Without admitting or denying guilt, Homestead Northwest founder James Wynstra has agreed to pay a civil fine of $100,000 in connection with the collapse of the company and the losses to hundreds of local investors.
The fine assessed by the Washington Department of Financial Institutions was disclosed in documents made public Friday, March 8.
In April 2011, that state agency had filed legal documents accusing Wynstra and a Homestead employee, Rita Lahman, of fraud and sale of unregistered securities. The state agency's action came about two years after Homestead stopped making payments to investors who had been promised returns of eight percent or more on their loans to the company.
Lahman has agreed to pay a $2,500 fine-also without admitting guilt.
Suzanne Sarason, the state department's chief of enforcement, acknowledged that Wynstra may not wind up paying a penny of the $100,000 fine. The consent order between Wynstra and the state says that payment of the fine is deferred until Homestead's investors are repaid in full for losses said to total about $65 million.
That day may never come. The Homestead companies are winding their way through a complex bankruptcy liquidation process in federal court in Seattle, and by all indications, sale of the few remaining assets will leave investors with pennies on the dollar.
"If there is any money, obviously it should go to the investors," Sarason said.
But Wynstra will be required to pay $5,000 in investigative costs to the state, at $100 a month.
Wynstra and Lahman also agree to "cease and desist" from further violations of state securities law.
Why was Wynstra allowed to make a deal that did not require him to admit guilt?
"That's typically what happens in a consent order," Sarason said.
State investigators preferred to strike a deal to end the matter, given the fact that Wynstra does not appear to have any additional assets to pay penalties, Sarason said.
Why did it take so many years to get to this point?
Sarason said the case was complex, and state investigators were waiting to see if the bankruptcy process would disclose any significant amount of assets.
The Homestead case shows why investors should check with state regulators to make sure a company complies with state law before they invest, Sarason said.
"We didn't hear from people until so many years after their investments were made," Sarason said. "We only hear about it once they are no longer happy. That took a long time with this."