Witness: Meridian's DBSI paid too much, ignored warning signs

The company moved quickly to increase inventory so it could satisfy eager investors, a former VP says.

jsowell@idahostatesman.comFebruary 8, 2014 

When Michael Attiani went to work as the vice president of property management for DBSI in April 2004, the Meridian company was in the midst of a buying frenzy.

The property management company closed on 12 sales the first month he was there. By the end of the year, the company’s holdings had mushroomed from 30 office buildings and shopping centers to 100. When the company declared bankruptcy in November 2008, DBSI’s portfolio totaled 230 properties.

“They wanted to buy as much as they could,” Attiani said.

He testified Friday in the conspiracy, fraud and money laundering trial of DBSI president Douglas Swenson, general counsel Mark Ellison and executive secretaries David Swenson and Jeremy Swenson. They are accused in federal court of conspiracy, fraud and money laundering.

What was troubling to Attiani, he said in court, was how the company often ignored poor evaluations of buildings it was considering purchasing and bought them anyway. The purchases also came at a steep price, he said.

“It was clear we were paying top dollar — and sometimes more — just to get ahold of a property,” Attiani said.

Attiani and another company vice president once traveled to Dallas to look at a building with 116,000 square feet. The building had a high vacancy rate; the current major tenant had only two or three years left on a long-term lease, and it was unclear it would be renewed.

The building needed major upgrades, and the asking price of $24 per square foot was much higher than other commercial sales in that area.

“We came back to DBSI and told our bosses ‘Do not buy this building,’ ” but that advice was ignored, said Attiani, who came to Boise from Philadelphia and has 25 years of property management experience.

The company was so aggressive, Attiani said, because there was a long queue of investors looking to sink their money into property purchases. In groups of about 30, the investors would buy a building and then lease it back to DBSI in exchange for guaranteed annual returns of between 6 percent and 7 percent, paid monthly.

The arrangement was attractive because investors could sell off individual properties they may have owned previously and leave the active management to someone else. It also allowed them to avoid costly capital gains taxes that would have been imposed if they sold their previous investments and didn’t quickly put the money into another property.

Prosecutors introduced an asset management report from December 2005 that showed DBSI lost $1.2 million just that month and $8.7 million for the year. The losses were even greater in subsequent years.

Earlier, investor Bill Marvel answered questions for a second day on the stand. He admitted to defense attorneys that numerous documents warned that investments in DBSI were risky and shouldn’t be entered into if the investor couldn’t afford to lose the entire stake.

He said those warnings were poignant when he looked into four other companies offering investments similar to those from DBSI. Those companies were newer, Marvel said, and didn’t have the long track record and success of DBSI, which had been in business since 1979.

Under defense questioning, Marvel, who invested $3.5 million in DBSI in 2004, said the company never misrepresented the condition of his investments. He also said no DBSI representative ever lied to him.

Marvel, who lost ownership of all but four of the buildings he purchased through DBSI — another one faces foreclosure — admitted that he once sent a message to members of a DBSI investor email group claiming there could be a tax advantage if company officials were indicted for wrongdoing. He said he also went to police.

“I certainly encouraged law enforcement to look into what was going on and take whatever action was necessary,” Marvel said.

Testimony from Attiani will continue Monday in U.S. District Court.

John Sowell: 377-6423, Twitter: @IDS_Sowell

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