DBSI investor: No warnings given as company teetered toward ruin

A Minnesota physician is one of the last prosecution witnesses expected to testify.

Jsowell@idahostatesman.comMarch 14, 2014 

  • Five and a half years after DBSI declared bankruptcy, more than 22,000 claims have been filed by creditors and investors trying to recoup more than $102 billion in losses. The filings affected commercial properties in the Treasure Valley, and locals who did business with DBSI have found themselves both seeking and being asked to pay back cash.

Everett Duthoy began investing with DBSI back in 1985. At the time, the Meridian property management company was buying up apartment complexes in university towns, improving the units and renting them out for several years before selling the buildings.

Duthoy, who retired in 1989, was very satisfied with the arrangement.

"They never missed a payment, and when the investments matured, I got my money back. It was a success story," Duthoy testified Thursday in federal court in Boise.

In 2002, Duthoy invested $65,000 in three bond offerings from DBSI. The bonds paid interest regularly and were scheduled to be paid back in September 2008. He added $100,000 to two additional bonds in 2005.

Because of his experience, Duthoy, who now lives in Naples, Fla., had no concerns when he invested an additional $100,000 in another bond in 2008.

Before he did, he said, no one from DBSI informed him the company had laid off nearly 150 workers that year, that DBSI executives had taken pay cuts and that the company was teetering toward financial ruin.

"That would have gotten my attention," Duthoy said.

The doctor received his last interest payment on the bonds in October 2008. That same month he was notified that the company could no longer meet its obligations. It was his first indication anything was wrong.

"I didn't like the sound of that at all," he said. Duthoy lost his entire investment.

Duthoy testified as the prosecution wound down its portion of the trial of four top DBSI executives accused of conspiracy, fraud and money laundering. Company CEO Douglas Swenson, legal counsel Mark Ellison and company secretaries Jeremy Swenson and David Swenson - Douglas Swenson's sons - are charged with a combined 89 counts.

During six weeks of testimony, prosecution witnesses have told how Diversified Business Services and Investments started small but became one of the largest companies of its type in the nation. It offered investors shares in shopping centers and office buildings that were leased back to DBSI in exchange for guaranteed monthly payments of between 6 and 7 percent.

Prosecutors accused the four defendants of being involved in a scheme in which money from new investors went to make the payments to existing investors. As long as new investment money was flowing, the company was able to show the appearance of profitability, they said.

Defense attorneys have worked to establish their clients as honest businessmen who were the victims of a bad economy and could no longer sell shares of building investments as real estate after the federal government decided they had to be offered as registered securities.

Matt Duckett, the company's former vice president of accounting and finance, testified Thursday that he expressed concerns about the company's cash flow problems and sought to have the company be more transparent in financial documents provided to outside brokers who sold products to individual investors.

Duckett said he was paticularly concerned about news reports on an investigation into allegations that Bear Stearns provided misleading information about its mortgage products before the 2008 financial crisis.

Some of his suggestions were followed, Duckett said, but others were rejected by upper management.

Duckett said he suggested DBSI quit making tax payments on behalf of Douglas Swenson and other company owners, but no changes were made.

In 2005, DBSI wrote a $14.1 million check to the Internal Revenue Service on Swenson's behalf.

However, because DBSI was organized as an S Corporation, owners are taxed personally for the tax liabilities of the company. It's a common practice for companies to pay those obligations, since they do represent company revenues and not those of the individuals, the defense said.

Testimony is scheduled to resume on Monday in U.S. District Court. The trial is expected to last another two to four weeks.

John Sowell: 377-6423, Twitter: @IDS_Sowell

Idaho Statesman is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere in the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

Commenting FAQs | Terms of Service