Witness: DBSI payments didn’t make sense

jsowell@idahostatesman.comFebruary 7, 2014 

Bill Marvel became concerned within months of sinking $3.5 million into 15 shopping centers and office buildings in nine states offered by DBSI in 2004.

He was one of about 400 investors who bought those buildings from DBSI and then leased them back to the Meridian company to manage in exchange for guaranteed returns — 6 percent annually for the shopping centers and 7 percent for the office buildings. Each property had about 30 investors.

Marvel noticed in quarterly statements sent to investors that revenue had dipped at 13 of the 15 properties and that only one building had met its performance goals. Marvel, an Air Force Academy graduate who worked in spacecraft development and design before retiring, couldn’t figure out how the company could sustain its monthly payments to investors.

“Where is the money coming from to pay me when my buildings aren’t performing adequately?” Marvel testified Thursday.

Marvel was the first witness in a federal trial against four DBSI executives: the now-defunct company’s principal owner and president, Douglas Swenson; general counsel Mark Ellison; and Swenson’s sons, David and Jeremy Swenson.

Prosecutors say they illegally used money from new investors to make payments to existing investors. The men are charged with a combined 89 counts of conspiracy, fraud and money laundering.

All four men have pleaded not guilty. They say they were businessmen who were hurt when the economy suffered and building vacancies increased.

Marvel said he parlayed a $2,500 investment in a housing triplex in Manhattan Beach, Calif., in 1973 into owning 10 apartment buildings. Marvel, who lives in Grand Junction, Colo., later came to Boise to talk to DBSI executives and decided to sell his buildings and invest the proceeds in DBSI.

He said he first believed that each of the DBSI properties was meant to stand on its own. He later learned that the entire company portfolio of properties in 30 states was used to balance out the up-and-down cycles of the real estate market.

Marvel said he was also concerned when he read an August 2004 story in the Cincinnati Enquirer announcing that DBSI had bought an office complex outside that city for $30 million. The sales price amounted to $140 per square foot, making it one of the most expensive office sales in the greater Cincinnati area in several years.

“They paid a record amount, comparable to what they charged in downtown Cincinnati,” and that seemed excessive, Marvel testified.

When DBSI offered the office complex to investors at 27 percent above the sales price, he wondered whether DBSI made its money strictly from the markup on buildings.

SONS’ ROLES LIMITED, DEFENSE LAWYERS SAY

Meanwhile, lawyers for David Swenson and Jeremy Swenson described their clients as low-level executives who questioned investment return projections and who strived to provide investors with accurate information.

Defense attorney John Kormanik said accountant David Swenson once ordered a report held that projected a 19 percent annual return on a property.

He ran his own calculations and determined that the return would be only 12 percent.

After DBSI began laying off workers in the summer of 2008, months before the company declared bankruptcy, David Swenson was asked by Chief Operating Officer Gary Bringhurst to take a 10 percent pay cut. Swenson replied that because he was single and had no family obligations, he could take a deeper cut. He volunteered, Kormanik said, to take a 30 percent cut, from $90,000 a year to $60,000.

“Is that the act of a person cheating others?” Kormanik asked.

Likewise, defense attorney Greg Silvey said that Jeremy Swenson, also an accountant, lived frugally and drove a 1999 Volkswagen Passat back in 2005.

“That’s not a badge of fraud in a multimillion-dollar fraud case,” Silvey said. “If there was fraud here, there would be some bling.”

Neither of the Swenson sons sat on the company’s board of directors or wielded any power, the attorneys said. They questioned why they were indicted in the first place.

Ellison’s attorney, Jeffery Robinson, said his client is accused of telling the company’s sales force to continue pushing sales even as the company’s fortunes tanked.

That allegation is untrue, Robinson said. He pointed to an email introduced to the grand jury that indicted the four men purportedly from Ellison that made him appear guilty of the accusation. He said the email was a fraud and was doctored to make it appear it came from Ellison.

“I’m not saying the government faked or phonied this email. But someone did,” Robinson said.

Testimony will resume Friday morning in the courtroom of Chief U.S. District Judge B. Lynn Winmill. The trial is expected to last eight to 10 weeks.

John Sowell: 377-6423, Twitter: @IDS_Sowell

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