Money seized in DBSI case in dispute

A defense firm says the funds should be released to pay for its services.

jsowell@idahostatesman.comMay 28, 2014 

The law firm that defended Douglas Swenson against fraud charges claims it is entitled to $1 million seized a year ago from several investment accounts held by the DBSI president.

The Seattle firm Calfo Harrigan Leyh & Eakes claims in a filing in federal court that Swenson signed a flat fee agreement with the firm to represent him at trial and on appeal. Because of the seizure, allowed by an order from U.S. Magistrate Candy Dale, Swenson was unable to pay his bill and the Calfo firm foreclosed on the investment accounts held by Swenson and his wife, Ellen, under a wholly-owned limited liability company, Code Six LLC.

"The funds in (the government's) possession were legally earned by Mr. Swenson and his non-DBSI-related businesses," attorney Angelo Calfo wrote in a court filing. "They are not the proceeds of crime and the government has no right to maintain possession of these funds."

Federal prosecutors disagree. They say the $1.5 million seized from Swenson should remain frozen until after Swenson and three other top DBSI officials are sentenced on fraud convictions in August.

A federal jury in April found Swenson guilty of 44 counts of securities fraud and 34 counts of wire fraud. Company attorney Mark Ellison and Swenson's sons Jeremy and David were convicted of 44 counts of securities fraud.

Government attorneys said they will seek restitution for DBSI investors of at least $75 million. Continuing the freeze on the seized money would ensure that money is available for the restitution order, prosecutors said.

"The victims of the defendants' fraud offenses do not yet have a restitution order in hand," assistant U.S. Attorney Raymond Patrico wrote in a court filing. "Thus, their ability to assert their collective claim to the funds and prevail in an interpleader action might be compromised."

Prosecutors said the disclosure of the Calfo firm claim came as a surprise. During pretrial litigation, Douglas Swenson never disclosed that his defense team had a legal claim to a portion of the money seized.

The law firm that represents DBSI bankruptcy trustee James Zazzali filed a "friend of the court" brief asking that the seized money remain frozen.

Although Swenson said he would deposit the money with the court, if released, attorney Guy Amoresano said that could give the Calfo firm an opportunity to seize the $1 million without recourse by the court or the trustee. He contends the Calfo firm's claim would not trump claims by the trustee.

"The trustee contends that the seized funds were originally siphoned off of various DBSI entities and that they constitute fraudulent transfers of funds belonging then and now to the DBSI estate," Amoresano wrote in his court filing. "The suggestion, therefore, that the Swenson/Calfo claim to the seized funds should be informed by an assumption that theirs is the superior right is flatly wrong."

John Sowell: 377-6423, Twitter: @IDS_Sowell

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