Real estate officials indicted
The former president and three executives of a failed Boise-area real estate company have been indicted by a federal grand jury on allegations that they took part in a scheme to dupe investors.
Assistant U.S. Attorney Wendy Olson announced the indictment Wednesday against 64-year-old Douglas L. Swenson, the founder of DBSI Inc.
DBSI, headquartered in Meridian, was essentially a conglomerate of real estate and non-real estate companies, including DBSI Housing and DBSI Securities. It purported to be an industry leader in locating, acquiring, developing, managing and providing real estate investment opportunities through the U.S.
Swenson and his colleagues are accused of conspiracy to commit securities fraud, wire fraud, mail fraud and interstate transportation of stolen property. Others named in the indictment include general counsel Mark Ellison, 64, David D. Swenson, 35, and Jeremy S. Swenson, 40.
"Investment fraud undermines markets, bilks investors of promised returns and creates unnecessary loss at a time when our economy is struggling to recover," Olson said in a news release. "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."
Based on the conspiracy and fraud charges, the indictment seeks forfeiture of properties and assets totaling $169 million.
Olson alleges they misled investors in January 2007 through November 2008 when DBSI invested in commercial property in Idaho and several other states.
"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.
The defendants allegedly represented that DBSI was a profitable company and had a net worth in excess of $105 million.
The indictment alleges they knew, contrary to what they told investors and their own employees, DBSI's real estate and non-real estate business activities were universally unprofitable.
Olson's office said DBSI's much-touted "Master Lease investment product" was losing approximately $3 million a month.
The defendants took steps to conceal DBSI's true financial condition from investors, financial advisors, employees and others.
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 alleged conspiracy continued until DBSI filed for bankruptcy in November 2008, the indictment said. Before filing for bankruptcy, the company managed more than 240 commercial properties across the country - many of them strip malls - and had more than 8,500 investors.
The charges come after a four-year investigation.
Douglas Swenson also is charged with conspiracy to commit money laundering.
Douglas Swenson's Seattle attorney, Angelo Calfo, said the government's case is misguided and that the company's downfall was tied to the recession rather than criminal shenanigans. Calfo also countered that DBSI was open and transparent with potential investors about the risks of playing in the commercial real estate market.
"Nobody wanted to DBSI to succeed more than Doug Swenson," Calfo said. "The government's portrayal of DBSI reflects a fundamental misunderstanding of DBSI's business model and paints a false picture, as will be demonstrated at trial."
In a related case, former DBSI chief operating officer Gary Bringhurst pleaded guilty in federal court in Boise on Monday 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.