Thursday, January 30, 2003
Copyright © Las Vegas Review-Journal

Witnesses: Mortgage broker diverted funds, increased risk

Witnesses in the Harley Harmon mail fraud trial testified Wednesday that they lost retirement money and their children's college funds because they invested with the defendant's now closed mortgage brokerage firm.

Harmon is being tried on 51 counts of mail fraud before U.S. District Judge Philip Pro. The government accuses him of diverting investor funds and of putting them in riskier investments than he promised.

More than 350 people were invested in mortgage loans brokered by Harmon when the state close his insolvent business in late 1997.

During the federal trial, investors hurt by the mortgage brokerage failure were called to testify. Most were retired.

Jody Evans, one of the younger witnesses, however, produces documentary films in California. She grew up in Las Vegas and the Harmons were friends of her family.

The California resident told jurors that she lost $250,000, "her life savings," through investments with Harmon.

In one instance, she said she told Harmon, "This is my children's college money."

"He said: 'This is a very safe investment. My children's college money is in this.' "

Harmon was a mortgage broker and used funds from individual investors to finance mortgage loans for developers and builders. Investors said they were assured they were putting their money in first mortgage loans or so-called first deeds of trust.

The investors testified that they understood that they would be first in line to receive funds from foreclosure if the borrower failed to make payments. They observed that second and third mortgage loans holders would only get paid after those with first mortgages were paid.

Evans said Harmon also assured her that the loans would not exceed 60 percent of the value of the real estate.

Evans testified her father and grandmother told her that mortgage loans managed by Harmon were "a fairly safe place to put my money."

"(Harmon) came over to my grandmother's to meet me," she said. "Harmon said he was watching (the loans). He was on top of it."

Evans said she repeatedly told Harmon that she wanted safe investments. "Every time I gave him money, I grilled him," she said.

She recalled that he particularly favored a mortgage loan secured by boat storage place at Lake Mead. "He was very excited about it for some reason," she said.

She said Harmon didn't tell her that he planned to divert the money to another project or that he intended to use the money to pay other investors.

Later, she said her father and grandmother sued Harmon over another investment because he didn't start foreclosure proceedings.

Retiree Anthony Rush, a former commercial bank teller and casino cashier, said he learned about mortgage loan investments through a partner in real estate investments.

"I just told (Harmon) it was retirement money that I was living off of," Rush told the jury. Rush testified that he told Harmon he wanted first trust deeds but discovered one of the documents he received indicated he was in a third trust deed after the borrower stopped making payments. He said he lost about $22,000 in that investment.

Thomas Hodges, a retired casino dealer, said he knew the Harmon family was prominent and the business "had a connotation of trustworthiness and long-standing service to the community," Hodges said. He said he invested $10,000 with Harmon after seeing a newspaper advertisement promising 15 percent interest on first trust deeds or mortgage loans.

"If the property was foreclosed, the first trust deed gets paid before the second trust deeds," Hodges explained to the jury. He said he wasn't aware that Harmon invested his money in a third trust deed that was subordinate to a first and second trust deed.

He acknowledged that he received $1,000 of his principal back plus some interest.

James Harkins, a retiree from New York, testified from a wheel chair. He told assistant U.S. Attorney Dan Pugh he would have asked for return of his money had he known that Harmon switched him from a first to a second mortgage loan.