Cedar Funding Boss Sentenced to 8 Years in Prison, Ordered to Pay $70 Million

David Nilsen got caught trying to ride out the housing bubble even after it burst, and it's going to cost him eight years in prison and nearly $70 million in restitution to shorted borrowers.

That's the sentence U.S. District Judge Edward J. Davila handed down on Monday after Nilsen, who founded the Monterey-based money lender Cedar Funding in 1980, pleaded guilty to conspiracy to commit fraud, according to a statement released by U.S. Attorney Melinda Haag of the Northern District of California.

Cedar Funding connected residential real estate developers seeking loans using real property as collateral with investors willing to make those loans. Nilsen admitted that as market conditions worsened from 2004 through 2008, more and more borrowers defaulted on their loans to Cedar Funding investors.

In the course of trying to salvage real estate projects, Nilsenlied about the true condition of investors' funds. He and his loan service manager artificially increased loan balances until the amount of some loans exceeded the value of the collateral, according to the statement. Cedar Funding also didn't disclose that it had used investors' money to make interest payments to investors.

“Not every fraud begins as a criminal scheme,” Haag said in a statement. “This case is an example of what so often happens when, rather than address problems in an honest and forthright manner, a businessman instead decides, as the situation worsens, to deceive his investors. My office will continue to investigate and prosecute defendants who mislead investors in an attempt to ride out the storm.”

Nilsen, of Seaside, was charged with 31 counts of fraud, and was released on $1 million bail after he initially appeared in federal court in San Jose in Sept. 2009. His co-defendant, Manoel Errico, remains a fugitive. Nilsen's sentence begins June 1.

The prosecution is the result of more than a year-long joint investigation by the U.S. Postal Inspection Service, the Federal Bureau of Investigation and the Monterey County District Attorney’s office. It's part of President Barack Obama’s Financial Fraud Enforcement Task Force, established aggressively and proactively prosecute financial crimes.

“We are grateful for the opportunity this investigation provided to join forces with District Attorney Dean Flippo and the outstanding members of his office,” Haag added.