Clovis News

FBI probes Fresno-based business; CEO found dead

Hundreds of people across the country stand to lose millions of dollars in what investigators describe as a Ponzi scheme based out of a Fresno equipment-leasing company.

And the man FBI agents believe masterminded it all -- John W. Otto, a pioneer in the equipment-leasing industry -- committed suicide this week in Palm Desert.

His death complicates what investigators say will be an enormous task: tracking down where all the money went, and whether others in Otto's firm -- HL Leasing -- were involved.

FBI agents began looking into Otto and HL Leasing after investors complained that they had not received April interest payments on their investments with the firm. As many as 1,200 victims nationwide could lose the money they entrusted to Otto, investigators say.

"At this point, it does appear to be a Ponzi scheme," said Steve Dupre, an FBI spokesman in Sacramento. "Right now, from our preliminary review, it appears that $138 million is the potential loss in this case."

A Ponzi scheme typically involves using money from new investors to pay earlier investors. A notable example is the multibillion-dollar scam by Wall Street businessman Bernard Madoff that surfaced last fall.

About 200 to 300 victims are from the Fresno area, Dupre said.

At the West Shaw Avenue office building HL Leasing shared with another Otto enterprise, Heritage Pacific Leasing, the doors are locked, the blinds are drawn tight and the lights are out.

"Due to the untimely death of Mr. John Otto, CEO of HL Leasing, the offices are closed until further notice," reads a sign taped to the door.

Otto, 67, died Monday from a self-inflicted gunshot wound to the head, said Scot Collins, a lieutenant with the coroner's bureau of the Riverside County Sheriff's Office.

Collins said Otto shot himself about 3 p.m. in the parking lot of the Palm Desert Visitors Center. The parking lot is only a few miles from Otto's $1.98 million home near Ironwood Country Club's North golf course.

While he lived in Palm Desert, Otto headed several leasing and financial businesses headquartered in Fresno.

Otto's death came only days after his attorney sent a letter May 8 to investors asking for their patience. Investors who had entrusted their money with Otto said their first inkling of trouble was when their payments didn't arrive as scheduled on April 25. Some of them contacted Fresno lawyer Donald Fischbach.

Fischbach set up a conference call for investors on Wednesday to figure out what to do. He was expecting 15 or 20 investors, but about 90 joined the call. Since then, more than 200 people have contacted his office, he said.

He knows of people who invested anywhere from $40,000 to $1.7 million.

The godfather of leasing

Otto was a legend in the equipment-leasing industry, said Tom McCurnin, a Los Angeles lawyer who specializes in the business.

"He was one of the godfathers of California leasing," he said. "He was a mover and shaker for the last 20 years."

The leasing industry matured in the late 1980s and 1990s as an alternative to traditional financing. Businesses could lease equipment for five years and write off part of the expense.

"It became a different way to finance equipment," said McCurnin, an attorney with the firm of Barton, Klugman and Oetting. "Prior to that, people got a bank loan to buy computers or they saved up and bought it."

Investors said Otto told them their investments were backed by leases Otto purchased from American Express, the financial-services giant best known for its credit cards.

But McCurnin -- who has prosecuted and defended Ponzi suspects and used to represent American Express -- believes Otto was running a scam. American Express got out of the leasing business several years ago, he said.

Fresno police started the investigation recently but turned it over to the FBI once the scope of the case revealed potential victims in other states, said Jeff Cardinale, a Fresno Police Department spokesman.

Dan Callahan, a Santa Ana attorney whose firm was hired by Otto last week, confirmed that he had been contacted by the FBI. But Callahan said he believes investors are jumping to premature conclusions about a scam or fraud.

"I see there's a concern, but I certainly don't believe that's the case," Callahan said. Otto had been in the leasing business "for more than 20 years, and it's not like he had a history of defaults; we only have this one payment due in April that was not made."

Reputation moved investors

Otto appears to have built his business empire on his reputation.

Wayne Cox, 69, of Clovis said he began investing with HL Leasing last year. He was introduced to HL Leasing through a friend who was a longtime investor, and spoke with dozens of other investors "who all gave glowing reviews."

Through Otto's firm, Cox bought into contracts for equipment leases that Otto purportedly purchased from American Express at discounted rates. Cox said Otto offered 9% interest on the investments.

"He would generate a document that had lease numbers on it, not copies of the leases themselves," Cox said. "Whatever you invested, you were investing in X amount of leases with numbers on them."

The general term of the investment was three years, Cox said, "but they guaranteed they would buy you out at any time; that was in writing."

Cox said he had "many thousands of dollars" invested with Otto and HL Leasing.

But after receiving the May 8 letter from Otto's attorney, Cox began to fear he and others might be victims of a scam.

"When I learned of the suicide Monday night, that confirmed my suspicion that there are real problems," Cox said. "That's when I thought the worst."

Wolfgang Conzen of Fresno is another concerned investor.

"I met Mr. Otto once. I thought he was a decent, nice guy," Conzen said. "Of course, this guy Madoff was a nice guy, too."

Conzen wasn't aware that Otto had taken his own life until Friday.

"That makes me even more worried," he said. "Something's definitely wrong now."

But the death wasn't the first sign of trouble. In an April 28 letter to investors, Otto advised that HL Leasing wouldn't be able to make its April 25 payment, because the firm was in the process of being sold. Closing was expected on May 8.

"Until this agreement is consummated, HL will freeze all accounts," he wrote. "No payments will be made and no new monies will be accepted by HL Leasing. I will do everything in my power to speed this transaction up so as to get your check to you as quickly as possible."

Law firm contacted

On May 8, however, Otto contacted Callahan's law firm because investors were concerned about the April payment, Callahan said.

"He said he wanted to make sure payments went to investors, because he was going to be selling the business," Callahan said Friday. But the buyer reportedly canceled the sale because Otto's health condition -- he reportedly had cancer that spread to his lungs -- prevented him from fulfilling a sale condition that he stay with the company for two years.

"Because the buyer backed out, there was a delay in making the April payment," Callahan said Otto told attorneys.

Callahan said he hopes to unravel the situation to get money back into the hands of investors.

"We're trying to obtain all the documents that show where the money came from, where it went and who's supposed to be paying it back," Callahan said. "We're trying to forensically look at all of the documents, look at all of the computer records and find out what has been transpiring."

Callahan added that his own investigation has revealed Otto had "no checkered past, no criminal convictions or things that would be the normal indicia of someone doing something illegal."

Dupre of the FBI said HL Leasing is cooperating in the investigation.

Dan Ramirez, who public documents show is the president of HL Leasing, could not be reached for comment Friday.

Dupre said agents have recovered evidence from the company's offices in Fresno but have not yet searched Otto's Palm Desert home.

Otto's suicide "does add a wrinkle to what we do going forward," Dupre said.

"At this point it appears he was the organizer of this scam, but we have a tremendous amount of documents and evidence that may point us in other directions," he said. "We have a lot of work ahead of us."