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June 26, 2017

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Ex-USA Capital exec gets 12 years, must repay $86.9 million

Former USA Capital executive Joseph D. Milanowski today received a 12-year prison sentence and was ordered to pay $86.9 million in restitution to more than 1,000 victims for his guilty plea to one count of wire fraud, Nevada's U.S. Attorney Daniel Bogden said.

The 48-year-old Milanowski, who was sentenced by U.S. District Judge Roger Hunt, received such a long sentence because the loss was greater than $50 million and because the defendant abused a position of private trust to facilitate the commission of the offense. Milanowski was allowed to self-report to federal prison by noon Aug. 6, but must continue to cooperate with the government and U.S. Bankruptcy trustees during that period of release.

Milanowski was the president and de facto chief operating officer of USA Commercial Mortgage Co., which did business as USA Capital from 1998 through April 2006. USA Capital raised money from investors to loan to developers for the construction of real estate. In May 2000, USA Capital created the Diversified Fund to make secured loans to the developers and to pay the investors interest on the loans.

Milanowski and others represented to investors that all of the loans made by the fund would be secured by first deeds of trust. Investors were also advised that no loans would be made to company insiders, that no loans larger than $20 million would be made once the fund reached a certain value, that no loan would exceed 15 percent of the value of the fund, and that the fund would not loan more than 25 percent of its money to a single borrower.

On April 15, 2002, Milanowski created a loan known as the "10-90 Loan," which he used to fund private developments and investment projects for himself and other company insiders and affiliates. From March 27, 2003, to Nov. 12, 2004, Milanowski transferred about $22 million to 10-90 Inc. and to another entity he controlled to fund his own development projects.

Milanowski and others concealed the existence of the 10-90 Loan from investors until Sept. 30, 2005. That's when Milanowski included the 10-90 Loan on a list of the Diversified Fund's loan portfolio. He claimed that the 10-90 Loan was secured by three master-planned communities in Southern California when he knew that the loan was not secured by them. When USA Capital Mortgage Co. and the Diversified Fund filed for bankruptcy on April 13, 2006, Milanowski had caused the fund to attribute $55.9 million of its principal to the 10-90 Loan.

The investigation of USA Capital is ongoing.

The Milanowski case was investigated by the FBI, and prosecuted by Assistant U.S. Attorneys Daniel Schiess and Roger Yang.

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