SAN FRANCISCO - The developer of the Rancho Lucerne Master Planned Community told U.S. District Court Judge Charles R. Breyer yesterday how he got involved in the controversial Lucerne Valley, Calif., development on the opening day of the securities fraud non-jury trial against Pacific Genesis Group Inc.
The Securities and Exchange Commission hauled in an estimated 20 boxes of files and exhibitions into the court before questioning Manoucher Sarbaz of the Pacific Golf Community Development in Los Angeles.
Sarbaz told how he became interested in the land in the late 1980s after others in the industry spoke about possible future projects in the high desert.
"I was looking for a large parcel of land to do a large master plan development," Sarbaz said. He wanted to transform that land of alfalfa and a few homes into a master planned community. He sought a loan from an overseas firm called Siam, and after some time, that firm approved a $50 million to $60 million loan, but never came through. Instead, Sarbaz claims, Siam took the $70,000 that he put down on the loan.
Christopher Cooke, the leading attorney for the SEC, asked routine questions about the history of the development, the time frame of obtaining San Bernardino County approval, and rezoning issues and various partnerships, including Sarbaz's initial meeting with Pacific Genesis chairman David Fitzgerald.
Sarbaz said Phase 1 of the planned community has not been completed, but the infrastructure work, including six miles of water and sewer lines, is in place.
Outside the courtroom, Cooke said that he wanted to establish the groundwork in the SEC suit. The SEC maintains in court documents that the land is overpriced by $23,000 per acre and alleges fraud.
Pacific Genesis issued nine bond offerings amounting to $83.5 million for the land, the last of which closed last month, "before a perceived loophole in state law ended on Jan. 1, 2001," according to a reply by the SEC in court papers.
The judge ordered proceeds from the last deal to remain in escrow until the case is resolved, but Breyer did permit the bonds to be underwritten.
Still, the SEC said: "Because the likely project revenues and the developer's assets are insufficient to repay bondholders, defendants failed to disclose that the only way the principal and interest on the bonds have been, and will continue to be, repaid is through the use of earlier reserve funds and the issuance of more bonds."
Attorneys for Pacific Genesis said in briefs that full disclosure was made by the Alameda-based firm in its official statements, with an explanation of the project's various risks.
Thomas McGonigle, co-counsel for the defendant, led questioning.
Fitzgerald, who attended the trial, said his attorneys expect the trial to last no more than three days.
