Ex-owner of USA Capital pleads guilty

In a surprise hearing, Joe Milanowski, a former owner of USA Capital, which failed owing $962 million to investors, pleaded guilty Tuesday to one count of wire fraud.

Deputy U.S. Attorney Roger Yang recommended that Milanowski, 48, be sentenced to 12 years in prison and required to make restitution.

However, Chief U.S. District Judge Roger Hunt warned that he was not bound by the recommendation from the U.S. attorney's office. Hunt said he could sentence Milanowski up to 20 years in prison and fine him up to $250,000.

Milanowski is the only defendant named so far in a criminal case stemming from the 2006 collapse of USA Capital, a hard-money lender that solicited money from 6,000 individual investors and made loans to developers. However, the U.S. attorney's office said the investigation is continuing.

"Today's guilty plea demonstrates that the U.S. attorney's office will be vigilant in pursuing individuals and companies who abuse their positions of trust to facilitate crimes," U.S. Attorney Gregory Brower said in a statement.

Attorneys for Milanowski said he had no comment.

Investors were surprised to hear about the guilty plea.

"Oh my gosh! That is so good," said Phyllis Resler, 72, a widow and great-grandmother. She has recovered $2,000 of the $50,000 she invested with USA Capital.

"They did a job on us," Resler said.

Rich Maioriana, 59, said: "Oh, wow. He deserves it, and I hope he gets the full penalty."

Maioriana said he was retired but returned to work as energy consulting manager because of his losses at USA Capital. He invested $50,000 with USA Capital but only recovered $1,200 so far.

Investor Lee Novak said: "I'm glad that justice was served."

Milanowski, who has a master's degree in business administration, is unemployed, but his wife continues to work.

Tom Hantges, another former USA Capital owner, said his attorney directed him to decline comment, but Hantges added: "It appears I'm no longer a target of the FBI."

Investors entrusted USA Capital with their money in return for double-digit interest rates and the security of holding real estate as collateral for loans. The U.S. attorney's office said USA Capital misled investors into believing that their investments were performing.

Some investors put their money in the Diversified Fund rather than buying fractional interests in individual loans.

USA Capital advised investors that no Diversified Fund loans would be made to company insiders and that no loans larger than $20 million would be made once the Diversified Fund reached a certain value, according to the U.S. attorney's office.

Milanowski, who was president of USA Capital, in 2002 created the "10-90 Loan" and used it for private developments and investment projects for himself and other company insiders, according to court documents.

Milanowski transferred approximately $22 million to 10-90 Inc. and to another entity he controlled to fund his own development projects, according to prosecutors.

The defendant claimed that the 10-90 Loan was secured by three communities in Southern California when he knew that the loan was not secured by three communities, according to a court document.

When USA Capital filed for bankruptcy in April 2006, Milanowski had caused the Diversified Fund to attribute $55.9 million of its principal to the 10-90 Loan.

During a private conference at the hearing, defense attorney Mark Bailius persuaded the judge to seal the guilty plea agreement for an undisclosed reason.

Hunt released Milanowski on personal recognizance pending sentencing on Oct. 23.

Contact reporter John G. Edwards at jedwards@reviewjournal.com or 702-383-0420.