SAN JOSE - A 72-year-old man was sentenced in Santa Clara County Superior Court to eight years in prison today for bilking investors out of more than $2.8 million in two high-rise projects in San Jose that never broke ground, the district attorney's office said.
Judge Hector Ramon also ordered defendant Gilmore Erickson, of Los Gatos, to pay full restitution to about 40 investors who provided him with cash to build the two proposed condominium projects from 2007 to 2008, Deputy District Attorney Georg Behrens said.
Erickson was convicted earlier this year of charges including securities fraud, grand theft and selling unqualified securities, Behrens said.
He was charged not based on how he spent the money he obtained from investors, but on misleading statements he made to them and for failing to reveal his previous grand theft conviction from a real estate development plot he hatched in Monterey County, Behrens said.
In securities law, it is illegal to mislead investors about "material facts" concerning the investment that a reasonable person would want to know, including his grand theft conviction, according to Behrens.
Erickson started promoting opportunities in the development projects in San Jose to members of a real estate investment club in the Bay Area and began to receive money from backers, typically about $100,000 each, in 2007.
He promised the investors "real strong returns" on their investments within about a year, Behrens said.
Using the business names Northpoint Development, Grandpoint Community Builders and Next Group, Erickson told investors he controlled building sites for two major condominium projects, the Delmas Towers on Delmas Avenue, south of downtown San Jose, and the Fifth Street Towers on Santa Clara Street between Fifth and Sixth streets downtown.
A selling point in his pitch was that the investments would be secured by tens of millions of dollars he said were held in a family trust if anything went wrong.
But Erickson was not capable of securing investors with money from the trust, another material fact he failed to disclose, Behrens said.
Erickson bought land for only one of the two projects and then had to relinquish the title for not keeping up with the payments on it, according to prosecutors.
He did approach the city of San Jose about his building plans but nothing came of it and he never broke ground on either of them, Behrens said.
According to Behrens, Erickson stopped accepting investments in the last quarter of 2008, when the national Great Recession had begun. Behrens said the poor U.S. economy at the time may have played a part in the failure of Erickson's plans.
Erickson also failed to contact the state Department of Business Oversight to qualify his securities with state regulators, which look them over to make sure they are fair investments, before putting them up for sale.
The department examines investment contracts, such as stocks and bonds, and declares whether the instrument qualifies as a security, Behrens said.
"Most investors are not aware of those requirements," Behrens said.
Eventually, Erickson lost more than $2.8 million investors sent to him, spending the money on things such as advertising, down payments and salaries, he said.
The FBI started an investigation into his operation and then the district attorney's office and the state business oversight agency took over the probe.