Newell and his wife, Kelly Newell, are paying back money they borrowed from two local lending companies, even though one of the lenders is accused of real estate violations, and the property they borrowed against has plunged in value, he said.
He also denied any implication that his personal financial troubles affected how his office proceeded with criminal evidence that could have posed a conflict of interest.
?This was something in my personal life that went haywire,? Newell told The Union. ?I did absolutely nothing illegal. I absolutely plan to stay in office.?
Olympic Mortgage and Investment Co. and later Gold Country Lenders, both in Grass Valley, helped the Newells avoid foreclosure on a local property, and one of them may have misled people who invested in the loan, according to an investigation published in Sunday's Sacramento Bee.
The Bee report described the Newells' property woes in the context of a larger story about lenders in Nevada County who are attracted by retirees with money to invest ? and the millions of dollars lost when such lenders turn people's investments into a Ponzi scheme. The story took two reporters and a researcher a year to investigate.
Newell was elected District Attorney in 2006 and was re-elected after running unopposed in 2010.
Phil Lester, owner of Gold Country Lenders, has been accused by state officials of recruiting investors to buy into construction loans without telling them he was part-owner of the properties, which is illegal, The Union has reported.
Olympic Mortgage ? now called Olympia Mortgage ? is owned by Phil Ruble.
Both Gold Country and Olympic are hard money lenders, gathering money from investors and lending it out to borrowers who typically cannot qualify for bank loans. Investors typically earn interest rates far higher than bank loans, but also face greater risk.
Cliff and Kelly Newell borrowed $1.7 million from Olympic in 2004 to shore up their Snow Mountain Camp north of Nevada City, the Bee reported. Kelly Newell was running the business, and Newell co-signed on the loans, he told The Union.
?We were really, truly trying to save the business, so we went to the hard money market,? Newell told The Union. ?It was a gamble we took that didn't pan out.?
What came next, Newell said, ?Maybe ... will become a learning experience for others potentially borrowing or lending in that hard money market.?
Declining market, changing terms
When the camp continued to founder, ?the couple... sold off a few parcels from Snow Mountain and refinanced with Olympic,? the Bee story said. ?But by late 2007 ? they were having trouble making payments.?
Lester ?promised to loan Newell $700,000 at 11 percent interest,? the Bee reported, citing records. Lester told the Bee he was doing the Newells ?a favor.?
?Lester said the money was to pay off the Olympic loan. Newell said it was to hold Olympic and other creditors at bay, but (he) didn't recall the loan's amount or terms,? the Bee report said.
Lester allegedly told investors ?if the Newells defaulted, they would be first in line to foreclose on the camp property,? the report read. ?Loan documents show that this was untrue ? Olympic held that first position ?
?Lester raised no more than $260,000 for the Newell loan ? far below what the Newells needed to pay off Olympic ? (which) would have made the camp property valid collateral for the Gold Country loan,? the report said.
Lester, who lives in Auburn, could not be reached Sunday for comment on the Bee's report.
In 2009 as the national and global economy continued to plummet, giving real estate values a beating, Lester ?dropped the Newells' interest rate from 11 percent to 7 percent, saving them up to $10,000 per year,? the Bee reported.
?In June 2009, Olympic accepted portions of Snow Mountain Camp in lieu of payment of more than $614,000 still owed, allowing the Newells to avoid ? foreclosure,? the report said.
During the time Newell was an assistant district attorney and after he was elected top prosecutor, the cases of other local hard money lenders came to court, including Keith Hyssom and Thomas Hastert. Both were both convicted of fraud, though they argued they were the victims of a falling real estate market that led to investors losing millions of dollars.
For some of the investors, the losses gobbled up their life savings.
Conflict of interest denied
While calling the Bee report ?pretty accurate? regarding his personal loans, Newell said he takes ?offense that the Bee was trying to imply there was something less than honest about what was going on,? Newell told The Union.
During this period, ?law enforcement agencies... sent Newell two allegations of wrongdoing with investors' money by David Lester, Philip Lester's brother and former employee,? the Bee reported.
?Newell's office declined to prosecute David Lester for lack of evidence, but after the Bee's inquiries, Newell said he reconsidered and sent the complaints to the state Attorney General's office.?
Newell never saw the initial evidence against David Lester and did not know about the allegations, he told The Union Sunday. Another deputy district attorney in the office had reviewed the case and informed law enforcement of the need to follow up, Newell said.
?The reports from the police were insufficient to charge, and I didn't have any decision-making in that process,? Newell told The Union.
He first learned of a connection to his personal loan in the David Lester case from the Bee reporters, who spoke to him about a year after the evidence had been rejected, Newell added.
?I referred (the case) to the Attorney General's office immediately,? Newell said. After that Bee interview, Newell returned to his office, prepared a package of documents concerning the case and sent it that same day by overnight mail, he said.
He does not know the status of that case, Newell added.
Newell's office also had referred the Hastert case to the Attorney General's office, even though he had no personal connection, to avoid any appearance of a conflict, Newell said.
?It's unfortunate that my name's tied to that series of events, but some good can come from it... if it helps even one of our citizens locally,? Newell said.
Those events have no bearing on his public role, Newell said.
Meanwhile, the Newells continue paying what they still owe, he said.
?Our intention throughout this entire process is to make everybody whole, and we continue to pay on it,? Newell added.
State: Lester violated investment laws
Lester surrendered his real estate license after the California Department of Real Estate filed a notice of intent to bar him from the industry, The Union reported in September 2010.
A month earlier, state officials had accused Lester of several violations of state real estate law. Lester allegedly negotiated seven construction loans between 2007 and 2009, totaling $6.3 million.
In five of those loans, Lester involved more than 10 lenders, which is illegal, The Union reported.
According to the state's accusations, Lester also illegally:
? Failed to stop seven of his investors from putting more than 10 percent of their assets into the loans.
? Failed to place invested money into a third-party escrow account.
? Failed to use a comprehensive draw schedule or verify draws.
? Failed to obtain appraisals by a licensed professional.
When interviewed by The Union, Lester agreed most of the charges are technically true, but denied any willful neglect. He surrendered his license because he did not have funds to hire a lawyer to defend himself, he said at the time.
ooo
To contact Senior Staff Writer Trina Kleist, e-mail tkleist@theunion.com or call (530) 477-4230.
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