By Alex Nixon | Kalamazoo Gazette October 11, 2009, 6:36AM

Mark Bugnaski / Kalamazoo GazetteOrrin and Jama Bowlby, a retired couple in Constantine, say they were convinced by insurance company American Benefit Concepts Inc. to take out a loan on their house  and invest the money into am alleged Ponzi scheme.  Now they are at risk of losing their home to foreclosure.

CONSTANTINE — Model windmills whir in the front yard of the modest ranch home.

A collection of figurines decorate a book case in the living room.
For more than three decades, Orrin and Jama Bowlby have enjoyed a quiet life on Patterson Road in this rural St. Joseph County community.
But in the last eight months, the Bowlbys’ simple life has been turned upside down.
They say Portage insurance company American Benefit Concepts Inc., which is facing several lawsuits from dissatisfied clients and an investigation by the state, persuaded them to invest in a California-based Ponzi scheme.

And it may end up costing them their home.
“We’re just simple people that have lived one paycheck to the other,” said Jama Bowlby, 66. “We’ve always tried to keep our bills up.”

The Bowlbys aren’t alone. Ann Arbor attorney Joseph Spiegel, who filed one of the three lawsuits pending against ABC, said the Bowlbys are among approximately 70 older homeowners in Michigan who were allegedly persuaded by ABC salesmen to take out new mortgages on their homes and invest the proceeds in Diversified Lending Group Inc.

Spiegel’s suit seeks class-action status for an estimated 250 ABC clients in Michigan who invested with Diversified Lending Group, a California real-estate-investment company that was charged with securities fraud earlier this year. It promised investors 12 percent annual returns with no risk.

Spiegel said he and West Bloomfield attorney Anthony Trogan represent about 160 ABC clients who claim they’ve lost about $7 million.

“Diversified was a Ponzi scheme,” said David Gill, the court-appointed receiver overseeing Diversified Lending Group’s assets during the lawsuit. “The only way it could pay the returns it promised was by taking in and paying out money from new investors.”
A way out
In early 2008, the Bowlbys say they were approached by ABC salesman Robert Miller to make an investment in Diversified Lending Group.

The retired couple had purchased supplemental Medicare insurance from another ABC salesman a few years earlier.

They initially balked at Miller’s sales pitch, having no savings or investing experience. But what the Bowlbys did have, they say Miller explained during several meetings with them, was a home with more than $100,000 in equity. At that time, the Bowlbys owed about $40,000 on their first and second mortgages and were making monthly payments of $454.

The proposition made to the Bowlbys was a relatively simple one: Diversified Lending Group was offering a guaranteed 12 percent annual return on investment. If the Bowlbys invested at least $100,000, they could have their house paid off in eight years and earn some extra cash.

“Basically (Miller said) this was a foolproof way of people making money,” Jama Bowlby said.
While the math worked on paper, the deal depended on consistently high returns — a near impossibility in the investing world.
“Guaranteed every year? That just doesn’t happen,” said Wesley Lentz, an investment adviser with R.B. Wiser & Associates in Oshtemo Township.

Treasury bonds and certificates of deposit are the only investments that come close to guaranteeing a rate, Lentz said. And with those, “you’re lucky if you’re getting 2 percent,” Lentz said.

“If someone out there is guaranteeing a 12 percent return — there’s just no way,” he said.
Orrin Bowlby said he was skeptical of the deal.
“I dragged my feet for a long time,” the 72-year-old former creamery worker said. “It sounded too good to be true.”
But with his health in decline and no savings, Orrin Bowlby said he relented. The couple did not confer with a financial adviser before agreeing to the deal. “I figured this was a way out,” Orrin Bowlby said.

Attempts to reach Miller for comment were unsuccessful. Kalamazoo attorney Christopher Tracy, who is representing ABC, its owners and employees, said his clients will defend themselves in the suits.

According to plan?

In March 2008, after the Bowlbys took out a new mortgage for $148,000 and paid off their original loans, they invested $105,763 with Diversified Lending Group. According to documents provided to a Gazette reporter by the couple, Miller signed them up in a “guaranteed 12 percent” return fund.

The fund would pay about $12,700 in interest in the first year to the Bowlbys. Twelve months of payments on their new mortgage would total nearly $11,200. The $1,500 difference would be reinvested with Diversified Lending Group, gradually increasing their original investment and annual interest payments, they said they were told.

By the end of the eighth year, according to a hand-written note the Bowlbys say Miller sent to them, they’d have more than enough to pay off their mortgage.

“It takes 8 years for this plan to work,” the note states. “After 8 years everything is paid off and there is $8,192 left over that will go to you.”

Things went according to plan for a while, Jama Bowlby said. For the first year, they received a monthly statement from their mortgage lender, showing the previous month’s payment had been received. They didn’t have to make the monthly payments, and they didn’t worry.

But in March 2009, the Bowlbys received a letter from ABC stating that Diversified Lending Group would no longer make the monthly mortgage payments. ABC Vice President Matthew Harper stated in the letter that ABC would take over the monthly payments.

“Please rest assured that ABC is committed to seeing that there are no unpaid mortgages for ABC clients,” Harper wrote.

Four days earlier, on March 19, the U.S. Securities and Exchange Commission had filed civil securities fraud charges against Diversified Lending Group and its owner, Bruce Friedman, in U.S. District Court in California.

“Of the approximately $216 million raised from investors since 2004, Friedman misappropriated at minimum $17 million to support his lavish lifestyle, including purchases of a luxury home, cars, vacations, jewelry and designer clothing and accessories,” the SEC’s complaint states.

A judge has frozen all of Friedman’s and the company’s assets until the case is over. It is unclear how much, if any, funds investors will get back.

Nowhere to turn

ABC covered the March and April mortgage payments, the Bowlbys said. But then they received a second letter dated May 1 stating ABC could no longer cover its clients’ mortgage payments after paying more than $120,000 in the previous two months.

“It is with deep regret that I inform you that ABC will be unable to make mortgage payments for May,” states the letter signed by ABC President Jason Juberg and Harper.

The letter said ABC’s owners, agents, friends and family also had invested in Diversified Lending Group. Jason Juberg; his father, Donald Juberg; and Harper are all listed as investors, according to court documents.

The Bowlbys, who rely on Social Security and a pension payments for their $2,000 in monthly income, scraped and borrowed to make their last five monthly mortgage payments of $932 each, more than double their previous monthly payment.With their next payment due in a week, they say they’re tapped out.

“We can’t borrow any more,” Jama Bowlby said. “If I don’t make the payment, then I go into default.”

Their home is for sale, but they need to get enough to pay off their remaining $145,300 mortgage. In a depressed housing market, there have been only a few visits from potential buyers and no offers.
Meanwhile, they’re hoping their lender, Wells Fargo & Co., will modify their loan to lower their monthly payments. But Jama Bowlby said it’s taken months of phone calls, letters and applications just to get the bank to consider their request.

The couple doesn’t know what they’ll do if the bank forecloses on their house and evicts them.
But Orrin Bowlby says he has a plan, motioning toward a motor vehicle beside the house.

“You see that camper out there?” he said.

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