News and Press Releases

FOUR DEFENDANTS SENTENCED TO PRISON
IN HOLMES HARBOR BOND FRAUD CASE

FOR IMMEDIATE RELEASE
June 20, 2005

TERRY R. MARTIN (58), of Mukilteo, Washington, J. DAVID SMITH (53), of Edmonds, Washington, EDWARD L. TEZAK (46), of Montana and Snohomish, Washington, and JOHN WHITE (53), of Stanwood, Washington, were sentenced on June 17, 2005, by Chief United States District Judge Robert S. Lasnik in Seattle in the Holmes Harbor Sewer District bond fraud case. Developer TERRY R. MARTIN received a prison term of 70 months, based on his guilty pleas to conspiracy, wire fraud, securities fraud, and money laundering. J. DAVID SMITH, an attorney licensed in Washington, and EDWARD L. TEZAK, an attorney licensed in Washington and other states, each received a prison term of 18 months. SMITH had pleaded guilty to conspiracy, while TEZAK had pleaded guilty to wire fraud and money laundering. Former banker JOHN WHITE, who pleaded guilty to conspiracy, received a prison term of ten months. All four of the defendants also received three-year terms of supervised release. A fifth defendant in a related case, Leslie Killingsworth, is presently scheduled for sentencing by U.S. District Judge Marsha Pechman on August 19, 2005.

In his comments at sentencing, Chief Judge Lasnik described the fraud as an "abomination" and, quoting a letter from one of the victim bond investors, as a "lawless moral failure."

The four 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. An investigation by the FBI and IRS Criminal Investigation Division revealed that numerous representations made by MARTIN, SMITH, WHITE, TEZAK and others 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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