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Armitage will face trial over $200 million alleged fraud


Former Healdsburg investment adviser Gary Armitage will stand trial for his role in what prosecutors call a massive real estate Ponzi scheme that decimated the life-savings of hundreds of North Coast residents.

After a nearly two-month-long preliminary hearing, Shasta County Superior Court Judge Cara Beatty on Wednesday ordered Armitage, 60, and business partner James Koenig, 57, to stand trial on dozens of counts of felony securities fraud.

Prosecutors allege the men swindled more than 2,000 investors, many of them senior citizens, out of an estimated $200 million.

Investors who trusted Armitage with their retirement savings lauded the decision.

"Hallelujah! Hallelujah! Thank you Judge Beatty," said Dee Sunderland, a 71-year-old retired Novato nurse who lost $265,000 in two investments.

The ruling caps an unusually lengthy preliminary hearing that involved the testimony of dozens of witnesses. The case is being handled in Shasta County because the investigation centered on a Redding firm owned by Koenig, Asset Real Estate & Investment.

The company was raided in June 2008 by state Department of Justice investigators who confiscated hundreds of thousands of pages of documents and e-mails that formed the foundation of the prosecution's case. The documents helped investigators unravel a complex web of interrelated companies that prosecutors allege the men used to defraud investors and fund lavish lifestyles.

Neither Koenig's attorney, public defender Michael Horan, nor Armitage's attorney, Amy Babbits, could be reached for comment. Robert Morgester, deputy state attorney general, declined to comment.

In her 25-page ruling, Beatty laid out why she was upholding most of the charges against the two men. The prosecution originally filed 70 counts of securities fraud and burglary against the men. She upheld 42 securities fraud charges against each man, and an additional eight burglary charges against Armitage because he entered investors' homes as part of the fraud. She dismissed the burglary charges against Koenig, who never entered clients' homes.

A third man, Jeffrey Guidi of Santa Rosa, accepted a plea bargain with prosecutors midway through the marathon hearing in exchange for his cooperation, including possible testimony against his former partners.

Armitage and Guidi were longtime partners in Santa Rosa-based AGA Financial, which collapsed in the fall of 2008 when payments to its investors ceased and several sued the two men for fraud.

<CW-20>Armitage and Koenig earlier rejected plea deals that would have sent them to prison for 25 years and 20 years, respectively.

The judge found there was ample evidence that Armitage and Koenig conspired to keep clients in the dark about problems with the investments in order to keep the money flowing in.

</CW>The most glaring omission, the judge found, was that investors were never told Koenig had been convicted of mail fraud in the 1980s in connection with a gold-selling scam.

"To investors, Armitage portrayed Koenig as a financial wizard, a businessman who never lost money for his investors, and an old fishing buddy and family man who was worthy of their trust and financial support," the judge wrote.

Many investment documents lacked any reference to a conviction, while others contained only vague references, the judge wrote.

"Where there were disclosures, the wording was such that it took a tracking system to understand who — within the organization — suffered the conviction," she wrote.

After investors learned of Koenig's past and confronted Armitage, he continued to downplay it, telling them it was "a thing of the past" or that Koenig was the victim of his partners at the time, she wrote.

When questioned by investors, Armitage had a legal duty to state the facts and let investors decide whether the conviction had a bearing on their decision to place their money in AREI investments, she ruled.

The judge also found that Armitage abused the trust of senior citizens by assuring them their investments were perfectly safe and dismissing risk warnings in investment documents as meaningless "legalese."

"Armitage never warned that the investments may be risky nor spoke of his own personal conflicts of interest," she found.

He also never told investors that some of the senior care facilities clients were investing in were in default and had unpaid property taxes, the judge said.

She cited several examples of witnesses from the hearing who were assured their investments carried no risk. Robert King of Petaluma was told his $1.1 million investment in a corporate note was "very secure" and would be returned in 60 to 90 days. He lost it all, the judge wrote.

Armitage told Carole Thole of Napa there was no risk in her investment, but she too lost everything. "After her $200,000 investment was lost, Ms. Thole was forced to sell her home, rent out rooms, clean homes and stables and work as a dental assistant to make ends meet," the judge wrote.

"Armitage took advantage of friends, long-standing clients, and often unsophisticated or elderly people," the judge wrote. "It is human nature to hope to find an upstanding citizen-type financial counselor so as to make accurate, profitable investments. Since Armitage fit that role to a tee, his advantage taking had no bounds."

Some of those who did not testify agreed with her assessment.

Healdsburg resident Karen Nencini said she, her daughter and her son-in-law lost over a million dollars in investments that Armitage assured them were perfectly safe.

"I'm just very, very sorry that he did so much damage to so many people who could ill afford it," said the 72-year-old widow. "He betrayed friends. He betrayed clients. He betrayed ethics. He betrayed his family. And he betrayed himself."

Nencini said she is one of the people Armitage entertained at his castle in the mountains west of Redding, and he even offered her the use of the company's corporate jet.

Armitage and Koenig are due to be arraigned on June 14, when a trial date may be set.

Both men remain in custody in Shasta County jail in lieu of $5 million bail each.