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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