Susan Tompor

Detroit Free Press Personal Finance Columnist

When the recession slammed into their highly-leveraged Lansing-based business, Thomas and James Mulholland started raising cash from new investors to work through the real estate crash.

The twin brothers promised a 7% rate of return from real estate profits, guaranteed. But authorities say Mulholland Financial continued to lose money and the new dollars from new investors ended up being used to pay off earlier investors in what turned into an $18.3 million real estate Ponzi scheme.

More than 250 investors, including retirees with limited savings, lost money.

Thomas Mulholland, of Midland and James Mulholland of St. Petersburg, Fla., both 59, were found guilty last week in an Ingham County court by a jury on all charges. The brothers are being held in Ingham County Jail and will return for sentencing in Ingham County Circuit Court before Judge William Collette on Aug. 31.

"These men got themselves in a financial bind and instead of owning up to their mistakes, they chose to defraud Michigan residents of their hard earned savings," said Michigan Attorney General Bill Schuette in a statement today.

On Friday, the brothers were convicted on eight charges, including criminal enterprise, a felony punishable by up to 20 years in prison. Other charges included conspiracy, false pretenses, Blue Sky Laws connected to fraudulent schemes and statements and a violation of the Securities Act.

East Lansing attorney Eric Sheppard, who represented Thomas Mulholland, said he will be evaluating the case to see if an appeal will be filed.

Investors are once again reminded to be wary of sure-fire, guaranteed rates of return.

Mulholland Financial started in 1987 as a company that bought real estate to be used as rental properties, mostly in college towns.

Josephine Udell, 64, began investing in the real estate deal back in 1988 after a guy she was dating told her that his uncle had made money with James Mulholland. The rate back then was a promised 10%, much better than what was offered at the bank, she said

She heard Mulholland had investment real estate in the East Lansing area that could be fixed up as rentals for college students at Michigan State University.

She relied on the advice of a friend and invested because she knew that a few friends had invested with Mulholland.

Her lesson learned: She wishes she would have done more research on Mulholland Financial.

"I thought it was a really good deal," said Udell, a retired nurse who lives in Grand Rapids. "I just kept giving him money."

Udell, who testified in court in Ingham County last week, said James Mulholland seemed like a really nice guy, someone who even attended her father's funeral in 2005.

She had invested with Mulholland up until November 2009. "I never thought he would take me to the cleaners," Udell said.

Mulholland Financial filed for bankruptcy in February 2010 due to overwhelming debt. Udell said she lost $304,000, including interest that reportedly was paid to the account.

The brothers hid the fact that their business was in trouble in 2009 as they raised more money, according to authorities. The U.S. Securities and Exchange Commission filed a complaint in 2012.

"At the end of 2009, they reached out to previous investors and urged them to reinvest," according to the press release from the Michigan Attorney General's Office. "They again said there would be a guaranteed 7% return, and they indicated that 2009 had been their best year ever, not revealing any of the financial problems they were facing."

As part of the pitch, investors were told that their principal and interest were guaranteed and that they could get their money back upon 30 days’ written notice, according to authorities.

The Mulhollands told investors that they would use investment funds to purchase, maintain, and rent residential real estate.

Multiple investigations were being conducted into business practices in 2010. Schuette's office said the case sat dormant with another agency until this spring.

Anyone can sound pleasant over the phone or encourage you to think that it's safe to invest in something that you don't understand.

Many times, con artists work through social groups -- friends of friends -- or church groups to gain the trust of potential investors.

Be wary if a planner or broker uses words like "leave everything to me" or "the plan is too complicated to tell you."

High-pressure sales tactics are often used in connection with some sort of fraud. No one should ever feel forced into making a decision on the spot.

A big red flag: If you're investing, you should receive regular statements. Raise questions if trading activity looks excessive or odd.

Keep diligent records of statements, dollars invested, conversations with brokers and advisers.

The Michigan Bureau of Commercial Services with the Department of Licensing and Regulatory Affairs can confirm if a broker or financial adviser is registered and in good standing. Contact the state agency at 517-241-6345.

Contact Susan Tompor: stompor@freepress.com or 313-222-8876.