Wading into the mire of the collapse of the local first-trust deed business

It must have seemed so simple a few years ago when rising real estate prices were outpaced only by investor confidence in booming Southern Nevada.

They were champagne days for some wealthy investors who entrusted millions with mortgage company owners to help bankroll America's greatest boomtown in exchange for 11 percent interest on their money. It was also a chance for cocktail waitresses and construction workers to scrape together a few grand to help build a reliable retirement for themselves or a college fund for their children.

They knew there was a risk, but they believed in the resiliency of Las Vegas.

For hundreds of local investors in first-trust deed mortgages, nothing is simple these days.

Real estate prices have plummeted. Even many of the best of those first-trust deed deals are paralyzed by the recession. Many of the rest are like "The Poseidon Adventure" come to life: upside down and far under water.

For now, at least, most of the drama of this crisis is being played out in lawsuits filed in Clark County District Court. There you'll find the deferred dreams of investors of all sizes. You'll also find allegations of underhanded practices and outright criminal wrongdoing that are enough to shock the most jaded courthouse observer.

It's important to remember that allegations leveled in contentious litigations often define hyperbole.

Then again, Southern Nevada history is rife with examples of slippery mortgage brokers hustling investors out of hundreds of millions: Every time you think you've heard it all, some mortgage magician is caught making investors' millions vanish right before their eyes.

So it is with a healthy skepticism, but a mind on the checkered history of the business, that I wade into the mire that is the collapse of the local first-trust deed business. In the coming weeks I'll try to tell a few of the stories of staggered investors and hapless brokers.

There are big stories such as the one going on behind the doors of Aspen Financial Services. Aspen is owned by Jeff Guinn, son of former Gov. Kenny Guinn. At the end of 2008, Guinn had approximately $480 million in loans from about 4,000 investors.

Those investors are sick of waiting for their money. In multiple litigations, Guinn is accused of violating his fiduciary responsibilities and giving favored investors preferential treatment. In a published report, Guinn denied the lawsuits' claims and vowed to "vigorously fight."

He is accused in one lawsuit of loaning money for a project in which he held a personal interest without disclosing that fact to investors. He has denied acting in an unprofessional or unethical manner.

And then there's GFD Investments headed by Leo Davenport. He is a registered lobbyist and the former chairman of the Las Vegas Planning Commission and, as such, was surely trusted by investors as an experienced businessman who possessed a keen understanding of the local development game.

Was Davenport caught up in a tsunami that swallowed others in his business?

Or did he commit "criminal acts of grand larceny and embezzlement" as is alleged in a civil suit filed in District Court by attorney Susan Frankewich on behalf of equipment rental king Don Ahern?

The alleged conspiracy over the use of $1.5 million in investors' money reads like a lawyerly version of a street-corner shell game. Money that was supposed to be invested for one purpose ended up being wrongfully transferred for other uses. That deal soured, and the investors were left leaning.

Trouble for Davenport transcends the stinging lawsuit.

Plaintiff Ahern isn't a minor player or naïve businessman. Ahern not only has a long and successful business track record, but he was recently a member of Gov. Jim Gibbons' Spending and Government Efficiency Commission, which made several inspired suggestions in an effort to aid Nevada's budget crisis.

After reading a number of these lawsuits, I can't help asking whether the state's overwhelmed Mortgage Lending Division could have done more. I also wonder how Clark County's two-judge Business Court will manage to ride herd over these mountainous messes.

Meanwhile, attorneys and investigators are scrutinizing dozens of deals for signs of criminal fraud and the wrongful conveyance of properties with a total value even in a recession of tens of millions of dollars.

Those simple days of easy money are over. The hardest times are yet to come.

John L. Smith's column appears Sunday, Tuesday, Wednesday and Friday. E-mail him at Smith@reviewjournal.com or call (702) 383-0295. He also blogs at lvrj.com/blogs/smith.