Five Sacramentans have been charged in a $26 million real estate fraud case, one of the largest scams to come out of Sacramento's insane housing bubble.

A federal grand jury said the scheme took in 180 investors, many of whom pulled equity out of their houses to participate.

At the center of the case is a defunct Del Paso Road company called Diversified Management Consultants Inc., or DMC. The company lured investors with promises of fat profits, the grand jury said, but used their cash instead to pay off earlier investors – as is typical in a pyramid scheme.

In addition, a lot of the money was spent on luxury cars and the like, the grand jury said.

The indictment identifies Michael Bolden, 57, as mastermind of the scheme. He ran DMC.

In 1994, Bolden, a former air traffic controller, was sentenced to 21 months in prison on another investment fraud case. He and his accountant were accused of preparing false tax documents to obtain real estate loans.

The latest case represents one of the largest in a string of real estate scams that have come to light in the years following Sacramento's housing boom.

Experts say pyramid schemes flourish when times are good and huge profits seem plausible. When the market falters, the enterprise collapses because the perpetrators can't find new investors to keep it going. That's when investors complain and criminal investigators move in.

The indictment said DMC operated as "an umbrella organization" for six investment clubs devoted to the region's robust real estate market.

One victim, Suzanne Walker, 50, told The Bee that DMC's office "had a bunch of blueprints on the wall, pictures of properties that were under construction." Some investors were taken to see houses that were supposedly part of the DMC investment program, she said.

A state employee in Sacramento, Walker said she lost $30,000 to DMC and wound up filing for bankruptcy protection.

Another investor, Terry Worth, 55, said someone tied to the scheme approached her in late 2005, while she was working at a furniture store. The woman badgered her to attend meetings at DMC's offices along with other potential investors.

Worth said she was skeptical but was eventually worn down by DMC's sales pitches, Bolden's in particular.

"He was like a preacher," she told The Bee. "He'd get up there and yell and scream."

To gain Worth's trust, Bolden even bought expensive window treatments from an interior-decorating business Worth ran, she said.

"It was like, now I owe them," she said.

She agreed to a refinance that pulled $50,000 out of her North Highlands house.

Gradually she suspected that the money wasn't really being invested, but couldn't get information.

"Each time I contacted them, it was a little harder to get through," she said.

Besides Bolden, the grand jury indicted Christopher Jackson, 43; Victor Alvarado, 50; and Nicholo Arceo, 38, and his wife Erica Arceo, 43.

Jackson, Alvarado and Nicholo Arceo ran three of the investment clubs tied to DMC. Erica Arceo was the lawyer for the club run by her husband, according to the indictment.

The grand jury said Jackson used much of his investors' money to buy jewelry, pay for home improvements and lease a Lamborghini and Land Rover.

Jackson was arrested last fall and has been free on bond. Arrest warrants have been issued for Bolden and Alvarado. A summons was issued for the Arceos, which means they can simply turn themselves in.

Each defendant could be sentenced to up to 20 years in prison and fined up to $250,000.

A sixth person was charged in connection with the DMC matter in April. Garry Bradford, 62, who ran another one of DMC's investment clubs, pleaded guilty last month to four counts of fraud. He is to be sentenced in April.

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