In one year, Mark Yazdani invested over
$5 million in an international gold trading scheme run by a loan broker, Lananh
Phan, who promised him guaranteed returns of 5-6% per month. Mark conducted no
due diligence into the legality or legitimacy of the investment.
It turned out to be a Ponzi scheme and
when it collapsed, Mark lost most of his money.
For the first investment of $500k,
Phan offered a promissory note secured by a mortgage on her personal residence.
For the next investment of $900k Mark received mortgages on the personal
residences of unwitting third parties.
All of the collateral loans were
facilitated through escrow at Chicago Title Company by Diane Do, an escrow
officer Mark met in an unrelated real estate deal and who invited Mark to
invest with Phan.
Mark had no expectation that the individual
homeowners would receive any loan proceeds. Without communicating with them, he
caused loan documents to be prepared, gave Phan’s address as the borrowers’
mailing addresses, and furnished his own email address as the borrowers’ email
addresses, so that they would never receive notices of default, acceleration,
Although his company was described
as the “lender,” Mark received all of the loan documents; the borrowers never
saw them and never knew of these transactions. The signatures on the mortgages
were either forged or obtained under false pretenses.
Mark knew of irregularities with the
execution and notarization of the loan documents but proceeded anyway.
After collapse of the Ponzi scheme
and unable to recover his investments, Mark moved to foreclose.
Two lawsuits arose. In the first,
two of the purported borrowers sued Mark to prevent foreclosure of their home.
The trial judge cancelled the loan documents, finding they were forged. That
generated a settlement, and the litigation was concluded.
In the second lawsuit Mark sued
Chicago Title Company, alleging the involvement of CTC gave reassurance that
the investment scheme was legitimate. Mark sought to recover almost $9 million,
as well as punitive damages.
The trial court started by examining
the relationship between Mark and Phan, who told Mark that the investment
involved buying gold from a mine at wholesale in one country and selling it at
retail in another. She claimed the investment paid her an average return of
12-15% per month, and that she would share half of it with her investors, a
return she claimed was guaranteed.
Mark started investing in 2012, and
Phan produced collateral. All of this was funneled through escrow at CTC, at
Mark received no statements, no
accounting, and no reconciliation. CTC’s affiliated entity Chicago Title
Insurance Company issued title policies on all transactions.
All of the purported borrowers were
first generation Vietnamese immigrants who were friends and family members of
Phan. Phan forged their signatures or convinced them to sign power-of-attorney
documents appointing her as their agent, on the pretense that she was helping
them refinance their homes.
In 2013 CTC audited Do’s escrow
files, and detected improprieties. Due to inappropriate escrow processes, Do
was forced to resign from CTC, who referred the matter for investigation to the
Santa Clara County District Attorney, IRS, and California Secretary of State.
Several days after her resignation
Do met with Mark at a beauty salon and explained the reason for her exit. Mark
called a supervisor at CTC to get a better understanding of the facts leading
to her resignation. Despite being apprised of such facts, Mark continued to
invest for several more months, when the Ponzi scheme was exposed.
The trial court granted judgment for
CTC and awarded CTC attorney’s fees against Mark of $943,250. Mark appealed.
It took 68 pages for the Appellate
Court to uphold the trial court’s Judgment for CTC. Both the trial court and
Appellate Court found it compelling that Mark Yazdani was a Stanford-educated Ph.D.
economist and licensed real estate broker, who had bought and sold over 160 USA
real estate properties in the 15-year period before this lawsuit. Both courts
expected that an experienced, sophisticated, multi-million-dollar investor
would have conducted at least elemental due diligence. And minimally would have
ceased all investment activities when Diane Do’s fraud was uncovered.
CTC wins again. See Meridian Financial
Services v. Phan; Case No. D078586 and D078589; California Court of Appeal,
4th Appellate District, Division One; August 10, 2021: https://law.justia.com/cases/california/court-of-appeal/2021/d078586.html.
Lessons / Questions
Fraud vitiates all.
How interesting that CTIC issued lender policies of title insurance to
Mark, but it was barely mentioned in a 68-page appellate decision. Could
this be because ALTA loan policies exclude from coverage the invalidity of
the mortgage lien due to “Consumer Protection Laws”?
A. If it’s too good to be true, then it’s not [true]. B. If you sense
fraud and ignore it, don’t think that Courts will help you because at some
point you become a participant. C. Power-of-attorney documents, while
often properly used, are inherently suspect. Just like the call you make
before you wire funds to verify you have the correct routing and ABA
numbers, contact the person who signed the POA for verification before you
rely on it.
Stuart A. Lautin, Esq.*
* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law, Texas Board of Legal Specialization
Licensed in the States of Texas and New York
Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.