A federal appeals court has upheld the fraud convictions of three family members and a corporate lawyer involved in the collapse of a Meridian business that caused “staggering losses” to investors around the country.
The Ninth U.S. Circuit Court of Appeals on Tuesday upheld the convictions of the four executives of DBSI, a national property management company. A three-member panel of judges said there was a “plethora of evidence” from which a rational juror could find CEO Douglas Swenson, his sons Jeremy Swenson and David Swenson, and attorney Mark Ellison guilty.
The panel also upheld all but $3.4 million of the combined $277 million in restitution the four men had been ordered to pay investors who lost money because of the fraud.
“We’re pleased with the result, not only for our office but the countless victims who invested money in that company,” said Rafael Gonzales Jr., the acting U.S. attorney for Idaho. “We were confident in our case and we’re glad to see the court affirm the convictions.”
Founded by Douglas Swenson in 1979, Diversified Business Services and Investments managed office buildings, shopping centers and warehouses for investors nationwide. DBSI sold investors fractional interests in the properties, and they leased the properties back to DBSI to manage.
The company collapsed into bankruptcy in 2008. Prosecutors said the company had become a Ponzi scheme, with money from new investors used to pay earlier investors. The Swensons and Ellison said they did not break any laws and claimed DBSI was hurt just by the 2008 downturn in the economy.
Douglas Swenson, 69, was sentenced to 20 years in prison after the jury found him guilty of 44 counts of securities fraud and 34 counts of wire fraud. Ellison, 69, Jeremy Swenson, 44, and David Swenson, 40, were each convicted of 44 counts of securities fraud. Ellison was sentenced to five years in prison, while the younger Swensons were sentenced to three years each.
The men were convicted after a 45-day trial in 2014. They have been free while appealing their convictions.
The defendants could ask the panel to reconsider its decision, petition the full Ninth Circuit for an appeal or apply to the U.S. Supreme Court for a hearing.
Greg Silvey, the attorney for Jeremy Swenson, said he had not read the full decision yet and declined to comment. Attorneys for the other three defendants could not be immediately reached Tuesday.
The appellate court did overturn a portion of the $32.2 million restitution order filed against Ellison, Jeremy Swenson and David Swenson. A mistake in the calculation of the award made it $3.4 million higher than it should have been. The court asked trial Judge B. Lynn Winmill in Boise to schedule a hearing to reduce the award by that amount.
Deceptions by the defendants
The panel found that Douglas Swenson, who was ordered to repay $180.6 million in restitution, approved investment brochures that “contained materially misleading statements” regarding the financial stability of various DBSI subsidiaries. DBSI deceived investors about the company’s net worth, the financial health of investor buildings and the misuse of reserve funds put up by investors for maintenance and repairs for the buildings.
“In the words of one witness, investors had to go on ‘an Easter egg hunt to figure out what’s going on,’” read the unsigned 28-page memorandum decision from Judges Ferdinand Fernandez, Consuelo Callahan and Sandra Ikuta.
The judges also found sufficient evidence that Ellison and Jeremy and David Swenson committed securities fraud.
“At the very least, it was sufficient to show that they aided and abetted a fraudulent act, practice or course of business,” the judges wrote.
Ellison, the judges found, approved investor brochures that contained misleading statements, “despite being repeatedly informed by others about their misleading nature, and despite knowing that investors wanted more transparency about the financial condition of DBSI Group.”
Ellison also tried to dissuade a DBSI employee from continuing to question the misleading nature of the statements.
David Swenson, the judges wrote, knew about the company’s financial difficulties from reports he received and from attending meetings where the topic was discussed. He told another employee that investor reserves could be used for general company expenses even though he knew that was untrue.
Jeremy Swanson manipulated accounts by directing that money be transferred into one company account just before audits were conducted to inflate the account balance. He also served on a committee responsible for monitoring the repayment of loans made from the account, although evidence showed that repayments were never made.
Mormon bias claim rejected
The appeals court also ruled that Winmill did not abuse his discretion when he refused to allow defense lawyers to ask potential jurors whether they were biased toward The Church of Jesus Christ of Latter-day Saints.
“The (defendants) presented no evidence suggesting that religious bias was ‘an actual and likely source of prejudice’ in this case,” the judges wrote.
Jeffery Robinson, who represents Ellison, argued in the appeal that a Facebook exchange between the jury foreman and a friend after the trial raised questions about whether he might have been biased against Mormons.
The friend wrote that a church governing body had put a hit out on him. The foreman responded by saying he would steer clear of the Boise Mormon temple.
“No supplemental question was required, because this case did not involve religion, let alone any purported religious bias,” the judges wrote.