Aldo and Karen Baccala were named in a lawsuit filed late Tuesday in Sonoma County Superior Court by 71 investors, including some prominent local residents.
The lawsuit claims the Baccalas misrepresented business opportunities and the existence of collateral and sometimes secured multiple loans for the same project, all for their own personal profit.
"We're really not sure what the hell was going on," said Robert Mattei, a former Petaluma department store owner who, with his brother James, invested more than $1 million. "I know it wiped out some people's life savings."
Both Baccala, 67, and his wife, 66, declined to comment Wednesday.
In a letter to investors dated Nov. 5, Aldo Baccala said he was suspending monthly payments on loans, some of which paid as high as 15 percent interest. In the lawsuit, investors claim they can't get interest or principal payments from the company.
He blamed the credit crunch and the economic downturn coupled with the cost of the existing debt service, which he said left him without the liquidity to make payments.
Baccala said he would sell assisted living centers and refinance Premier Mushrooms LP in Colusa County to help pay down the debt within the next two years.
"I recognize this may create a serious hardship for you and I am doing everything in my power to rectify this situation," Baccala said in the letter.
But investors were not satisfied.
In addition to the lawsuit, the Sonoma County District Attorney's office is investigating for possible criminal charges.
"At this point, we are gathering information from people who believe they may be a victim of a crime," prosecutor Christine Cook said.
It isn't the first time the Baccalas have been sued over investment schemes. In 1989, the couple recruited friends to invest more than $3.2 million to convert an old bourbon distillery into an ethanol production plant.
Investors sued five years later, claiming misrepresentation. Lawyers said the Baccalas told investors the plant was in production when it wasn't. The outcome of the case was not immediately available.
The latest suit contains dozens of signed promissory notes going back to the late 1990s, detailing payback terms and interest rates. Some are secured by real estate and others are not.
Loans ranged from a few thousands dollars to $2.2 million. They came from doctors and retirees alike, living mostly in Sonoma and Marin counties, but as far away as Illinois.
By one calculation, the Baccalas were on the hook for about $250,000 a month in interest payments.
Among the investors was John Graham of Cotati, a retired Universal Studios vice president. Notes in the lawsuit showed he invested at least $130,000, in part for construction of a nursing home in Statesville, N.C.
Graham said the Baccalas made money for him in the past, which gave him confidence to invest more. Recently, however, things turned bad.
"We're just trying to get our investments back," Graham said. "Some has been paid back. Some is in limbo. It's a bit of a mess."