News Column

Is alleged 'loan scammer' in debtors prison?

June 22, 2014

By Teri Sforza, The Orange County Register

June 22--So the big questions are: What the heck happened to that black duffel bag stuffed with $360,540 in cash (if it ever existed at all)? And, should someone who wasn't convicted of a crime be locked up in jail for failing to turn it over ... forever?

This is a complicated story with a perhaps unsympathetic protagonist who officials say preyed on desperate and gullible people. But it also raises prickly questions about right, wrong and the mighty power of the state, which may make people of good conscience squirm. How We The People answer those questions, one might argue, is of great import to a free society.

PIXIE DUST?

Meet Zulmai Nazarzai. He, his then-girlfriend Fasela Sheren (who went by the name Sharon Fasela) and another friend were the masterminds behind a "boiler-room telemarketing operation" that lied to distressed and elderly folks on the verge of losing their homes as the world economy imploded back in 2008 and 2009, according to the attorney general and a decision by Orange County Superior Court Judge Andrew Banks.

Their "extravagant and false promises to consumers" were many, including that their company had a 97 percent success rate at saving homes from foreclosure; that customers were guaranteed a quick loan modification; and that the "exorbitant advance fees" they demanded up front -- $1,200 to $3,500 per client -- would be repaid by the lender. "None of these statements were true," the judge's decision said.

Alas, more than 1,000 people swallowed pixie dust nonetheless, paying $2 million to the Nazarzai/Sheren companies (Statewide Financial Group in Irvine, which did business as US Homeowners Assistance and Webeatallrates.com). While Nazarzai's attorneys contend that many people were actually helped -- of 600 closed files, 387 loans were modified, a 64 percent success rate, they said -- the AG and Judge Banks said otherwise. "Not a single satisfied customer or bank representative testified on behalf of Defendants," the ruling noted.

So the attorney general won big: Nazarzai/Sheren et al were ordered to cough up more than $4 million in penalties and restitution. "These defendants took advantage of vulnerable people in extremely difficult circumstances, including many who faced imminent loss of their homes," said Attorney General Kamala Harris in a prepared statement at the time. "The significant financial penalties imposed by the court let scammers know that severe consequences will flow to those who defraud California consumers."

Extremely important point: Nazarzai et al were never charged with a crime. They were sued by the AG. A civil, not criminal, action. The punishment they faced was financial and professional, forbidding them from engaging in this sort of business again. But not criminal. Which is to say, no jail time. Unless ....

THE BLACK BAG

The legal machinations were still young when state attorneys learned that Nazarzai had some $370,000 in company funds stashed away at his home. On July 1, 2010, Judge Banks ordered that the money be handed over to a court receiver.

Things got really weird.

On the morning of July 2, according to sworn accounts, Nazarzai counted out $360,540 in cash from his closet. He gave it to co-defendant/girlfriend Fasela to deliver to the court-appointed receiver. He couldn't deliver it himself, as he had some obligations at his daughter's school, and wanted to attend Friday prayers.

Fasela hadn't gotten much sleep; her father was leaving for assignment with the U.S. military in Afghanistan, and she was up much of the night. But she packed the cash in a black duffel bag, got in her sister's Nissan, and took the 405 toward the receiver's office in Los Angeles.

She never made it.

As a small girl in Afghanistan, Fasela had taken a nasty fall on her head, and suffered what appeared to be a seizure, she later told the court. After she moved to America, she rode her bike down the ramp of a U-Haul truck and smashed her head again, triggering what was apparently another seizure. And on that warm July day, Fasela was struck by this malady one more time, because the next thing she knew, she woke up at the hospital, she said in a sworn statement. She had no idea where she was (Harbor-UCLA Medical Center) or how she got there (ambulance).

Her sister's car had been towed to Carson. When she finally got it back, the gym bag she had left inside was still there. The black duffel bag with the $365,540, however, was not.

This fantastical turn of events was met with great skepticism by Judge Banks. "The most incredulous story I've ever heard, and I've heard some whoppers," Banks said. He ordered Nazarzai to jail for contempt of court until he produced the $360,540. "I think he's got the money in his possession, custody or control," Banks said. "And he holds the keys to getting out of jail."

