REDDING - Investors who say they were bilked in a massive Ponzi scheme began taking the stand in a Redding courtroom Wednesday, describing how Gary Armitage of Healdsburg sold them investments without disclosing the deals were put together by a convicted felon.
Santa Rosa resident Marjorie Bailey, 94, testified that she lost her entire $330,000 investment despite Armitage's assurances that it was perfectly safe because it was backed by real estate.
"He said you will never lose your money because you have the property in back of you," said Bailey, a retired schoolteacher who lives in Spring Lake Village in east Santa Rosa.
It was the second day of testimony in a hearing to determine if there is enough evidence to try Armitage and his two co-defendants on charges that they defrauded at least 2,000 investors of more than $200 million.
Bailey testified that her late husband Herbert, a retired naval aviator, first met Armitage in 2001 at a financial seminar at the Doubletree Hotel in Rohnert Park. They made a good return on their money, usually 9 to 11 percent, for several years, she said.
Deputy Attorney General Robert Morgester walked Bailey through the various investments she made through Armitage, with names like Sunset Bay and Oakdale Heights Charlotte. Each time the prosecutor asked her if Armitage ever mentioned the risk involved.
"He said there was no risk at all," Bailey said.
After her husband died, Armitage urged her to transfer all of her investments into an entity called the AREI Corporate note, she testified.
Asset Real Estate & Investment is the company owned by Armitage's co-defendant, James Koenig of Redding. Armitage for a time was an employee of AREI, and prosecutors contend he was also a co-owner, though Armitage's public defender Amy Babbits denied this.
Bailey said Armitage never mentioned to her that Koenig had a felony criminal fraud conviction. Koenig was convicted of mail fraud in 1986 stemming from a gold scam. He served time in federal prison and was ordered to pay $5 million in restitution to his victims.
Asked when she first heard his name, she replied, "Not until I read it in the newspaper."
A central element of the case against Armitage and the third co-defendant, Jeffrey Guidi, Armitage's partner in AGA Financial, hinges on when they learned that Koenig had a criminal record, and whether they told, or had an obligation to tell, their clients about it.
There was testimony Tuesday from an investigator in the case that Koenig's conviction was common knowledge at AREI, and it was alluded to in some – but not all – of the literature about the company's investments.
Other testimony suggested that some AREI officials took the position that the conviction was more than 10 years old and therefore didn't need to be disclosed.
Another investor, Vacaville resident Elaine Beck, 88, testified that Armitage was "very convincing" when he would visit her and her husband Max in their home to discuss investing with him. They came to consider him a trusted friend, she said.
"This was our first time investing, so we were very happy to have his help," she said.
Armitage convinced them not only to invest their $150,000 in savings, but to take out a second mortgage on their home for another $150,000 and to also invest that money with him, she said.
Armitage told the couple the deal made sense because the rate of return on the investment was greater than the interest they would be paying on the second mortgage, she said.
Never, however, did Armitage mention the investment risks involved or anything about Koenig's felony conviction, she said.
Beck is a Mormon, and Armitage reassured her about her investment by telling her Koenig was "high up in the Mormon Church," something she now doubts, she said.
Ultimately, Beck and her husband agreed to invest in a senior living center called Oakdale Heights Bakersfield, one of the many such centers AREI managed on behalf of investors. Beck said her investment was later rolled into other similar real estate deals before being put into the AREI corporate note, an investment unsecured by real estate.
When her regular payments stopped, Beck said she got the run-around from Armitage.
"There were always excuses. He was either on vacation or he couldn't be reached," she said.
She estimates her losses at $300,000.
After the attorneys were done questioning her, Beck asked Shasta County Superior Court Judge Cara Beatty if she could say something else. The judge said she could not.
In the hallway outside the courtroom, she said she had wanted to tell the court about the impact Armitage's deception has had on her life.
"I'm losing my home, and I've lost my husband due to this," Beck said.
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