The developers and financial partners behind Rice Ranch Trilogy, the largest housing project in Santa Barbara County, are named in a federal lawsuit that accuses them of fraud, deceit, breach of trust and taking money from an investor who claims she never saw a penny of the $200,000 she put into the venture.
The lawsuit, filed by attorney Faith Devine of Fraud Law Group in Carlsbad on behalf of plaintiff Susan Brachfeld, of Indio, alleges that Brachfeld and others were defrauded in connection with a $25 million securities offering for Rice Ranch, an Orcutt housing project approved by county supervisors in 2003.
Attorneys representing the defendants deny the allegations in court documents, and maintain that Brachfeld knew what she was doing when she invested in the project. They could not be reached for comment Friday.
The project site is owned by Rice Ranch Community LLC, which is headed by real estate developer John Scardino.
Rice Ranch Ventures LLC, also headed by Scardino, originally owned all the property and served as the fundraising arm for the project.
The development includes 560 acres, and calls for 725 single-and multifamily homes in distinct neighborhoods dubbed Valley View, Pine Creek, the Oaks, the Meadows and the Grove. Additionally the project included building a 26-acre community park and sports complex. The project was expected to be phased in through 2008.
Construction halted, however, when the project fell victim to the economic recession and housing market slump in 2008. According to the suit, Rice Ranch Ventures LLC had to come up with funds to save the project, and Rice Ranch Investment Fund was formed to raise money.
Rice Ranch Investment Fund holds equity interest in Rice Ranch Trilogy and is managed by chief executive and financial officers Robert Katch and Alan Hopkins of Manchester Financial investment advisory firm, according to the suit.
Brachfeld is a retired attorney who was hunting for conservative investment opportunities and sought help from Hopkins and Scardino. In March 2008, Brachfeld and other Manchester clients were pitched by Hopkins and Scardino as investors in the Rice Ranch project.
Investors were told Rice Ranch Investment Fund was raising $25 million "to be used to acquire an interest in Rice Ranch Ventures LLC" and "pay down the Wells Fargo Acquisition and Development loan," the suit said.
Investors were promised that they'd "receive their capital back first plus a 12 percent annualized preferred return," according to financial documents.
Investors were also "promised that they would receive 50 percent of the profits from the sale of land, lots and homes in Rice Ranch," the suit continued. "This was to be paid before the development partner receives its initial investment."
Brachfeld kept telling her advisers she didn't want to make any risky investments, the suit continued, but was assured she was making the right choice.
Brachfeld ended up investing $200,000 into Rice Ranch in May 2008, according to the suit, after being promised that her money would be returned in five years.
She hasn't gotten her money back, or received any return on her investment, she says.
Despite the investment money, Rice Ranch Ventures LLC faced foreclosure in 2012, and was given just a few months to come to terms with Wells Fargo Bank.
Scardino was able to establish a 50-50 partnership with Shea Homes in December 2012, however, and Rice Ranch Ventures deeded several acres of land it owned to Rice Ranch Community LLC, with half of it controlled by Shea and the other half controlled by Scardino, according to the suit. The joint venture worked with Wells Fargo to avoid foreclosure.
In March 2013, Manchester Financial notified investors that they were in partnership with Shea Homes, which is not named in the suit, and that the change wouldn't affect their original investment with Rice Ranch. Again, investors were assured they'd get their money back, the suit said.
Delays in investment returns
During the next four years, Hopkins and Katch continued to tell Brachfeld and other investors that the project was taking longer than expected, but that they'll "return all debt and equity with profit," "expedite our return of capital," and that they expected to show an "increasingly positive cash flow and profitability once the [...] homes begin to sell in 2018," the suit said.
"Hopkins, Katch and Scardino knew the original investment in the Rice Ranch Investment Fund was worthless, that they didn't have the funds to pay the promised returns represented in the original offering materials," the suit continued.
The suit also accuses the defendants of siphoning a significant amount of profits for themselves without disclosing that to investors.
"They had no intention of repaying the $25 million they received from the 2008 funding," the suit alleges.
Taking legal action
In April 2017, Brachfeld terminated her relationship with Manchester Financial. In turn, Manchester kept assuring her that her investment still had substantial value, and that her membership interest in Rice Ranch Investment Fund was safe, and that there was no reason to pursue legal action to recover her money, according to the suit.
In July 2017, Brachfeld filed the federal lawsuit, which is in arbitration and is next set to be heard Monday at the Central District of California, Eastern Division. Brachfeld is seeking punitive damages exceeding $1 million, stemming from the $200,000 she first invested in 2008, which has built interest over the past decade, according to her attorney.
In court papers, Brachfeld alleges that she was defrauded into signing an arbitration agreement which limits her ability to discover the truth about how investor funds were used and also prevents her from seeking relief in court to stop further dissipation of investor assets.
Gina Kim covers crime and courts for Santa Maria Times. Follow her on Twitter @gina_k210