By using real estate to secure loans, such investments are safer than securities, Harkey said

His adult life, thanks to success with Point Center Financial, included all the trappings of comfort and luxury: a multimillion-dollar home in a gated Orange County beach community (Magic Johnson has a place next door), a Learjet for business trips and a fleet of luxury cars including a Bentley, a Porsche and a Jaguar. Harkey’s wife was elected last year to the California State Assembly, giving the family political muscle to accompany its financial might.

Harkey’s path to the hard-money lending industry started when he was teaching school in south Orange County. He went to real estate school, passed a test for his license and within a couple of years was making more money from his part-time job than he was teaching.

He gave up teaching and began selling real estate and brokering loans out of a room he used as an office at a Dana Point motel on Coast Highway. In 1986, he decided to focus exclusively on real estate lending, convinced that it had the most promising future.

If a borrower defaults, he ends up owning real estate, which can recover value as it did after downturns in the 1980s and 1990s, he said.

When the real estate market took off earlier payday loans Kenton Ohio no checking account this decade, there were plenty of customers looking for money to seed development projects. The loans were lucrative for Point Center Financial, which charged borrowers six percentage points or more in fees, sometimes earning more than $1 million for a single loan, and annual interest rates that reached 12% or more.

Harkey told investors that so many of the company’s loans were in foreclosure that he was freezing most investments, Charton said

Things went so well that in 2007, Harkey purchased a new Learjet 60, which retails for about $13 million, according to aircraft industry publications. His wife, Diane, personally contributed more than $1 million to campaigns for the state Senate in 2006 (she lost) and state Assembly in 2008 (she won), campaign finance records show.

Then the real estate market crashed. In recent months, he has charged investors fees to manage the foreclosed properties they now owned, according to e-mail statements from Harkey provided to The Times by investors.

Few took the news harder than Charton. If the appraisals were accurate, there should have been plenty of equity: Properties could be sold and investments returned, he said.

Charton and dozens of other disappointed investors now say that Harkey misled them about the risky nature of the loans by misstating borrowers’ creditworthiness and the value of the properties that served as collateral.

In February, the group of more than 50 investors filed a lawsuit accusing Harkey of recklessly managing their investments and using inflated appraisals to make loans appear safer than they were. They alleged that Harkey pushed through questionable loans so that he could charge fees, profiting whether or not the loans were repaid.

“Most of our clients have not received any return of principal and have no chance to. And these were supposed to be safe investments,” said the investors’ attorney, David C. Grant.

Harkey, who has not filed a response to the lawsuit, has asked that the case be assigned to private arbitration.

Charton said investors intend to ask a Superior Court judge to authorize a vote that would allow them to replace Harkey as manager of the foreclosed properties. Harkey insisted that he is best suited to manage the real estate. He says Charton is upset because he has lost money.