Chief U.S. District Judge Roger Hunt on Friday sentenced Joe Milanowski, 48, former president of failed USA Capital, to 12 years in prison for wire fraud.
USA Capital, a hard-money lender, solicited money from individual investors and used the money to make loans secured by real estate for double-digit interest rates. It was managing $962 million in assets for 6,000 investors when it filed for bankruptcy in 2006.
The prosecution calculated that Milanowski was involved in fraud that resulted in $86.9 million in losses at USA Capital, but the judge said the economic collapse contributed to other losses at the firm.
Milanowski broke the law as the economy dropped and ventures at USA Capital started to blow up, Hunt said. The judge rejected defense arguments that Milanowski was trying to protect investors.
"His primary motive was to protect himself, his reputation and his fortune," Hunt said.
He added, though, that "there have been no allegations, I don't know whether it's true or not, that the money went into his pocket."
The judge previously considered rejecting a guilty plea agreement proposed by the prosecution and suggested he might sentence Milanowski to a longer term.
At the hearing Friday, however, Hunt said he decided to approve the plea agreement. Victims would be better served if Milanowski had an incentive to help them recover some of their losses through lawsuits, he said.
One former investor complained about suffering by investors, many of them retired, who lost money at USA Capital.
"Do you suffer less if he is prison?" Hunt asked.
Donald Pensler, the investor, didn't answer the question but said: "He has to pay the price."
Hunt said: "I don't know that there's anything I can do to reduce their suffering unless some of their money can be located and recovered."
Allan Diamond, an attorney for bankruptcy trustee Geoffrey Berman, urged the court to consider the help that Milanowski could provide in civil trials seeking damages from third parties involved in the USA Capital debacle.
Berman and another bankruptcy court official, Michael Tucker, hope to recover millions of dollars in damages this year for investors from several civil defendants. They are prepared to go to trial against Wells Fargo Bank, accounting firm Deloitte & Touche, and Fertitta Enterprises and several individuals.
Milanowski probably will be available to testify in several civil trials before he reports for prison Aug. 6.
Hunt said that Milanowski could end up serving longer than 12 years in prison if he fails to cooperate with attorneys and prosecutors.
Before sentencing, Milanowski acknowledged the hurt he caused victims of fraud at USA Capital.
Before joining the hard-money lender, Milanowski said, he was a "small-town boy" who worked his way through college and was honest.
The defendant said he felt guilty when he started committing fraud.
"I fretted about it and had sleepless nights," he said.
Investors who lost their fortunes, he said, "have family to rely on. Today, that's all I have," he said, choking with emotion.
As his wife and family members listened, Milanowski spoke about how he spends his time today taking care of two daughters, ages 8 and 6.
Hunt agreed to recommend that the Bureau of Prisons confine Milanowski in a Southern California prison and that Milanowski get treatment for alcohol abuse.
Milanowski will be under federal supervision for five years when he is released from prison. He was ordered to pay 10 percent of his gross income toward $86.9 million in restitution.
Contact reporter John G. Edwards at firstname.lastname@example.org or 702-383-0420.