Jerry and Lydia Peltier study the Bible at home with their granddaughter, Natasha Peltier, 14. They say they are too disillusioned to go to church.

Lindsay A. Miller / Special to the arizona daily star

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The federal Securities and Exchange Commission is investigating claims that hundreds of people, including Tucson churchgoers and military members, were defrauded by a web of companies that peddled shady real estate deals and near-worthless Iraqi currency.

The probe by the nation's top investment regulator came to light in a California courtroom early this month in a civil lawsuit against Pacific Wealth Management LLC of Nevada, its principals and related firms.

An SEC order entered as evidence in the case says the commission has received information that "tends to show" that violations of federal securities laws may have occurred. Potential violations include the offering of unregistered securities by unregistered dealers, misleading representations, fraud and deceit, the order says.

More than 125 Tucsonans invested in Pacific Wealth offerings in recent years, one of the California lawsuits states. Some local investors say they lost as much as $400,000 and now may lose homes they mortgaged to raise investment cash.

Attorney Richard Ackerman of Temecula, Calif., represents several California plaintiffs in Pacific Wealth lawsuits and said he plans to file another suit in California this week on behalf of a dozen or so Tucsonans.

He calls Pacific Wealth a "Ponzi scheme" that stayed afloat only as long as new investors joined. Many who lost money were brought in by trusted friends and relatives, he said.

Ackerman said the SEC's involvement is significant because if wrongdoing is proved, the agency has the power to refer the case for criminal prosecution, put the companies into receivership and set up a compensation fund for victims.

The Tucson investors include a dozen airmen from Davis-Monthan Air Force Base and several members of the Christian Faith Center, 4108 E. North St. One D-M airman, Tech. Sgt. Ken Fraleigh, is listed in a lawsuit as the main Tucson "referral partner" for Pacific Wealth.

Fraleigh attended the Christian Faith Center, and his son-in-law, Maurice McLeod of Murrieta, Calif., managed Pacific Wealth from July 2003 until March 2007.

Jerry Peltier of Tucson, a 64-year-old Asarco retiree, and his wife, Lydia, 61, said they were brought in by relatives who attended Fraleigh's church. They now may lose the home they've lived in for 28 years, they said, and have stopped going to their own church because of it.

"It's about time," Lydia Peltier said of the SEC investigation, weeping as she spoke. The couple will be lead plaintiffs in the upcoming lawsuit that will pit Tucson investors against several California principals behind the investments.

The Peltiers said they got behind on their mortgage and other bills when Jerry Peltier was on strike from the Asarco mining company in 2005. In 2006, they said, Pacific Wealth offered to have an investor buy their home, hold it in trust and let them keep living there rent-free for a few months until they got on their feet.

They said they were told their home equity, extracted during the sale, would be invested for them so they could buy back their house with the profits in a few years. Instead, Lydia Peltier said, the new owner told the couple soon after that "the whole thing was a scam" and they'd have to leave so he could sell the place.

Other investors say they were fraudulently induced to extract equity from their homes to buy Iraqi currency or real estate in California, both offered at vastly inflated prices.

For example, investors who bought currency said they were charged about $25,000 each for a million Iraqi dinars, which was actually worth only about $500.

SEC investigators have subpoenaed bank records and other documents from McLeod and others to try to see what happened to the investors' money.

D-M's Fraleigh is not named in the SEC action, nor as a defendant in the California lawsuits, and he is not commenting on the case. Ackerman, the lawyer for the Tucson plaintiffs, said he expects to subpoena Fraleigh to testify if the case goes to trial.

Under Air Force rules, airmen involved in after-hours business ventures must have a commander's approval. D-M won't say if Fraleigh had his boss's OK, saying that such information is protected by federal privacy laws.

Military members who incur excessive debt are considered security risks and can have their security clearances suspended or downgraded until their finances improve. So far, 10 D-M airmen who had dealings with Pacific Wealth have been affected, said a base spokeswoman, 2nd Lt. Mary Pekas.

Attorney Paul Runes of Carlsbad, Calif., represents Pacific Wealth and McLeod in some of the California matters. He is seeking to have McLeod excused from answering questions in one California suit.

Runes said that since the SEC is investigating the same fraud allegations in the lawsuit, and since that could lead to criminal charges, McLeod has a right to remain silent so as not to incriminate himself.

Runes recently petitioned a California court to that effect, and introduced copies of SEC subpoenas and documents to support the request. That made the SEC's involvement a matter of public record.

The agency normally does not disclose when investigations are in progress, and even after the recent court disclosure, it had no comment on the case. "The SEC cannot confirm or deny the existence of any investigation," said Diana Tani, an SEC official in California.

Runes said he doesn't expect the lawsuits filed by Ackerman against his clients to go very far. He said he plans to apply to the court next week to have one case dismissed, and said another suit has gone six months without any major action.

The Pacific Wealth entity at the center of lawsuits and the SEC probe has no connection to a San Diego-based investment firm of the same name. McLeod was banned by court order from using the business name "Pacific Wealth" after the San Diego firm, worried about damage to its reputation, sued to stop him.

Find this story online to read the original article about the investment scam at azstarnet.com/dailystar