At age 82, Michael Woodson said he feels like he has earned a measure of redemption.
In the 1980s, Woodson became notorious for mishandling $13.5 million invested in a San Rafael mortgage brokerage company that he took over from his father.
Woodson, who had served on the staffs of two Republican presidents prior to going into private business, pleaded no contest to 13 charges of embezzlement in 1986 and eventually spent five years in Marin County Jail and three years in state prison.
On March 29, he was among 37 people to whom Gov. Gavin Newsom granted a full and unconditional pardon. Woodson contends that the reason Newsom granted him the pardon is that all 2,000 of the investors in the Woodson Co., a licensed mortgage broker, eventually recovered what they invested in the firm.
“The governor is not going to give a pardon to an embezzler if there’s any losses,” Woodson said. “I’m not the Michael Milken of Marin.”
Terri Hardy, a spokesperson for the California Department of Corrections and Rehabilitation, said, “We are not able to provide specifics on individual cases.”
Before going into business with his father, Woodson earned degrees in management and finance from the University of Southern California. While at USC, he befriended Dwight Chapin, Gordon Strachan, Donald Segretti and Ronald Ziegler — all of whom would later became household names as aides to Richard Nixon during the Watergate scandal. After graduating, Woodson was a Nixon staff member himself for a time.
“If I had been in the administration,” he said, “I’d probably have been swallowed up in it with the rest of my classmates.”
By that time, however, Woodson had moved on to work for Kansas Sen. Robert Dole, who was chairman of the Republican National Committee at the time. He went on to become a member of Ronald Reagan’s staff while Reagan was governor of California.
Woodson said that when he joined his father’s mortgage company in 1975, the company had about 100 investors and was managing a loan portfolio of about $1 million.
“Five years later, we had 2,000 investors and was managing $70 million,” he said.
Woodson’s story foreshadowed the national collapse of the mortgage-backed security business that triggered the Great Recession.
The Woodson Mortgage Co. used investor money to make loans to property owners, and the loans were secured by deeds of trust to real estate. “Permanent investors” in the company personally selected the loans in which they participated and were assigned notes and deeds of trust.
“We told every investor: Before you give us any money, why don’t you drive out and have a look at it?” Woodson said.
Another class of investor, “revolving fund” investors, deposited a minimum of $100,000 into a savings account to which Woodson, under a limited power of attorney, could withdraw funds. Woodson determined how to use the revolving investors’ funds.
Woodson used revolving funds both to fund entire loans and to complete loans that had been assigned mostly to permanent investors. Deeds of trust and underlying notes were not recorded for revolving fund investments.
Permanent investors received a guaranteed rate of interest, which varied from agreement to agreement. Woodson said most investors in both classes were earning between 10% and 12% annual returns. He said none of the interest the investors earned was required by law to be reported by the company to the Internal Revenue Service.
Investors were guaranteed monthly payments regardless of whether borrowers made their monthly payments. Woodson said he also promised investors “that if the property ever went into default, that we would buy them out at the trustee sale at 100% of par plus all back payments.” And as a capper, Woodson got Fireman’s Fund to issue him an insurance policy to cover his contractual obligations to the investors.
“So we were guaranteed and insured, the only broker in California that could say that,” he said. “In essence, you couldn’t lose. Money just poured in the door.”
“Everything was cooking. I’m on top of the mountain thinking nothing can go wrong,” he said, “and then all of a sudden it did.”
Then, Paul Volcker, chairman of the Federal Reserve, raised interest rates to tame the nation’s runaway inflation, and real estate values nosedived.
“I took back 65 houses in about an 18-month period,” Woodson said. “That’s where the losses came.”
First, Woodson used $3.5 million of his own money — including equity from his home and the office buildings he owned — to buy time. He tried to interest various banks in purchasing his company.
At the same time, Woodson was dealing with a crisis at home. His wife was dying of breast cancer, and he had four young children.
“It all crashed in one week,” Woodson said. “Trisha died on a Monday, we buried her on a Wednesday, and I filed Chapter 11 that Friday. The following Monday, here came 2,000 investors ready to string me up in the parking lot.”
To make matters worse, Fireman’s Fund, which was based in Novato at the time, insisted that it was obligated to pay out only $12 million. Woodson said he had been paying Fireman’s Fund $800,000 a year in premiums for the insurance.
After investors sued Fireman’s Fund, the company eventually paid out $63 million. A Department of Insurance investigation later concluded that Fireman’s Fund had not been licensed by the state to issue mortgage guarantee policies. That probe concluded that the insurer had acted improperly, but without criminal intent.
It was during the period that Woodson was desperately trying to save the company that he made his fatal mistake. Woodson siphoned money from the revolving investors fund, which totaled $13.5 million, to keep the company afloat. He fully acknowledges that was wrong.
“I didn’t have the right to shift the losses from one investor group to another,” Woodson said.
Ultimately, Woodson says that $82.6 million was recovered, $12.6 million than the $70 million that was originally invested, with the bulk of the money coming from Fireman’s Fund.
“Obviously, the lawyers got their hands on some of the $12.6 million,” Woodson said. “How much I do not know.”
Because of his conviction, Woodson could never return to the real estate business or earn enough to pay any of the $15 million in restitution that he agreed under pressure to pay up until 2003.
He has spent the last two decades operating first an ice cream parlor in Tiburon and then a yogurt shop in Strawberry Village with son, Brian. He used equity from his mother’s condominium to start the businesses.
Today, there are fewer and fewer Marin residents who recall the prominent business shipwreck.
Three key figures — Woodson’s lawyer, Patrick Hallinan; the case prosecutor, Joshua Thomas; and Judge Peter Allen Smith, who oversaw the case — have died. So have most if not all of those who invested in the company.
Brian Woodson said it was a great relief for his father when the governor’s pardon finally came through.
“It takes a weight off of my dad’s shoulders that’s been there for 20 years at least,” he said. “He can finally close that chapter of his life.”