Real-estate investor gets 5-year prison term for $70 million Arizona land scheme

Catherine Reagor | The Republic | azcentral.com

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Stephen J. Hatch, 68, pled guilty to one felony count of fraud and was sentenced to five years in prison Friday

As part of the plea deal, prosecutors agreed not to charge his children

Hatch bought vacant land from Arizona real estate speculator Conley Wolfswinkel between 2005 and 2011

A man using biblical quotes preyed on Christians in an Arizona real-estate Ponzi scheme that cost many investors their life savings.

The ringleader of the $70 million scam promised double-digit returns on land deals to 110 investors. Many friends and family members were recruited to invest in properties from Chandler to Sierra Vista.

Stephen J. Hatch, 68, pleaded guilty to one felony count of fraud and was sentenced on June 9 to five years in prison. As part of the plea deal, prosecutors agreed not to charge his children.

The Texas man also agreed to repay $1 million to the investors.

“Stephen Hatch is a con man who will spend the next five years behind bars for tricking Arizona families into investing in his Ponzi scheme,” Arizona Attorney General Mark Brnovich said. “Our Number 1 goal was to get justice for these families who were scammed out of hundreds of thousands of dollars.”

Ponzi scheme

Hatch bought vacant land from Arizona real-estate speculator Conley Wolfswinkel between 2005 and 2011. Hatch then solicited investments in the properties through partnerships named after biblical verses and emails containing biblical quotes.

Hatch went on to co-mingle funds in different accounts, using new investor money to pay other investors, according to court documents.

Investors laid out the details of their complaint against Hatch in documents submitted to the Attorney General’s Office in late 2015.

In those documents, investors contend part of their money was spent on extravagant salaries for Hatch’s children and friends, his son’s stake in a Valley restaurant, luxury items, and personal real estate, including a California ranch.

Hatch told investors he was already a wealthy man who didn’t need the money, but wanted to help them make money in the name of God.

“Hatch preyed on Christian families and lured victims into his real-estate investment scheme by making religious and biblical references to gain their trust,” said Mia Garcia, spokeswoman for the Attorney General's Office.

Hatch named one partnership 320, after Ephesians 3:20: “Now to him who is able to do far more abundantly than all that we ask or think, according to the power at work within us.”

Investors say he often ended emails to them with that quote.

“I was considered a family friend and had no idea what was going on until it fell apart in 2014,” said Phoenix investor Scott Horsley, who is part of a five-member board representing the people who lost money to Hatch. “What happened is pretty similar to what Bernie Madoff did with his Ponzi scheme. This was a true affinity scam.”

Horsely said one of Hatch’s investments, a 40-acre parcel in Queen Creek, looked like a good financial move, since it had only $2 million in debt. But then Hatch used the land “as his own personal bank account and ran up $5 million in debt on it.”

“That money went into Hatch’s California ranch and other things investors have no title to,” he said.

Plea deal

Hatch’s defense attorney, Ed Novak, said it’s not unusual for investors to lose money in real-estate deals when land prices fluctuate during Arizona’s booms and busts.

“By Hatch’s own admission in the plea deal, he directed funds from one partnership into another,” he said. “Not to divert money from investors, but in his mind to create a better return for them.”

Per the plea deal, charges won't be filed against Hatch’s children — Stephen D. Hatch, Adam Hatch, Ryan Hatch, and Jessica Hatch — who were involved in his real-estate investment deals.

Brad Heinrichs of San Diego, who went to college with one of Hatch’s sons, recruited many of the investors, according to court documents that include emails detailing the exchanges and promises of big returns.

Heinrichs’ grandmother and other relatives invested in Hatch’s scheme.

Heinrichs is named with Hatch in the plea agreement as also promising to earn “fictitious” amounts for investors, using payments from some investors to pay other investors and “appropriating significant amounts of investors’ cash or property.”

Heinrichs couldn’t be reached for comment.

The Attorney General’s Office said it is continuing to investigate the real-estate scam but declined further comment.

Affinity fraud

“When real estate and religion is combined in Arizona, investors have to be careful,” said attorney Mark Winkleman, who is working to recoup money lost by the Hatch investors.

In the late 1990s, he worked to help investors in a fraud case involving the Baptist Foundation that cost many elderly Arizonans more than $570 million.

Recently, Winkleman worked to help investors recoup real-estate losses from Mortgages Ltd.'s $1 billion collapse in 2007.

Horsley, who with other investors spent the past few years compiling documents and testimony for the fraud case they presented to the attorney general in late 2015, was in the courtroom Friday for Hatch’s sentencing.

“In some ways, the indictment was very sad for me,” he said. “I watched them fingerprint and lead Stephen away. He had the chance to apologize to us before he went to prison. He didn’t.”

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