Brown: AGA Financial partners 'callously swindled' investors

State investigators unveiled the outlines of their case Friday against two Sonoma County men charged with orchestrating a massive Ponzi scheme that swindled $200 million from thousands of investors before it imploded.

Gary T. Armitage and Jeffrey A. Guidi, owners of Santa Rosa investment company AGA Financial, were arrested Thursday night at their homes on multiple charges of securities fraud and burglary.

A business partner, James S. Koenig, was arrested in Redding Thursday night on similar charges.

If convicted on all charges, the three men could each spend 100 years in prison.

“These three men callously swindled thousands of individuals out of $200 million to bankroll their extravagant lifestyles,” Attorney General Edmund G. Brown Jr. said in a statement.

“They took investors’ money and used it to pay for an 80-acre castle estate, a Lear jet, luxury homes and fancy cars. The Ponzi scheme ultimately collapsed under its own weight, causing hardship to thousands, many of whom were retirees who lost their life savings,” Brown said.

Armitage and Guidi were held Friday on $5 million bail in the Sonoma County jail. They are scheduled to be arraigned Tuesday afternoon in Shasta County Superior Court, according to the Attorney General’s office.

Koenig was arraigned on Friday in Shasta County Superior Court. He will be back in court Tuesday to see if he qualifies for a court-appointed attorney.

“I think it’s a great first step,” said Petaluma resident Robert Koenitzer, an investor in AGA Financial offerings. “The next step is to throw away the key.”

Koenitzer said he lost more than $400,000 after investing in residential care facilities in Modesto and Reno. Koenitzer, a former real estate appraiser, said the facilities were sound, with high occupancy levels and good cash flow. He claims management looted the care facilities to cover up losses at other places and pay off other investors.

“The problem wasn’t that the investments went bad,” Koenitzer said. “It was that they stole all the money.”

A 48-page arrest warrant for the three men reveals a tangled web of investments that form the backbone of the state’s case.

Attorney General’s office investigators charged that Armitage, Guidi and Koenig created a network of 55 business ventures over a 10-year period to enrich themselves and keep their alleged Ponzi scheme afloat.

In 1997, the three men began selling construction and real estate projects throughout California, according to the allegations.

Victims were promised that these were safe, secure, low-risk investments with double-digit returns, averaging 12 percent or better, the arrest warrant says.

To recruit investors, Armitage organized “investment planning seminars” in the Bay Area and across the state, Brown said.

Investment sums ranged from $50,000 to $1 million, with some people investing their entire retirement portfolios and savings accounts, according to the allegations.

Many of the construction and real estate projects were poorly managed and were not financially viable, resulting in huge losses. Other projects were not finished or ended up in foreclosure.

Koenig, Armitage and Guidi then sought to attract new investors, whose funds could be used to offset losses and pay returns to earlier investors. By not telling investors about the failures, prosecutors alleged the defendants withheld vital information that impacted investment decisions.

Most investors reported they were not provided with any written disclosures about the offerings, but were simply assured their investments were safe. Subsequent documents failed to disclose that Koenig had been convicted of mail fraud in 1986 and ordered to repay up to $5 million, the warrant said.

Beginning in 2001, Koenig, Armitage and Guidi redirected investors’ millions into the purchase of more than 20 senior housing and residential care facilities.

Under this alleged scheme, the defendants’ company would purchase an assisted living facility and sell it to one of their affiliate companies. The affiliate would then sell ownership shares in the property as an “investment opportunity” at an even higher price to new investors. Meanwhile, an additional affiliated company would manage the property to maximize revenue.

Revenues, however, were not reinvested into the facilities, but were pooled and used to pay interest to investors and keep investors at bay, prosecutors allege.

In April 2007, the scheme began to collapse under a mountain of debt and the defendants were unable to pay interest to investors, the state charges. Nevertheless, they continued to solicit new investors in the vain hope that they could keep the operation alive, raising $23 million from 91 new investors.

The defendants’ businesses finally closed their doors in June 2008.

Armitage, 59, was arrested at his Healdsburg home on charges of 42 counts of securities fraud and 37 counts of residential burglary.

Guidi, 54, was arrested at his Santa Rosa home. He is charged with 33 counts of residential burglary.

Koenig, 57 of Redding, was charged with 40 counts of securities fraud and 37 counts of residential burglary.

The Sonoma County Sheriff’s Department refused to release jail booking photos of Armitage and Guidi, citing an internal policy.

Staff Writer Kevin McCallum contributed to this story.