Real Estate Enterprise in New Jersey Goes Bust and Investors Fight for Their Money NYTimes.com

IN another time, Wayne Puff, who had run a small limousine company and twice filed for bankruptcy, might not have won the confidence of major banks or investors with sizable portfolios.

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But during the heady days of the real estate boom, some 1,200 investors from across the country poured 3.3 million into his company, New Jersey Affordable Homes. Mr. Puff advertised guaranteed annual returns of 15 to 20 percent from his business buying, renovating and reselling real estate.

Now, more than a decade after he began his real estate investment company, Mr. Puff, 60, of Old Bridge, N.J., is being held without bail in the Essex County Jail. Christopher J. Christie, the United States attorney for New Jersey, charged Mr. Puff in June with bilking investors and mortgage lenders through a Ponzi scheme based on mortgage fraud. His company was forced into receivership three years ago, but the mess is still being unwound.

The economic meltdown has focused national attention on Wall Street greed, freewheeling mortgage lenders and lax regulations. All this set the stage for what federal prosecutors say has been a sharp increase in mortgage fraud in neighborhoods across the country. This year, more than 400 people have been arrested on mortgage-fraud-related charges, according to the United States Justice Department.

Federal prosecutors accused Mr. Puff of employing the usual elements of mortgage fraud: from offices in Woodbridge and Perth Amboy, N.J., he worked with a mortgage broker who fudged applications and appraisers who pumped up real estate values. Properties were flipped between insiders at artificially increasing prices. The scheme cost investors million, saddled banks with million in bad loans and plunged 400 New Jersey properties into legal limbo, according to court records. About half of the homes were in already struggling sections of Newark, Irvington and East Orange in Essex County.

So far, seven people who worked closely with Mr. Puff’s company — two appraisers, four employees and a paralegal for one of his lawyers — have pleaded guilty on charges related to the scheme.

Some investors are still fighting for their money.

Milija Balabanovic, 82, said he invested a total of 0,000 with Mr. Puff starting in the late 1990s. A former landlord himself, he is once again banging his knuckles under kitchen sinks and mowing yards at two houses he bought with what little money he had left.

“I am not asking anyone to feel sorry for me or anything like that, but I was a self-made millionaire, and now I am a pauper,” he said. “Why he was allowed to do business I do not understand.”

Two of his longest-standing friends said they were surprised that Mr. Puff had built such a large enterprise. Lois Keegan said she first met Mr. Puff in the ’80s when she was tending bar and he had just moved to New Jersey from Colorado, where he had worked as a ski instructor. She described him as a “fun” and “adventurous” guy who was the center of a group of 20 friends. She said he worked as a home-repair contractor and came up with a stream of marginal business ideas, including one she partook in called Lady Limousine.

“He had two women drivers, myself and somebody else,” she said. “I guess people didn’t notice how rickety the limousine was because we were in cute little limousine driving outfits.”

By the early ’90s, Mr. Puff was focused on his real estate investment firm, hiring dozens of employees and advertising extensively on radio and in newspapers. He hired as his in-house lawyer George J. Otlowski Jr., whose father was a former mayor of Perth Amboy and a longtime state assemblyman. (Mr. Otlowski has not been charged in the case.) And he arranged to accept money from I.R.A. accounts through Fiserv Trust Company, which administered billion in self-directed retirement and custodial accounts. (Its parent company sold the unit to Ameritrade this year.)

All that suggested credibility in the minds of his investors.

Daniel Kelleher said he began investing with the company in 1995, as he prepared to retire from the Department of Defense. He brought in his brother, Bob, and several friends from a marina in Atlantic Highlands, N.J., where he kept a small boat.

Unbeknownst to them, the New Jersey Bureau of Securities raised concerns in 1996 about Mr. Puff’s claimed returns and failure to register his securities. There were some discussions with state and federal regulators but no action was taken against Mr. Puff until three years later.

Meanwhile, Mr. Puff occasionally impressed investors with his fame as a swing dancer. Natalie Gomez, a three-time world swing-dancing champion, took Mr. Puff along for a group appearance on the “Today” show on NBC in 1998.

Mr. Kelleher said that Mr. Puff’s grace and showmanship on his feet was matched by his facility with banter.

“We used to call him ‘Twinkle Toes,’ ” Mr. Kelleher said.

In 1999, the New Jersey Bureau of Securities filed a civil complaint in Essex County accusing Mr. Puff of selling unregistered securities. By then, Affordable Homes had 526 active investors who had put in a total of .4 million, the complaint said.

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