DBSI Principals Indicted for Securities Fraud, Wire Fraud, Mail Fraud, Bank Fraud, and Conspiracy
|U.S. Attorney’s Office April 10, 2013|
BOISE—Douglas L. Swenson, 64, of Eagle, Idaho; Mark A. Ellison, 64, of Boise, Idaho; David D. Swenson, 35, of Boise, Idaho; and Jeremy S. Swenson, 40, of Meridian, Idaho, were indicted today by a federal grand jury in Boise for conspiracy to commit securities fraud, wire fraud, mail fraud, and interstate transportation of stolen property stemming from their involvement in the DBSI Group of Companies (DBSI), U.S. Attorney for the District of Idaho Wendy J. Olson announced.
Defendant Douglas Swenson is the founder and former president of DBSI. Mark Ellison, another founder of DBSI, served as DBSI’s general counsel during the period charged in the indictment. David D. Swenson and Jeremy S. Swenson were assistant secretaries for DBSI. Founded in 1979 and headquartered in Meridian, Idaho, DBSI was essentially a conglomerate of real estate and non-real estate companies, including DBSI Housing and DBSI Securities.
According to the indictment, from January 2007 through November 2008, the defendants publicly represented that DBSI was a profitable company and had a net worth in excess of $105 million. The indictment further alleges that the defendants knew and believed that, contrary to the disclosures made to investors and their own DBSI employees involved with the marketing and selling of DBSI investments, DBSI’s real estate and non-real estate business activities were universally unprofitable; DBSI’s much-touted Master Lease investment product was losing approximately $3 million dollars a month; and DBSI was relying on new investor funds, including investor money that DBSI represented would only be used in particular circumstances, to continue operations and pay returns to other DBSI investors. The indictment alleges that the conspiracy continued until DBSI filed for bankruptcy in November 2008. The 83-count indictment also charges all of the defendants with 39 counts of securities fraud, 34 counts of wire fraud, six counts of interstate transportation of stolen property taken by fraud, and two counts of bank fraud. Former president Douglas Swenson is also charged with conspiracy to commit money laundering.
Based on the conspiracy and fraud charges, the indictment seeks forfeiture of properties and assets totaling $169 million.
According to the indictment, DBSI purported to be an industry leader in locating, acquiring, developing, managing, and providing real estate investment opportunities throughout the United States. The criminal allegations center around material omissions, as well as false and fraudulent representations, made to investors about investment products that involved tenant-in-common 1031 exchange interests (TIC investments) and the related Master Lease investment product. DBSI promoted the Master Lease, whereby DBSI leased back commercial real estate that it first sold to TIC investors, as providing investors with a reliable, fixed monthly return on their investment, backed by the financial support and substantial net worth of DBSI.
Also according to the indictment, although the defendants knew of DBSI’s true and deteriorating financial position, they withheld accurate financial information and took steps to conceal DBSI’s true financial condition from investors, financial advisors, broker dealers, due diligence officers, DBSI wholesalers, and other DBSI employees. The indictment alleges that in disclosures to investors, the defendants falsely and fraudulently misrepresented DBSI Housing’s net worth; failed to disclose DBSI’s cash shortages and deteriorating finances; misrepresented the likelihood of repayment on large investments in technology start-up companies; and failed to disclose DBSI’s dependence on new investor money to meet its existing obligations.
The indictment further alleges that, as part of its Master Lease investment product, DBSI collected funds called “Accountable Reserves” from investors. The indictment alleges that although DBSI told investors that their Accountable Reserves would only be used for specific expenses associated with their TIC properties and not co- mingled with other DBSI funds, the defendants conspired to and did in fact commingle and divert at least $80 million in investor’s Accountable Reserves for purposes other than those disclosed to investors, including payment of the promised fixed investment returns to existing investors, operation expenses, and investments in technology start- up companies.
The defendants are also charged with defrauding investors of approximately $89 million dollars from a 2008 notes offering, based on disclosures that misrepresented assets on DBSI Housing’s balance sheet. These assets included account receivables from affiliated DBSI entities, which were made up of more than $200 million in loans to technology start-up companies. The indictment alleges that the four defendants conspired to conceal the investments in, and DBSI’s dependence on, more than $200 million in loans to technology start-up companies, which were made through DBSI-affiliated entities. The indictment further alleges that defendants took steps to conceal these loans, which were treated as fully collectible, despite DBSI having received no prior material repayments and there being no likelihood of any future material repayments.
According to the indictment, the fraud and conspiracy charges involved the non-public offerings for multiple commercial real estate investment projects in, among others, six different states: Virginia, Illinois, Georgia, Missouri, North Dakota, and Texas. The bank fraud charges arise from projects in Georgia and Illinois in which DBSI originally obtained financing from financial institutions in order to purchase commercial real estate, which it then repackaged and resold to TIC investors. The indictment alleges that the defendants made false and fraudulent statements in order to secure those loans.
In a related case, former DBSI Chief Operating Officer Gary Bringhurst pleaded guilty in federal court in Boise on Monday, April 8, 2013, to one count of conspiracy to commit securities fraud. Bringhurst, 46, is originally from Utah. According to the plea agreement, Bringhurst conspired to mislead DBSI investors by, among other things, falsifying financial statements for DBSI Housing. The plea agreement further states that one of the properties about which DBSI made false and fraudulent representations was Oakwood Plaza LLC in Alton, Illinois.
“Investment fraud undermines markets, bilks investors of promised returns and creates unnecessary loss at a time when our economy is struggling to recover,” said Olson. “Those who seek to induce others to invest their hard earned money in complex financial deals have a solemn duty to act with honesty and integrity. I commend the hard work and detailed investigation of the FBI and IRS agents who have spent countless hours on this case.”
“Defrauding investors is like a ‘house of cards’: the underlying structure can fall apart at any time, leaving many investors in financial ruin,” said Stephen Boyd, IRS-Criminal Investigation Special Agent in Charge for the state of Idaho. “IRS-CI, along with our law enforcement partners, will vigorously pursue corporate officers who victimize their investors and violate the public trust.”
The conspiracy to commit securities fraud, wire fraud, mail fraud, and interstate transportation of stolen property charge is punishable by up to five years in prison, a maximum fine of $250,000, and up to three years of supervised release. The conspiracy to commit money laundering charge is punishable by up to 20 years in prison, a maximum fine of $250,000, and up to five years of supervised release. The securities fraud charges are each punishable by up to five years in prison, a maximum fine of $250,000, and up to three years of supervised release. The wire fraud charges are each punishable by up to 20 years in prison, a maximum fine of $250,000, and up to five years of supervised release. The bank fraud charges are each punishable by up to 30 years in prison, a maximum fine of $1 million, and up to five years of supervised release. The interstate transportation of stolen property charges are each punishable by up to 10 years in prison, a maximum fine of $250,000, and up to one year of supervised release. The false statement charge is punishable by up to two years in prison, a maximum fine of $250,000, and up to one year of supervised release.
The case was investigated by the Federal Bureau of Investigation and Internal Revenue Service-Criminal Investigation. The case is being prosecuted by Assistants United States Attorney George Breitsameter and Anthony Hall, and Department of Justice Tax Division Trial Attorney Mark Williams.
An indictment is a means of charging a person with criminal activity. It is not evidence. The person is presumed innocent until proven guilty beyond a reasonable doubt in a court of law.
Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF), which was created in November 2009 to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory, and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state, and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions, and other organizations. Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,700 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.