Panel weighs legislation inspired by Harmon case

Thursday, Feb. 18, 1999 | 11:27 a.m.

State mortgage companies support proposed legislation to protect investors from dishonest businesses that make construction loans but bitterly oppose a companion bill they say would destroy the industry.

The Assembly Commerce and Labor Committee, meeting in Carson City on Wednesday, heard testimony on Assembly Bills 64 and 72 and will consider amendments in about two weeks. Both bills were introduced in response to Southern Nevada investors who lost millions of dollars with the now-defunct Harley L. Harmon Mortgage Co. of Las Vegas.

AB64, recommended by a legislative subcommittee chaired by Assemblyman David Goldwater, D-Las Vegas, would give the Attorney General's office authority to criminally prosecute officials of mortgage companies found to have misled investors.

Harmon was accused of mishandling investments in construction loans by keeping shoddy records and using some investors' money to pay off others. The state Financial Institutions Division stripped the company of its license in December 1997 but argued that it was powerless to prosecute company officials.

The FBI launched its own probe, which is ongoing.

AB64 also would require mortgage companies to make clear disclosures of the risks involved in such investments, prohibit them from promising specific percentages of return in media advertisements, and increase from $500 to $10,000 the amount of fines that could be levied for violations of the law.

Goldwater said the mortgage company industry, as a whole, has done much good because developers who otherwise may have problems getting bank loans have been able to do business in Southern Nevada through investor-backed loans. But he also noted the abuses Harmon was alleged to have committed.

"We really, really want to protect the investor in this process," Goldwater said. "They are unsuspecting. They are attracted by high yields, and they need to be protected. I want to work to make this a great industry for the state of Nevada."

Assemblywoman Barbara Cegavske, R-Las Vegas, another member of the subcommittee that prepared AB 64, also voiced support for the bill. She bemoaned the fact that the state never fined Harmon, even though the company was found to have committed "egregious" violations of state law at least nine months before it was closed down.

"It became clear to me and the committee that mortgage company laws had to be overhauled," Cegavske said.

She noted that many of Harmon's victims were senior citizens.

"Somewhere down the line we have to stop protecting everybody but the victim," Cegavske said. "They deserve more protection in mortgage company laws than they receive."

Harmon investors Dan Gray of Henderson and Loretta Eichelberger of Las Vegas, both of whom lost thousands of dollars with the company, said they supported the bill. The legislation also was backed by representatives of the mortgage company industry, though they said they had minor objections to portions of AB 64.