Inside DBSI: Idaho co. accused of bilking investors

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Inside DBSI: Idaho co. accused of bilking investors
12:14 PM MDT on Wednesday, May 20, 2009



State calls it a big deception
MERIDIAN - Many investors have been bruised and battered during this recession.

But those who put their money in one Meridian company say it's not the economy to blame -- they say it's the deception of DBSI.

"We're still trying to figure out exactly what happened," said Marilyn Chastain with the Idaho Department of Finance said. "In many ways it was brilliant."

"There's a lot of people that would like to see some people go to jail," DBSI investor Bryce Johnson said. "It's probably destroyed as many lives as the Madoff scandal did.”

The state of Idaho calls it a "sophisticated investor fraud" -- those who bought into the Meridian-based real estate company use much stronger language.

"It's a ponzi scheme," Johnson said.

It involves investors in every state in America, plus those in ten foreign countries. In the Gem State alone, 260 Idahoans entrusted their money with DBSI.

"The DBSI income was 90 percent of my income," Johnson said.

After building and operating the JB's restaurant in Meridian, Johnson sold it and put his money into what he thought was a safe real estate investment.

Johnson said he invested more than $1 million – a sum he calls a big investment.

"And, it's all gone," he said.

In Johnson's case, and thousands of others, it was a type of fractional ownership called a TIC, a Tenant In Common. He was partial owner of three office buildings in Texas -- one of which has already been foreclosed on - the two others, he fears, are not far behind.

The state claims DBSI defrauded people like Johnson by selling unregistered securities, by siphoning money out of the TIC properties and by making promises it ultimately couldn't keep.

"The main reason we were sold on this program was because of the security and the risk-free ability to invest our money," Johnson said.

But was he made guarantees that there would be no risk?

“We were made promises,” he said. "Doug Swenson and the people at DBSI had this planned and they had the bankruptcy in the back of their minds as the ultimate exit strategy from this investment scheme."

The company filed for Chapter 11 bankruptcy six months ago and is also facing lawsuits from investors and from the state of Idaho.

DBSI CEO Doug Swenson, won't be able to hide from the courts, but he's doing a good job dodging our questions.

We've been unsuccessful reaching him by phone or at the company's headquarters. We also tried tracking him down at his Eagle home, but to no avail.

Even the company's attorney claims he has no contact information for Swenson.

In court documents, he blames the bankruptcy on "the unprecedented events in the real estate, credit and other financial markets". But, Johnson, other investors, and even the Idaho Department of Finance suspects it's much more sinister than market dynamics.

Investors compare this Treasure Valley operation to the infamous case of Bernie Madoff -- convicted this year of bilking billions.

"I mean, it's all relative,” Johnson said. “Madoff investors probably invested more money, but the people who invested in DBSI, for the most part; it was their whole life savings.”

In March, a Federal bankruptcy judge in Delaware appointed an investigator to this case - a move so rare, it's only the second time in this judge's 16 years on the bench that he's done so.

He appointed Joshua Hochberg, formerly the head of the Fraud Division for the U.S. Department of Justice -- and the attorney behind the criminal investigation into failed energy giant Enron.

"Yea, we're really impressed by his credentials," Chastain with the Idaho Department of Finance said.

Chastain says Hochberg is currently tracking $3 billion in DBSI transactions trying determine just how far and wide this possible web of deception goes -- he'll determine where that money went and if any can be recovered and returned to investors.

"I'm not thinking we're going to find pot of money, of cash just sitting somewhere," she said.

Neither Chastain nor Johnson feels optimistic about that prospect.

"I don't see any good outcome. I don't think anyone's going to be made whole and I honestly believe most of us have lost everything," Johnson said.

The examiner should release his final report in the next couple of months.

While many investors would like to see criminal charges filed -- the Finance Department's case is a civil matter, not a criminal investigation.

But that does not mean that criminal charges won't be filed by an agency that has jurisdiction to do so.