California Man Charged in $225 Million `Scratch and Dent' Property Scheme

A $225 million Ponzi scheme involving investments in rehabilitated “scratch and dent” real estate led to fraud and money laundering charges against a California businessman, prosecutors in Los Angeles said.

Bruce Fred Friedman, 60, the owner of Sherman Oaks, California-based Diversified Lending Group Inc., was arrested Sept. 13 in Cannes, France, U.S. Attorney Andre Birotte Jr. said yesterday in a statement. He faces a prison sentence of as long as 360 years if convicted on all 23 counts that he’s charged with, according to the statement.

Friedman offered investors secured notes that promised annual returns of 9 percent or 12 percent and told them that Diversified Lending bought, rehabilitated and rented out real estate properties across the U.S., according to the statement. Friedman used the investors’ funds for other business ventures and for a charitable foundation and companies affiliated with his family and friends, prosecutors said.

A Federal Bureau of Investigation agent estimated that Friedman’s victims lost $191 million, according to Birotte’s statement.

Richard Drooyan, a lawyer who represents Friedman in a related civil lawsuit by the U.S. Securities and Exchange Commission, said he wasn’t involved in the criminal case and couldn’t comment.

Don Smaltz, Friedman’s criminal defense lawyer, didn’t immediately respond yesterday to a voice-mail message left with his law firm and an e-mailed request for comment.

Assistant U.S. Attorney Jill Feeney said it may take several months before Friedman will be extradited to the U.S.

The case is U.S. v. Friedman, U.S. District Court, Central District of California (Los Angeles.)

To contact the reporter on this story: Edvard Pettersson in Los Angeles at epettersson@bloomberg.net.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.

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