Since as how you asked, I will tell you what I know firsthand.
A number of years ago I invested in two deeds of trust at Del Mar Mortgage. Del Mar Mortgage became CapSource and then Vestin Mortgage.
After these loans were in default over a year, I received a call as well as many other investors from Mike Shustek. He offered to exchange the defaulted deeds of trust for units into Vestin Fund II LLC.
In the process, two checks were issued by Vestin Mortgage. I was required to endorse the back of two checks and give back the two endorsed checks to Vestin Mortgage at the same time. The funds from the checks were used to invest in Vestin Fund II LLC.
Where did Vestin Mortgage receive the funds for the above transaction to cover all the investors from the defaulted deeds of trust and offer units in Vestin Fund II LLC?
My suspicions: Mr. Shustek was possibly taking newly invested money from Vestin Fund II LLC and using it to pay back investors their money invested in deeds of trust orginally lent which had gone into default. The catch was: Investors were required to accept units into Vestin Fund II LLC and not their cash back. Possibly the defaulted deeds of trust on the accounting records of Vestin Mortgage were transferred onto the accounting records of Vestin Fund II LLC. The endorsed checks were simply a matter of a paper trail and a method to make it appear investors had actually received their money back from the defaulted loans.