DBSI Founders Douglas L. Swenson And Mark A. Ellison Sentenced For Defrauding Thousands Of Investors
Court Orders Forfeiture of Over $228 Million in Fraud Proceeds
BOISE – DBSI founders Douglas L. Swenson, 66, of Meridian, Idaho, and Mark A. Ellison, 66, of Boise, Idaho, were sentenced today in federal court in Boise to federal prison terms for defrauding DBSI investors. Chief U.S. District Judge B. Lynn Winmill sentenced Swenson, DBSI’s former CEO, to 240 months in prison, followed by three years of supervised release and a $7,800 special assessment. His restitution will be ordered within 90 days. Judge Winmill sentenced Ellison, who previously served as DBSI’s General Counsel, to 60 months in prison, followed by three years of supervised release, and a $4,400 special assessment for his part in the fraud. His restitution also will be ordered within 90 days.
At sentencing, Judge Winmill found that the defendants were responsible for losses of more than $100 million. He also determined that there were more than 250 victims of the fraud. In sentencing Douglas Swenson, Judge Winmill noted that the losses in the case were staggering and that deterrence was an important consideration in a white collar case. He also stated that by 2006 or 2007, Swenson had to know that the company was making false statements.
Both Swenson and Ellison were convicted by a federal jury on April 14, 2014, of 44 counts of securities fraud. Douglas Swenson was convicted of an additional 34 counts of wire fraud. Their co-defendants, David D. Swenson, 38, of Boise, Idaho, and Jeremy A. Swenson, 41, of Meridian, Idaho, also former principals of DBSI and both sons of Douglas Swenson, were found guilty of 44 counts of securities fraud. They are scheduled to be sentenced on August 21, 2014.
During the 42-day trial, the jury heard evidence that DBSI, founded in 1979 and headquartered in Meridian, Idaho, sold a range of security investments, including bonds, notes, and Tenant-in-Common interests (TIC investments) in both improved and unimproved real estate. 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 that 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.
The jury heard evidence 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.
“Today’s significant sentences for Douglas Swenson and Mark Ellison send the clear message that those who induce investors to trust them with their money, in some instances with their life savings, have a solemn and legal obligation to be honest and truthful,” said Wendy J. Olson, U.S. Attorney for Idaho. “The losses caused by these defendants’ criminal conduct represent the greatest losses in any fraud case every prosecuted in the District of Idaho. It is appropriate that the protagonist of that fraud, Douglas Swenson, also receive the most serious sentence. The U.S. Attorney’s Office extends its heartfelt sympathies to those who were victims of this fraud, including, of course, to those investors who appeared in Court today to describe the devastating impact these crimes have had on their lives. We will continue to make every effort to insure that as many of the proceeds of these frauds as possible are recovered and returned to the victims.”
“When you knowingly mix deceit and trickery into the financial well-being of individuals, you create a recipe for devastation that could last a lifetime,” said Stephen Boyd, IRS Criminal Investigation Special Agent in Charge for the state of Idaho. “Today’s sentencing demonstrates how federal law enforcement will band together to help put an end to the criminal behavior of those who prey on investors. IRS Criminal investigators will continue to use their financial expertise to identify and trace funds in these types of investor fraud schemes.”