News and Press Releases

FIFTH DEFENDANT SENTENCED TO PRISON
IN HOLMES HARBOR BOND FRAUD CASE

FOR IMMEDIATE RELEASE
August 19, 2005

LESLIE KILLINGSWORTH, 69, of Spokane, Washington was sentenced today in Seattle to one year and one day in prison for his role in the Holmes Harbor Bond Fraud case. In sentencing KILLINGSWORTH for one count of Wire Fraud, U.S. District Judge Marsha J. Pechman said she was troubled that Killingsworth, the District Engineer for the sewer district, had breached his fiduciary duty to the Holmes Harbor Sewer District.

Four other defendants in the bond fraud case have already been sentenced: TERRY R. MARTIN (58), of Mukilteo, Washington, was sentenced to 70 months in prison; J. DAVID SMITH (53), of Edmonds, Washington, and EDWARD L. TEZAK (46), of Montana and Snohomish, Washington, were each sentenced to 18 months in prison; and JOHN WHITE (53), of Stanwood, Washington, was sentenced to ten months in prison. All were sentenced on June 17, 2005, by Chief United States District Judge Robert S. Lasnik in Seattle.

KILLINGSWORTH pleaded guilty to Wire Fraud on March 24, 2004. KILLINGSWORTH cooperated in the investigation, and his case was handled separately from the other four defendants.

MARTIN and three other defendants were indicted in August of 2003 in connection with an investment fraud scheme involving the Holmes Harbor Sewer District, a small municipal corporation providing water and sewer service to more than 200 homes on Whidbey Island. The scheme to defraud centered on a 500,000 square foot commercial office park project, called the Silver Sound Corporate Center. MARTIN convinced the elected commissioners from the Holmes Harbor Sewer District to issue $20 million tax exempt municipal bonds to fund portions of the project. As District Engineer for the Holmes Harbor Sewer District, LESLIE KILLINGSWORTH was to monitor the project and approve the disbursement of funds. Instead of looking out for the interests of the sewer district, KILLINGSWORTH assisted the fraud by making false representations regarding the status of permits for the project, and he facilitated MARTIN's fraudulent requests from reimbursements from bond proceeds.

An investigation by the FBI and IRS Criminal Investigation Division revealed that numerous representations made by MARTIN, SMITH, WHITE, TEZAK and KILLINGSWORTH in connection with that bond issuance were false and fraudulent. The false statements induced hundreds of individuals and entities to invest in the tax-exempt municipal bonds.

Among the false and fraudulent misrepresentations were the following:

- That the office space was pre-leased, when in fact there was no binding lease;
- That Goldman Sachs was involved in providing $63 million in private financing to build the office buildings and guarantee repayment in the bonds in the event of default, when Goldman Sachs was not involved at all and there was no money committed for financing;
- That permits were in place to begin construction, when they were not; and
- That there was a guaranteed maximum price construction contract with Howard S. Wright Construction, when there was not.

Based on these fraudulent misrepresentations, hundreds of victims purchased the bonds in October of 2000. Many of the victims were senior citizens who lost much of their savings as a result of the scheme.

The case was investigated by the Seattle Office of the FBI and the IRS Criminal Investigation Division, Seattle Field Office. A parallel civil enforcement action filed by the SEC against these defendants and others is pending, as is a civil class action lawsuit on behalf of the bond investors.

The case was prosecuted by Assistant United States Attorneys Kurt P. Hermanns and Floyd G. Short.

For additional information please contact Emily Langlie, Public Affairs Officer for the U.S. Attorney's Office, at (206) 553-4110.

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