Officers and Employees of DBSI Inc. Indicted
Some former executives of DBSI, Inc. have been indicted by a federal grand jury in Idaho. On April 11, 2013 83 charges were brought against four of the former executives for their part in the creation and marketing of fake private placement investments, including Douglas Swenson, Mark Ellison, David Ellison, and Jeremy Ellison. These charges include conspiracy to commit securities fraud, wire fraud, and mail fraud. The charge further seeks the forfeiture of property and any other assets for a total value of approximately $169 million.
DBSI raised funds through two different investments which were offered to the public: the company sold roughly $89 million worth of promissory notes which carried high interest rates, and the sale of partial interests in real property called “tenant-in-common” interests or TICs. However, according to the allegations, DBSI, through these and potentially other executives, advertised itself as a large, profitable business with a net worth in excess of $100 million, despite the fact that it was losing millions of dollars every month, and was carrying hundreds of millions of dollars in loans it made to companies that failed.
As a result of this continued marketing, DBSI, along with Medical Capital Holdings, Inc. and Provident Royalties LLC, raised almost $3.5 billion starting in or around 2006. Despite this influx of capital, DBSI filed for bankruptcy in 2008, and MedCap and Provident were both shut down a year later by the SEC amidst charges of securities fraud. As a result, investors with all three firms suffered crushing losses. Similarly, many of broker/dealers who sold these investments, primarily small to mid-size firms, to their clients have gone under amidst legal claims from those clients.
Douglas Swenson is the co-founder and the former president of DBSI. Mark Ellison is the other co-founder and served as the company’s general counsel. David Ellison and Jeremy Ellison are Douglas Swenson’s sons, who both worked at the company as assistants and/or secretaries. The indictments against these individuals come on the heels of a plea deal reached by Gary Bringhurst, the former chief operating officer of the company. Bringhurst agreed that he would plead guilty to a single count of conspiracy to commit securities fraud. His admitted actions include falsifying DBSI’s financial statements in order to artificially inflate the firm’s financial standing and apparent security, which misled the ultimate investors both in how the funds raised through their investments would be used, as well as the level of risks the investment carried.