Real Estate Investor in California Faces Criminal Charges Linked to Last Year's U.S. Regional Bank Credit Losses

A real estate investor from California, whose company was accused by Western Alliance Bancorp of being involved in a nearly $100 million fraud case, has been criminally charged by U.S. authorities. This represents the latest development in a series of commercial real estate portfolio incidents that sparked credit risk concerns at several banks last year.

According to a statement released by the U.S. Attorney's Office for the Central District of California on Wednesday, 44-year-old Mahender Makhijani was charged with bank fraud on Wednesday, accused of falsifying documents to obtain loans.

This case has drawn attention because Phoenix-based Western Alliance and another regional bank, Salt Lake City-based Zions Bancorp, disclosed potential losses from non-performing loans late last year. At that time, other credit shocks from the failures of Tricolor Holdings and First Brands Group also rattled the stock market.

Prosecutors allege that Makhijani, through his controlled investment company Cantor Group V LLC based in Newport Beach, California, obtained nearly $100 million in loans using a portfolio of real estate assets as collateral, despite not actually holding the first-priority liens on those properties.

The criminal case does not name the defrauded bank, but the statement notes that Western Alliance filed a civil lawsuit against Cantor Group in a Los Angeles state court last August, "in connection with the alleged fraudulent conduct."

A first-priority lien means that in the event of asset liquidation, that bank has priority over other creditors to recover the property's value. In contrast, the value of a second-priority or lower lien as collateral is significantly reduced. Prosecutors stated that had the bank known the truth at the time, it would have deemed Cantor Group in default and demanded immediate full repayment of the related loans.

A spokesperson for Western Alliance declined to comment on the criminal case. Regarding the bank's civil lawsuit against Cantor Group, the spokesperson indicated the bank believes it can recover the loan losses through various channels in the future.