LV man quietly fined by state over mortgage brokering

Grace Leong

Tuesday, Jan. 30, 2001 | 11:20 a.m.

A Las Vegas businessman was quietly fined $50,000 by the state last summer for brokering real estate development loans without a license.

The fine against John Keilly, owner of JMK Investments Ltd., wasn't announced when it was levied in August. The fine came to light this month in a lawsuit between Keilly and some of his investors.

Keilly and his attorney could not be reached for comment on the fine.

The state Financial Institutions Division in August also ordered Keilly to stop acting as a mortgage broker without a license. Keilly agreed to the sanctions by signing a stipulation.

The agency said its investigation of Keilly, which began on June 16, was prompted by investor concerns about their money that Keilly had pooled and loaned to Las Vegas real estate developer Saxton Inc. and "allegations made to the Securities Division by (one of JMK's clients) William Croce."

Saxton did not or could not make its loan payments to the Keilly investors after Saxton ran into financial difficulties.

The Keilly investigation came to light when Keilly filed a lawsuit against Croce and nine other clients to avoid an arbitration proceeding they demanded and to prevent them from asserting their rights under a March 7 settlement Keilly claims is "illegal and void."

Keilly and JMK, which facilitated $1.9 million in loans made by Croce and other clients to Touchstone Development Corp., agreed in March to pay the defendants $421,000 plus interest to settle a dispute that erupted after Touchstone allegedly defaulted on the loans.

But Keilly's lawsuit claims the agreement is "illegal and void as against public policy" because the defendants had agreed with Keilly to "hinder and obstruct any potential criminal or administrative investigation of Keilly or JMK Investments."

"It is well settled that a contract which tends to suppress the investigation of a criminal offense is illegal," the suit said.

Keilly alleged the defendants agreed that Keilly would not be obligated to pay the settlement amount "if any government agency should take action against JMK because of any action of the defendants."

Randall Jones, the defendants' attorney, disputed the state's claim that its investigation of Keilly was prompted in part by Croce's allegations.

He also disputed Keilly's claim that the financial settlement is void because of the state disciplinary action.

"We have a valid agreement and Croce and Keilly have now agreed to try to resolve their issues in arbitration. We just want to make sure the settlement agreement is enforced."

Attorneys for both parties say the lawsuit isn't going forward and a hearing that was scheduled for Monday was canceled.

The Financial Institutions Division in August also ordered Keilly to transfer all loans he was servicing to another mortgage broker he designated and who was approved by the investors.

The order also prohibits Keilly from "originating any new loans," but said he could act as a consultant to a licensed mortgage broker. The state Financial Institutions Division has publicly announced its actions in the past in high-profile mortgage broker cases like that of Interstate Mortgage.

Lyndon Evans, the Financial Institutions Division's deputy commissioner, said the state did not make a public announcement of Keilly's penalty because it doesn't announce every action it takes.

He said he wasn't aware of the number of investors involved with JMK, but said "it didn't approach the investor numbers that we saw with Interstate Mortgage ... where thousands of investors were involved."

Saxton's investors became concerned when they received notices dated April 5 from JMK saying Saxton, which it said was "experiencing financial difficulties, will discontinue payments on its loans effective with the March payment due April 1, 2000."

"For a publicly-traded company like Saxton Inc. to be in such a difficult position was a surprise to us and Saxton's other secured creditors, especially given the financial reports we have been given and upon which we have based our lending decisions," JMK said in a letter to shareholders.

"While we and others continue to piece the puzzle together and because of potential liability issues which would affect each of our investors, we have been instructed by counsel not to discuss any of the specifics of the situation other than the proposal outlined," the statement said.

JMK said it believed its best hope for recovering its investors' monies was to "exchange (its) debt, deeds of trust, secured stock loans and unsecured loans for other assets currently owned by Saxton and Diamond Key Homes (Saxton's Arizona subsidiary) in Phoenix and Tucson."

JMK, which said Saxton agreed to this asset substitution, stressed the "swap" must occur as quickly as possible to avoid potential "lawsuits, judgements, liens, foreclosures and even bankruptcy."

But JMK noted: "Because we cannot predict the future, we cannot guarantee any interest on your investment will be paid from the sale of these additional lots. We cannot even guarantee the complete return of your principal from the sale of Gladden Farms parcels and the sale of these additional lots. However, we expect your principal will be returned within three to four years, and we expect some interest will be paid during that period of time."

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