No, no, no, Nazarzai has countered again and again. He does not have the money.

And that's pretty much how it's been for the past 3{ years.

BEHIND BARS

So in jail Nazarzai remains. Since Dec. 7, 2010. Alone. In a cell about 5 feet by 8 feet in size. For 22 or 23 hours a day.

"As a civil inmate, I live in solitary confinement ('segregated housing units') and exist alone in a tiny cell," he said in a declaration to the court. "I have limited contact with other prisoners. I do not have a radio, CD player or television in my cell. There is no cafeteria and I eat all my meals alone in my cell. ... My 7-year-old daughter has grown without her father in her life. I strongly believe that these conditions ... are disproportionately harsh."

Punitive, his lawyers have argued. They've tried different strategies in different courts to get him out of jail -- including arguing that California criminal law caps jail time at one year for contempt violations, and that it's the state's burden to prove that Nazarzai still has access, custody or control of the money, as it's impossible to prove the inverse -- but so far, to no avail.

"He is a civil inmate and has committed no crime," his lawyers have argued. "He is without access to natural light, exercise equipment and adequate reading and writing materials. These things are available in state prisons, not county jails. Needless to say, he has been mentally and emotionally affected."

Observers have likened his situation to debtors' prison, quipping that this could revolutionize the bill-collection industry.

But Nazarzai is not in jail for failing to pay a bill, exactly. He is in jail for failing to do something the judge believes he can do if he wants to.

"Should I believe a guy who says, 'I don't have possession'?" Banks said at proceedings in 2012, according to transcripts. "Well, he probably doesn't have possession. He's been in the Orange County Jail for two years and eight plus months on my contempt order ... I don't believe that the money was in the car when (Fasela) left to deliver it to the receiver I appointed."

Nazarzai, the judge noted, is a very strong-willed man, "and I suspect now he's starting to think about, does he really want to hold on to that money? Or does he want to turn it over and get out and rejoin his daughter and get on with his life?"

Nazarzai's lawyers tried to get Judge Banks disqualified from the case, charging bias. That was not successful, either.

JUSTICE?

One cannot squeeze blood from a turnip, argue Nazarzai's attorneys, Tom Murphy and Afshin Eftekhari of Orange.

The state has never offered "one iota" of evidence that Nazarzai has the money or knows where it is, and it's certainly not going to get it by keeping him locked up.

"There is no substantial likelihood that further incarceration ... will result in any turnover of any funds," they argued in one motion. "The people's only chance of recovery lies with the release of (Nazarzai) who, if allowed to become a productive free man, may be able to pay a small portion of the judgment. As it now stands, the taxpayers pay for his room and board and health care, while violent felons are released early because the prisons and jails lack space."

It costs some $50,000 a year to lock a prisoner up in California, so Nazarzai is closing in on the $200,000 mark, with no end in sight.

Typically, civil contempt sentences end once the legal proceedings from which they arose conclude. But in March, Nazarzai faced a second contempt hearing before Banks for failing to pay the same $360,540. Knowing that Banks was going to rule to keep him locked up indefinitely, Nazarzai cut his wrists and ankles, his lawyers said.

An indefinite jail sentence is not an idle threat, according to Erwin Chemerinsky, dean of UC Irvine's School of Law. The law gives judges sweeping authority on this front.

"A person can be held in civil contempt so long as it is deemed possible for a person to comply and there is a chance of compliance," Chemerinsky told us by email. "In reality, this is defined very broadly to permit people to be held in contempt. There was one case -- Chadwick -- where a person spent 14 years in prison under similar facts of not producing money in response to a court's order."

Thomas Campbell, dean of Chapman University'sSchool of Law, said a habeas corpus petition in federal court, claiming that his detention is illegal, was the way to challenge the reasonableness of Nazarzai's situation. "Even though this is a state matter, the right to go into federal court when one is being held by authority of a state is guaranteed under the federal constitution," Campbell told us by email.

Nazarzai's attorneys have tried that. Multiple times. Unsuccessfully. They expect to keep exploring legal arguments they can raise in federal court.

Contact the writer: tsforza@ocregister.comTwitter: @ocwatchdog

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(c)2014 The Orange County Register (Santa Ana, Calif.)

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Source: Orange County Register (CA)


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