Mortgage broker stole millions in Ponzi scheme

A 76-year-old former Marin County mortgage broker has been sentenced in federal court in San Francisco to three years in prison for his role in a $2.4 million Ponzi scheme.

Paul Sloane Davis, who now lives in Santa Rosa, was sentenced Tuesday by U.S. District Judge Charles Breyer, who also ordered him to pay $1.7 million in restitution.

Davis and a partner, , 58, formerly ran a Novato-based financial services company called DM Financial.

According to a 2013 grand jury indictment, the pair defrauded investors by soliciting funds they said would be used for so-called “bridge loans” for supposed borrowers who needed short-term financing when buying a new house and awaiting the sale of their previous home.

Prosecutors said in a sentencing brief that Davis and Cobb solicited and received $2.4 million from 21 investors between 2009 and 2013.

Some of the money was used to repay previous investors but Davis and Cobb spent most of it on a luxurious lifestyle, including expensive restaurant meals and travel. The total loss to investors was $1.7 million and in many cases the money came from either the investors’ retirement funds or their children’s college funds, prosecutors said.

The purported borrowers, who were in some cases real people whose signatures were forged on papers sent to the investors, had not applied for loans and did not receive any money, according to the indictment.

The use of funds from new investors to pay returns to previous investors in a fraudulent operation is known as a Ponzi scheme.

Davis and Cobb were arrested in Las Vegas on Nov. 13, 2013, after having been indicted under seal two weeks earlier.

Davis pleaded guilty before Breyer in March to one count of conspiracy to commit fraud, four counts of mail fraud and nine counts of wire fraud related to transactions with the investors’ money. He entered the plea about three weeks before he was due to go on trial.

Cobb, who now lives in Ohio, pleaded guilty to the same 14 counts in July 2014 and will be sentenced by Breyer on Jan. 13. She agreed in a plea agreement to recommend a sentence of no less than three years and five months in prison. Prosecutors can recommend a longer term.

Davis’s defense attorney, Shaffy Moeel, asked Breyer for a sentence of one year of home confinement for Davis on grounds of his age and ill health.

Prosecutors responded that the fraud began at least in 2009, when Davis was 70, and argued he should not be rewarded for avoiding detection, prosecution and sentencing for at least seven years.

Prosecutors wrote in their brief:

“A number of his victims were also elderly, and he stole the money of those individuals, leaving them without the retirement that he was able to enjoy while he was stealing $2.4 million from them.”