60 Years Of Deception And Land Sales In California City: 7 Takeaways From My Investigative Podcast
Four years ago, while reporting a story about the drought, I received a tantalizing tip: In a small town in the Mojave Desert, salespeople were making tens of millions of dollars hawking empty desert land to unsuspecting buyers by convincing them the area would boom one day -- and if they got in now, they could get rich.
It seemed like such an anachronism, a relic of Southern California post-war hubris, or maybe even Gold Rush-style boosterism. How could this be happening in the 21st century?
My 8-episode investigative podcast, California City, seeks to answer that question, as well as a bunch of others that came up over the course of my reporting. Here are 7 key takeaways:
1. CALIFORNIA CITY WAS FOUNDED BY A CZECHOSLOVAKIAN IMMIGRANT WITH A VISION TO BUILD A CITY FROM SCRATCH IN THE DESERT
In the mid-1950s, real estate developer Nat Mendelsohn began to buy a ton of land in the Mojave Desert, 100 miles north of Los Angeles. He envisioned building a city of 200 square miles in this otherwise desolate spot. There would be a golf course, a university, a mall, a massive park and an airport. There would be half a million residents living along winding city streets that were curved to slow down traffic.
Like many urban planners at the time, Mendelsohn thought major cities like Los Angeles were overcrowded, polluted and dangerous. People needed a place to go, to start over. California City would be that place.
As Mendelsohn saw it, city folks could come and buy an empty lot -- for cheap. They could build a house, or just hold onto the land and sell it in the future. It was supposed to be a good investment.
2. MENDELSOHN'S SALES TACTICS DREW THE ATTENTION OF RALPH NADER, AND GOT THE COMPANY IN SERIOUS TROUBLE WITH THE FEDERAL TRADE COMMISSION
Most of the land Mendelsohn sold was bought by participants of a program he created that taught people how to be a real estate agent-- by selling land in California City. Graduates of the program were expected to buy a piece of land themselves, and refer their friends and family.
Mendelsohn advertised the program in major newspapers around the West, and it was wildly successful. By 1970, Mendelsohn had 3,000 salesmen and 24 sales offices around the world. Ultimately, more than 73,000 people bought land, netting Mendelsohn's company hundreds of millions of dollars.
But by the late 1960s, people who had bought land in California City were starting to realize that the growth they'd been promised wasn't happening. And many of the amenities they'd been told were coming had yet to be built.
Around the same time, a young Ralph Nader asked his gang of consumer protection attorneys, the "Nader's Raiders," to investigate land sales and development throughout California. The complaints about California City caught the eye of the attorney leading the project, who included a chapter on the city in the report.
"This is no ordinary real estate scheme," read the report. "Mendelsohn isn't trying to sell land, and the public isn't really buying the land. They're engaged in a grand illusion of creating wealth...NK Mendelsohn has perfected the art of turning desert dust into gold -- but only for himself."
After the Nader's Raiders' published their report in 1971, the Federal Trade Commission began to investigate. They sued Mendelsohn's company, which was then known as Great Western Cities. In 1977, the company settled, and was ordered to pay what was, at the time, the largest consumer refund in the history of the FTC. In 1984, the company declared bankruptcy. That same year, Nat Mendelsohn died.
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3. AFTER GREAT WESTERN CITIES WENT BANKRUPT, A FORMER EMLOYEE QUIETLY CONTINUED SELLING VACANT LAND IN CALIFORNIA CITY
In the 1970s, a man named Tom Maney began working for Great Western Cities. Maney helped negotiate the settlement with the FTC, and after Great Western Cities declared bankruptcy in 1984, he acquired some of the assets, including a lot of vacant California City land and a small resort called Silver Saddle Ranch.
Maney continued selling vacant desert land, using the resort as an attraction to draw potential buyers. But in an interview, Maney told me he and Silver Saddle have nothing in common with Nat Mendelsohn or Great Western Cities.
"The only similarity is that we sold land," he said.
4. IN 2011, SILVER SADDLE TRANSITIONED FROM SELLING VACANT DESERT LOTS TO SELLING SHARES OF A CONFUSING REAL ESTATE INVESTMENT CALLED 'LANDBANKING'
Landbanking is where a group of people jointly own a huge chunk of land. In Silver Saddle's case, approximately 1,000 acres of empty desert on the outskirts of California City, divided into 4,000 shares. The idea was that the land would appreciate in value, and when it did, all the co-owners could sell it to a developer and make a lot of money.
Since 2011, Silver Saddle's sales agents sold "shares" of the landbanking project to more than 2,000 people, for up to $30,000 each. Between 2011 and 2019, Silver Saddle made more than $56 million.
5. SILVER SADDLE TARGETED A VERY SPECIFIC TYPE OF CUSTOMER: LATINO, FILIPINO AND CHINESE PEOPLE, MOST OF WHOM LIVED IN CALIFORNIA AND OFTEN SPOKE ENGLISH AS A SECOND LANGUAGE
During the sales pitch, potential customers were divided up by ethnicity and paired with a salesperson who spoke their primary language. They watched a presentation about the area's potential. According to sources I spoke with and court documents, sales agents suggested that wealthy businessmen like Elon Musk and Bill Gates were investing nearby. They compared California City to Las Vegas and other large cities in the Southwest that began as tiny desert outposts.
The salespeople held raffles for free airline tickets to Hong Kong and Manila, shopping sprees, watches, cameras and other perks to encourage people to invest. They had an elaborate referral program: Anyone who bought a share of the landbanking project and then referred their friends would receive $2,000.
Sales agents allegedly used high-pressure tactics that made it very difficult for potential customers to say no. The contract had no cancellation period, and buyers were required to pay $41 a month in membership fees to Silver Saddle -- indefinitely.
6. THE CALIFORNIA DEPARTMENT OF BUSINESS OVERSIGHT CHARGED SILVER SADDLE WITH FRAUD AND SHUT THE COMPANY DOWN IN 2019
In September 2019, the California Department of Business Oversight filed a lawsuit against Silver Saddle, accusing the company of securities fraud. A judge appointed a receiver to take control of the company's assets and property while the case proceeds. The case is still on-going. A trial date has been set for July 2021.
7. IT'S UNLIKELY THAT PEOPLE WHO INVESTED IN SILVER SADDLE WILL GET THEIR MONEY BACK
When the court-appointed receiver took over last September, Silver Saddle's finances were a mess. Their books were so disorganized that the DBO's fraud examiner determined it was probably deliberate -- Silver Saddle must have been transferring money between multiple accounts to make it difficult to trace. Most of the money, the DBO learned, was gone. A lot of it was used to pay sales agents.
The receiver is currently trying to sell the ranch and all the land around it to help pay back people who bought into the landbanking operation. But even if the sale goes through, it won't generate nearly enough money to make all the investors whole. That's because the land Silver Saddle sold was "near worthless real estate," according to the DBO. Silver Saddle sold shares of the landbanking project for around 100 times more than what they were really worth.
If you'd like to follow the Silver Saddle court case, follow me on Twitter: @guerinemily.
If you have a tip or story to share about California City or Silver Saddle (or anything else), email me: firstname.lastname@example.org
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