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A Colorado Springs woman pleaded guilty Wednesday to two counts of fraud after she misled investors who gave her possibly millions of dollars to finance her fix-and-flip real estate business, according to the U.S. Attorney's Office in Denver.

Karen Lynn McClaflin, 59, the owner of Homesource Partners Inc., pleaded guilty to one count of wire fraud and one count of engaging in a monetary transaction in property derived from wire fraud, the U.S. Attorney's Office said.

A federal court judge will sentence McClaflin on Jan. 17; she faces up to 30 years in prison and fines totaling $500,000, according to a May 17 court filing. She is free on a personal recognizance bond.

Wednesday's plea agreement didn't spell out numbers of investors, properties or, in most cases, individual amounts invested. McClaflin, however, agreed to pay "up to $20 million in restitution" - indicating she had collected millions of dollars from investors over the years she operated her business.

According to portions of the plea agreement:

- In December 2005, McClaflin and a partner opened a "We Buy Ugly Houses" franchise in Colorado Springs called Trademark Properties and Trademark Reality. Trademark used investor money to buy and renovate distressed houses with the goal of reselling them at a profit.

- By 2011, Trademark was saddled with debt, McClaflin's partner declared bankruptcy and their partnership ended. McClaflin, who didn't declare bankruptcy, launched Homesource Partners with the same "fix and flip" business model.

- In marketing materials and her sales pitches, McClaflin told potential investors that Homesource could buy deeply discounted distressed houses. The homes would be sold within 30 days for an immediate profit; repaired by Homesource's team of contractors and resold within 90 days; or fixed and rented if they failed to sell.

- McClaflin also said each property would be financed by a single investor whose investment would be secured by a deed of trust that she would record. Investors also would be paid 6 percent to 15 percent annual interest on their investments.

- Beginning in late March 2011, however, McClaflin solicited multiple investments and deeds of trust on the same properties. The result: the amount of investments on single properties exceeded their value. And McClaflin didn't record all of the deeds of trust as she promised. She also sometimes forged investors' signatures so that she could remove deeds of trust from a property, failed to tell investors when their property sold and didn't return investors' principal as promised after a sale.

- By early 2013, Homesource's debt and interest payments owed to investors far exceeded the company's gross profits. McClaflin knew of the situation by January 2103, but continued seeking investments so that she could make interest payments to earlier investors.

The FBI and Internal Revenue Service investigated McClaflin, although it's uncertain what triggered their probe. A May 17 court filing, however, spelled out one investment that led to the fraud counts. In that case, a married couple, identified only by their initials, wired $100,000 from their California investment fund to a Homesource account with Ent Federal Credit Union on Sept. 1, 2016. The next day, McClaflin took nearly $41,000 of that money and transferred it to her personal Ent account.

Whether investors profited or received a return from their investments in Homesource wasn't known. Generally speaking, however, early investors in such investment fraud schemes do receive some returns to prevent them from getting suspicious and calling law enforcement, said Jeff Dorschner, a U.S. Attorney's Office spokesman.


Business writer, Colorado Springs Gazette

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