BOISE, Idaho (AP) — A federal grand jury in Idaho has indicted the former president and three top executives of a failed Boise-area real estate company on charges that they misled investors and conspired to dupe them out of millions of dollars during the economic downturn.
Assistant U.S. Attorney Wendy Olson announced the indictment Wednesday against Douglas L. Swenson, who was the founder and president of DBSI Inc. and a group of other related companies.
Swenson, along with DBSI's general counsel and two other officers, are accused in the 83-count indictment of conspiracy to commit securities fraud, wire fraud, mail fraud and interstate transportation of stolen property. Swenson is the only one also indicted on conspiracy to commit money laundering.
The others indicted are Mark Ellison, 64, co-founder and general counsel for DBSI; and David D. Swenson, 35, and Jeremy S. Swenson, 40, both of whom served as assistant secretaries for the company.
Olson alleges the executives misled investors nationwide in 2007 and 2008 by suggesting DBSI was a profitable company with a net worth of $105 million. But while telling investors one story, the indictment alleges the men knew that the company's businesses were floundering and they were relying on money from new investors to pay returns to other DBSI investors.
"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 Wednesday.
The indictment culminates a four-year investigation headed by the FBI and Internal Revenue Service, and it was unsealed one day after federal prosecutors reached a plea agreement with Gary Bringhurst, DBSI's former chief operating officer.
Bringhurst, 46, has agreed to plead guilty to one count of conspiracy to commit securities fraud for falsifying financial statements used to artificially bolster the company's financial standing and mislead investors about how their money would be used, according to court documents.
It wasn't clear whether Bringhurst will testify against his former colleagues.
DBSI was originally founded in 1979 and grew into a conglomeration of companies, including DBSI Housing, DBSI Securities and a separate company that invested in technology startups. Before filing for bankruptcy in 2008, the company managed more than 240 commercial properties across the country — many of them strip malls — and had more than 8,500 investors.
One of the business models DBSI used is a so-called tenant-in-common investment, in which properties are sold to several investors who then become owners of a fraction of a specific property.
The company's commercial properties and nonpublic offerings cited in the indictment cover six states: Virginia, Illinois, Georgia, Missouri, North Dakota and Texas. The company also owns a variety of mall properties in southwestern Idaho.
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."
The indictment specifically alleges the defendants:
— Withheld accurate financial information and took steps to conceal the company's true financial position from investors, financial advisers, broker dealers and due diligence officers.
— Defrauded investors of $89 million from a 2008 notes offering and concealed more than $200 million in loans to technology startup companies, a step alleged to misrepresent company assets.
— Made false and fraudulent statements to secure loans for commercial real estate projects in Georgia and Illinois.
Besides criminal penalties, the government is seeking forfeiture of properties and company assets totaling $169 million.