SEC Says First Pension Ran Scheme : Reaction: Investors, some whose life savings are frozen, are indignant over possible loss. A few remain hopeful at least some of the money will be recovered.

IRVINE —  First Pension Corp. investors expressed shock Friday on learning their retirement funds were frozen at best and possibly lost to fraud and theft.

“That’s the kind of thing you wouldn’t believe in a ‘B’ movie,” said retired aerospace engineer Irvin Starr, 64. “I’m an experienced investor, and I didn’t have the slightest inkling that something was wrong.”

Adds McDonnell Douglas Co. retiree Jose Hernandez, 70, of La Palma: “I hope it’s not as bad as it looks.”

On Friday, the U.S. Securities and Exchange Commission had bad news for First Pension’s estimated 8,000 clients--individuals and small-business operators from across Southern California. In court papers, the SEC alleged that First Pension and its affiliates were nothing more than a massive pyramid scheme that used money from later investors to pay dividends to earlier ones. At the SEC’s request, a federal judge Friday froze the assets of First Pension, its top officials and its affiliates.

“Crimes of this kind are unbelievably ruthless and vicious,” said small-business owner Cynthia Michel. “I can’t comprehend how someone could be so unethical. Now I have to hire another company to handle the pension program, and how will I know if I can trust it? This makes me suspicious of everyone.”

Michel decided to start a profit-sharing pension program for employees of her small Hermosa Beach public relations firm three years ago.

“I didn’t want to do all the paperwork it would involve, and my accountant recommended First Pension as a pension administrator,” she said. “He told me that the company had been around for years and that it was very reputable.”

Michel entrusted First Pension with a total of $11,000 on behalf of her four employees. She was impressed with First Pension’s thorough record-keeping. “All of their work came on time every month, and was very detailed,” she said.

But now the fate of her workers’ retirement fund is uncertain.

Starr, the retired aerospace engineer, said he started worrying two weeks ago when he was unable to reach First Pension Corp. affiliate Vestcorp Securities Inc. by telephone from his home in Hercules, north of Berkeley.

When he dialed Vestcorp’s office, a tape-recorded message told him to punch in a password. “That was a bad sign, because they’d never demanded a password before,” said Starr, who said he had invested $80,000 through Vestcorp.

Starr, who said he had grown to trust the company over the years, is now clamoring for information, searching computer databases for newspaper stories and contacting other investors by telephone.

Hernandez, who said he invested more than $100,000 with the company, was preparing for a back-yard barbecue at his home in La Palma when word of the SEC allegations broke Friday. He said his first whiff of trouble came three weeks ago when First Pension was forced into bankruptcy by several creditors. “These people, I don’t know where the nerve comes from. They’re like leeches on society,” he said. “I hope the law will take care of them.”

Hernandez may be luckier than most. He owns his home and retired with a full pension from the McDonnell Douglas Corp. plant in Long Beach in 1989. It was what he calls “extra money” that he put into the First Pension accounts.

While many investors said the funds they placed with First Pension didn’t represent their life savings, others like Glendale resident John Keeler say they may have lost everything.

About three years ago, the 67-year-old former insurance company inspector put his savings into four different First Pension investment pools. In January, he received his most recent dividend check, which said the value of his accounts stood at $5,750. His only other retirement income, he said, is $1,000 a month from Social Security.

“I’m extremely angry that I couldn’t trust this money, which is just a minimal nest egg, to somebody,” Keeler said. “It’s not earth-shattering in terms of money, but it’s about all I have.”

Keeler said he has begun looking for part-time work inspecting restaurants for insurance companies, the same job he did before he retired six years ago. He has one work contract that he’ll begin next week. He figures his First Pension investment “is a total loss.”

Not all of the company’s investors are that disheartened, however.

Chet Galutia, a retired Buena Park dentist who invested more than $100,000, said he figures he’ll eventually see most of his money. “There should be some property underneath the pile” of legal paperwork this case will generate, he said. Galutia said he and his wife invested because he believed that second trust deeds “were a good way to make money in California” and because he saw none of the classic warning signs of an investment scheme when he talked to First Pension Corp. sales agents.

“The interest rates were never out of (line) with what you could get someplace else,” he said. “The attempts are being made to say that it was a Ponzi scheme but there was never that large of a return.” His most recent dividend checks represented annual returns of 12% to 13%, he said.

“Nobody knows when you invest,” he said. “You take a chance. You do due diligence and you hope to win.”

Investment risks are just a part of life, he said. “I hate crybabies.”

The bad news from the SEC seems hard to believe for some. Not all are convinced that the SEC could be correct in saying that the trust deeds of First Pension cannot be found and may never have existed.

“Take the worst case and say all the present capital has vanished; there’s still a nice income stream from the mortgages (that’s flowing to the parent company),” said Gordon Reiter, a 59-year-old aerospace retiree in Torrance. “I think the parent company is still in operation in Irvine, and I think somebody needs to get in there and grab ahold of the records.”

Because of its bankruptcy, the company now is being operated by a court-appointed trustee.

Reiter has a lot at stake: nearly $300,000 he has pumped into the firm over the years “is vital to my retirement,” he said.

Junko (Betty) Wise says she thinks she knows why so many people became involved with First Pension Corp.

“The saleslady was just so convincing,” said the 67-year-old Los Angeles woman.

“My son warned me that if it sounded too good to be true it probably was, and I guess he was right.”

Wise, a retired customs broker, said she invested a total of $24,000 with Cooper’s companies. Of that, $14,000 went into an investment account that has paid her $6,000 in cash dividends over the past four years and $10,000 of it was placed in an IRA account that she thought had grown to $20,000 through the reinvestment of quarterly interest earnings.

“I guess I won’t see much of it,” Wise said, remarking that she is thankful her son dampened her ardor for further investing with First Pension. “I didn’t lose everything,” she said, “but $24,000 is $24,000.”

Times staff writers Susan Christian, Greg Johnson, Dean Takahashi and Chris Woodyard contributed to this story.