETT
Assistant United States Attorney
Chief, Santa Ana Branch Office
JOSEPH T. McNALLY
Assistant United States Attorney
Deputy Chief, Santa Ana Branch Office
JENNIFER L. WAIER
Assistant United States Attorney
Santa .Ana Branch Off ice
G