BOISE – The last two DBSI defendants, David Swenson and Jeremy Swenson, were sentenced today in Idaho's largest federal fraud prosecution.
Both were sentenced to three years in prison, followed by three years of supervised release, and a $4,400 special assessment.
Judge B. Lynn Winmill also ordered the pair to pay restitution in an amount to be determined later. David Swenson and Jeremy Swenson are the sons of DBSI founder and former CEO Douglas Swenson. Yesterday, Douglas Swenson was sentenced to 20 years in federal prison, and former DBSI general counsel Mark Ellision was sentenced to five years in prison.
All four men were convicted by a federal jury on April 14, 2014, of 44 counts of securities fraud. Douglas Swenson was also convicted of an additional 34 counts of wire fraud.
DBSI was founded in 1979 and headquartered in Meridian, Idaho. They sold a range of security investments, including bonds, notes, and Tenant-in-Common interests (TIC investments) in both improved and unimproved real estate.
During the 42-day trial, the jury heard evidence that until DBSI's bankruptcy in November 2008, the defendants represented to investors that DBSI was a highly profitable company with a net worth in excess of $105 million, and that it operated a successful business model that minimized risk to its investors and paid fixed returns as high as of 9.5%.
The United States presented evidence at trial that these representations were false. DBSI's various businesses were almost entirely unprofitable and dependent on new investor funds in order to continue operations.
DBSI's represented net worth of more than $105-million in 2007 and 2008, was the result of deliberate accounting decisions directed and approved by the defendants, all of whom have advanced degrees in accounting.
Evidence was presented that although the defendants knew of DBSI's true financial condition, they withheld accurate financial information and took steps to conceal DBSI's insolvency from investors, financial advisors, broker dealers, due diligence officers, and DBSI employees.
In Private Placement Memoranda and other disclosures provided to prospective investors, the defendants misrepresented DBSI Housing's income and net worth through deceptive accounting practices; 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 jury also heard evidence that DBSI collected monies from investors called "Accountable Reserves" which it explicitly represented belonged to its investors and would only be used for specific expenses. The defendants diverted at least $80 million in investor's Accountable Reserves for purposes other than those disclosed, including payment of the promised fixed investment returns to existing investors, operation expenses, and investments in technology start-up companies.
Olson said that the DBSI prosecution involved the largest loss amount ever prosecuted in federal court in Idaho.
"These significant prison terms for all four defendants should serve as a clear message for business executives and their corporate counsel," said Olson. "Potential investors deserve to know the truth. Investment companies and their representatives who commit fraud and put individuals' hard-earned money at risk will themselves pay a steep price in terms of their freedom, and they will be held responsible to repay those they have victimized."
"This complex financial investigation shows that the appearance of success can be a disguise for a scheme of investment fraud," said Stephen Boyd, IRS Criminal Investigation Special Agent in Charge for the State of Idaho. "Investment schemes can thrive for a time on false claims, but in the end is simply a 'house of cards' which collapses. IRS Criminal Investigation, along with our law enforcement partners, will vigorously pursue corporate officers who victimize their investors and violate the public trust."