Radical Bunny told to pay penalties

A U.S. District Court judge has ordered four former executives of Mortgages Ltd. investment firm Radical Bunny LLC to pay more than $3.7 million in combined penalties, plus interest.

The order was issued Tuesday in response to a motion for summary judgment by the case's plaintiff, the U.S. Securities and Exchange Commission.

Judge Susan R. Bolton agreed with SEC attorneys that former Radical Bunny partners Tom Hirsch, Harish Shah, Howard Walder and his wife, Berta "Bunny" Walder, violated federal rules against fraud and failing to register with the SEC.

"The court finds that the individual defendants acted knowingly, in that they continued their violations after receiving advice to the contrary from multiple, knowledgeable sources," said the ruling, filed Wednesday in U.S. District Court for the District of Arizona.

Attorneys for the defendants did not respond Wednesday to requests for comment, but they have argued throughout the case that Hirsch, Shah and the Walders had operated Radical Bunny in good faith and had relied on the advice of attorneys and others they knew and trusted.

"(Hirsch, the Walders and Shah) acted pursuant to sound business judgments based upon known facts, circumstances and strategies in consultation with reliable professionals," said the defendants' original response to the SEC complaint, now part of the court record.

The SEC filed fraud charges against Phoenix-based Radical Bunny in July 2009. The firm has since filed for bankruptcy protection.

Radical Bunny raised more than $197 million from nearly 900 investors and then used the money to make high-interest loans to Mortgages Ltd. According to the SEC, the defendants told investors that their money could only be used for commercial development, when in fact Mortgages Ltd. could use the money for anything.

When Mortgages Ltd. went into bankruptcy, it had almost $1 billion in loans outstanding to developers. Since then, most of those projects have stalled because of a shortage of money and the real-estate market's downturn. Several developers, who had been getting loans from Mortgages Ltd., have since gone into bankruptcy.

Radical Bunny's investors forced it into bankruptcy in late 2008.

An estimated 4,000 investors are still trying to recover their money from Radical Bunny and Mortgages Ltd.

Purposefully misleading investors is a violation of federal security laws. According to the SEC, the defendants allegedly told investors they weren't subject to securities law.

According to the SEC, Radical Bunny was not registered with the SEC and did not register any offering under securities laws. In addition to the securities-fraud charges, Hirsch, Shah and the Walders are charged with offering and selling unregistered securities and acting as unregistered broker-dealers.

The SEC also alleges that Hirsch received at least $3 million, the Walders received at least $2 million, and Shah received at least $700,000 as part of a "vendor fee" for the money they pooled from investors to lend to Mortgages Ltd.

The former Radical Bunny executives' attorneys have insisted all along that the business was not selling "investments" and that the SEC did not have proper jurisdiction to prosecute the case.

Spencer E. Bendell, senior trial counsel for the SEC's Los Angeles Regional Office, said the federal commission proved several times over that Radical Bunny executives lied in order to solicit investments from their clients.

"We alleged and then proved to the judge that they committed fraud, that they lied to investors," Bendell said.

by J. Craig Anderson The Arizona Republic Apr. 14, 2011 12:00 AM



Radical Bunny told to pay penalties