LOS ANGELES — Two defendants in a Victorville, Calif. bond fraud case have requested a five-month stay of prosecution after their attorney pleaded guilty to charges in a separate case and resigned from their case.
U.S. District Judge John Kronstadt will hear arguments Sept. 22 related to those and other issues during a status hearing being held in U.S. District Court for the Central District of California in Los Angeles.
Attorney James J. Warner, 65, who was representing J. Jeffrey Kinsell and Janees Williams of investment banking firm Kinsell, Newcomb & DeDios, pleaded guilty in an entirely different case to charges of money laundering and witness tampering in U.S. District Court in San Diego on July 15.
The bond fraud case was brought by the Securities and Exchange Commission in 2013. It involves a 2008 bond offering, naming the city of Victorville, city official Keith Metzler, the Southern California Logistics Airport Authority, and the firm Kinsell, Newcomb & DeDios as defendants.
The defendants were charged with defrauding investors by inflating valuations of property in connection with a 2008 bond offering. The SEC alleges that the defendants were responsible for false and misleading statements made in the airport authority's bond offering. The authority was using tax-increment bonds secured solely by increases in property tax values for a variety of projects, including four new aircraft hangars.
According to the SEC's complaint, the SCLAA in April 2008 was forced to refinance part of the debt incurred to construct aircraft hangars and other projects by issuing additional bonds. The principal amount of the new bond issue was partly based on Metzler, Williams, and Kinsell using a $65 million valuation for the airplane hangars, even though they knew the county assessor valued the hangars at about $27 million, according to the complaint.
Warner, who voluntarily resigned his license to practice law on Aug. 18, filed a motion in U.S. District Court on Sept. 5 asking to be withdrawn as attorney of record for Kinsell, a partner with KND, and Williams, an investment banker and former KND employee.
"I am seeking permission to withdraw as counsel; I have resigned from the practice of law and wish to be relieved of any future professional obligation," Warner said in court documents.
In a document filed Sept. 5, Kinsell requested a stay in prosecution of the court proceedings until January 1, 2015, while he secures a new attorney.
"My previous attorney, James Warner, has lost his ability to defend me," Kinsell said in court documents. "My financial arrangement with his firm allowed me to pay an initial retainer, and allowed me to be involved in the research and responsive material during the discovery process in an effort to keep expenses from getting out of control."
Warner also had agreed to wait for additional payment until Kinsell closed on development projects in late 2014.
Kinsell, and Williams, whose defense he was funding, are now in the situation of coming up with a large retainer to hire a different law firm to represent them.
"Even with this fee arrangement, due to the vitriolic press releases of the SEC claiming unreasonable allegations, the seemingly unending and uncontrolled scope of the discovery process dealing with totally unrelated subject matter, and the constant bickering initiated by the SEC, it has been difficult to provide resources to maintain the cost of defense," Kinsell wrote. "I have been forced to expend and exhaust all my available financial resources for my defense without the ability to earn a living in the industry I successfully and honestly participated in for 35 years."
He added that he has lost his office building and his career.
Kinsell further contended if the court allows him the additional time needed to secure another law firm that the case is totally defensible as the SEC allegations are unfounded.
"There are specific documents that absolutely prove the falsity of the SEC allegations, and I only need the time requested to retain an attorney that will be able to vindicate Ms. Williams and me and the entities charged," Kinsell said. "It would be a miscarriage of justice to force us to lose this case, because at the present time we are unable to retain an attorney."
The case had previously been slated to go to trial in March 2015 if mediation failed.
Warner was released on $5,000 bail and is scheduled to be sentenced on Oct. 16. The charges he pleaded guilty to carry a maximum sentence of 23 years in federal prison, according to the Southern California Division of the U.S. Attorney's office.
