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Four top DBSI executives – Douglas Swenson, Mark Ellison and two sons of Swenson, David and Jeremy – were indicted this week by an Idaho federal grand jury on 83 charges. Among the charges: Conspiracy to commit securities fraud, wire fraud, mail fraud and interstate transportation of stolen property. If convicted, each of the men could serve years in prison.
The indictments come two days after Gary Bringhurst, DBSI’s chief operating officer, pleaded guilty to conspiracy to commit securities fraud.
DBSI is one of Big Three syndicators behind recent high-profile failed deals involving private placements. Those deals caused investors to lose millions and forced a number of independent broker/dealers that sold the investments to shutter their business. The other two big syndicators include Medical Capital Holdings and Provident Royalties LLC.
Prosecutors in the DBSI case say that when the DBSI began to spiral toward bankruptcy in 2007 and 2008, DBSI’s four principals put the company’s net worth at $105 million. In reality, one of DBSI’s main programs was losing $3 million a month.
Meanwhile, DBSI kept guaranteeing fixed rates of return for investors in its properties, while running a Ponzi-like scheme that took new investor money to run operations and pay other DBSI investors, prosecutors allege.
As reported by Investment News, DBSI, along with Medical Capital and Provident Royalties, raised hundreds of millions of dollars through small to midsize independent broker-dealers. Armed with due-diligence reports paid for by DBSI, MedCap and Provident, the broker/dealers raised close to $3.5 billion in capital for the three private-placement syndicators. Each of the firms promised high yields when investors began a search for yield in 2006, 2007 and 2008.
The latest DBSI indictment seeks forfeiture of properties and assets totaling $169 million.
For many investors who were misled by DBSI, the charges against the DBSI executives may not result in them recouping losses on their investments, but it does nonetheless bring some sense of solace. Bill Marvel is one of those investors. According to a story in the Idaho Statesman, it’s likely Marvel won’t see a penny from the forfeitures and expects to lose most of his $3.5 million investment in fractional ownerships he bought from DBSI. Marvel said he and his wife have already lost most of the 15 buildings in which they invested. They expect to lose all of them through foreclosure or sales at low prices, ending up with about $500,000.
“I am elated that people are going to suffer the consequences,” Marvel said in the story.