Lengthy DBSI trial winding down this week

Testimony is expected to wrap up today, with the closing arguments scheduled for Friday.

jsowell@idahostatesman.comApril 2, 2014 

A day after DBSI Senior Sales Director Josh Hoffman testified that the Meridian property management company had been open and honest about its deteriorating financial situation several years ago, Hoffman admitted DBSI hadn't been completely candid.

U.S. Attorney Mark Williams pressed Hoffman about company statements that went out to brokers and independent due diligence firms that said its commercial building portfolio was self-sustaining and provided DBSI with "significant revenue."

Under the program, groups of investors shared ownership in shopping centers, office buildings and warehouses. DBSI leased the buildings; in exchange, it paid investors between 6 percent and 7 percent annually.

"In 2007 and 2008, the master lease portfolio was losing money, right?" Williams asked.

"Yes," Hoffman answered.

By January 2008, the program was losing $1.5 million a month, yet Diversified Business Services and Investments allegedly continued to paint a rosy picture and withheld the true state from investors, brokers and due diligence firms.

The company was distributing sales brochures and audio discs saying that DBSI had a net worth of $105 million, that it had never missed a payment to investors and that it had never filed for bankruptcy. The claims were used to make DBSI stand out among the 100 companies nationwide that offered similar investments.

Prosecutors say DBSI essentially operated like a Ponzi scheme, with executives using money received from later investors to make income payments to earlier investors. DBSI President Douglas Swenson, his sons Jeremy Swenson and David Swenson, and company attorney Mark Ellison are charged with a combined 89 counts of conspiracy, fraud and money laundering.

Williams introduced a series of emails Tuesday in which Hoffman suggested removing a sentence from a policy statement that said that cash flows from commercial building investments were sometimes positive and sometimes negative. The same document repeated the contention that the program was earning significant income.

"Why didn't you update that?" Williams asked.

"It's not my call or say," Hoffman said.

On Feb. 7, 2008, Hoffman received an email from a DBSI regional director who said he spoke with an investment consultant who had concerns about the portfolio. Hoffman replied and attached the policy statement with the misleading information.

In July 2008, four months before DBSI declared bankruptcy, Hoffman sent an email suggesting that the company suspend a midyear financial report. That came a month after massive layoffs and a pay cut for company executives.

"I would prefer that we wait until the end of the year and provide year-end financials as I think they will look more favorable given the trim to the workforce," Hoffman wrote.

Hoffman said he wasn't aware of a DBSI practice in which large amounts of cash were added to accounts to inflate the company's net worth for year-end audits, and then removed a few weeks later.

Cross-examination of Hoffman is set to continue Wednesday morning. The defense is expected to rest its case before the end of the day, and then Thursday is supposed to be an off day before closing arguments.

The trial is in its ninth week before a jury of 10 women and four men. Two alternates will be chosen before the other 12 jurors begin deliberations.

John Sowell: 377-6423,Twitter: @IDS_Sowell

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