Cedar Funding investors will finally see David Nilsen in criminal court after last week’s announcement of his grand jury indictment, but they still remain a long distance from getting their money back.

The 31-count indictment of Nilsen and his right-hand man, Manoel Errico, for conspiracy to commit mail, wire and securities fraud didn’t bring to light new revelations about the alleged Ponzi scheme, which entangled more than 1,500 investors, most of them local. But instead of another day in court, this time Nilsen is facing life in prison for defrauding investors of more than $150 million.

“I guess we all hope it sticks,” says investor John Steers of Monterey. “The truth needs to come out. It doesn’t necessarily mean we’ll get our money out of it.”

Steers invested in first deeds of trusts with Cedar Funding in 2004, which is when the U.S. Attorney alleges Nilsen and Errico began a scheme to defraud investors. Like other investors, Steers thought his principal was secured by real estate and his loan was performing because he was receiving monthly interest payments with high returns.

Borrowers, however, were not paying Cedar Funding, the indictment says, and Nilsen used money from new investors in his popular mortgage fund to pay off old investors. Steers says his deed of trust was never recorded in his name. “You got a piece of paper that said it was recorded, but it was fraud,” he says.

Nilsen declined to talk with the Weekly. His lawyer, Paul Meltzer, could not be reached for comment.

Allegations against Nilsen surfaced in April 2008 when six investors, led by Carmel’s Michael LePage, sued Cedar Funding for allegedly running a Ponzi scheme and making illegal insider loans to himself and his company Accustom Development. “[The indictment] is a confirmation and affirmation that I was right,” LePage says.

LePage’s plan to have a state receiver take over the troubled hard moneylender was trumped, however, when Nilsen filed for Chapter 11 bankruptcy protection last May. Since then the case has been tied up in federal court. Some investors have grown frustrated at the slow pace of the criminal probe.

“I want to give the [District Attorney] a D minus for taking so long,” says investor Dave Korpi, adding that he hoped for an earlier indictment to bring tax relief to investors.

In response to the Bernard Madoff Ponzi scheme, the IRS issued a new policy that allows taxpayers who lost money from fraud to deduct theft losses. But investors weren’t able to take advantage of safe harbor provision until Nilsen was indicted.

The 16-month criminal investigation was led by the U.S. Attorney, U.S. Postal Inspection Service, FBI and the Monterey County DA’s Office. District Attorney Dean Flippo says the investigation didn’t take an inordinate amount of time, considering the scope of the case and the multitude of agencies involved.

For the most part, the fraud charges against Nilsen won’t change the pace of bankruptcy proceedings, says Cecily Dumas, attorney for bankruptcy trustee R. Todd Neilson. There has only been one property sale so far, Dumas says, but several more are in the works and the first distribution to investors is expected next spring. Lawsuits and appeals to separate fractionalized deeds of trusts from the estate have stalled progress, she says.

The trustee is communicating with the U.S. Attorney’s Office regarding six properties Nilsen wants to post for $1 million bail. “We are going to do everything we can to make sure that Mr. Nilsen does not attempt to use for bail property which actually should belong to creditors of the bankruptcy,” Dumas says.

The 58-year-old broker was arrested Sept. 10 and pleaded not guilty at his first court appearance. Nilsen was released with the signature of Marguarite Nogosek, a San Jose-based mortgage broker, who started Cedar Mortgage with Nilsen. Judge Howard Lloyd will review his bail Sept. 28.

Errico, who was Cedar Funding’s loan servicing manager, remains at large. He is from Brazil, and it’s unclear whether he fled the country.

LePage says other players have culpability as well, including auditing firm Hayashi & Wayland and title company Stewart Title. The trustee has hired Monterey law firm Duffy & Guenther, which led LePage’s case, to handle litigation of third parties, but Dumas says they will only sue if legal action can bring money into the estate.

“This really runs deep in this community and has all kinds of tentacles,” LePage says. “I think it has been a real tragedy for the community.”