Four top executives of DBSI Inc., one of the big-three syndicators of phony private placements that decimated independent broker-dealers in the past decade, were indicted last Wednesday by a federal grand jury in Idaho on 83 charges, including conspiracy to commit securities fraud, wire fraud, mail fraud and interstate transportation of stolen property.
DBSI was acting like a Ponzi scheme, relying on new investor funds, including investor money that the company said would be used only in particular circumstances, to continue operations and pay returns to other investors, according to the indictment.
The indictment seeks forfeiture of property and assets totaling $169 million.
The principals charged include Douglas Swenson, 64, co-founder and former president of DBSI; Mark Ellison, 64, co-founder and general counsel; and two sons of Mr. Swenson — David, 35, and Jeremy, 40, who were assistant secretaries.
DBSI raised money primarily through two avenues: by allegedly defrauding investors of $89 million with sales of high-yield notes in 2008 and sales of securities known as “tenant in common” 1031 ex-changes.
The executives represented DBSI as having a net worth of $105 million when the company was bleeding cash, according to the indictment.
Two of its biggest losers were $235 million in loans from 1999 to 2008 to technology startups that were never repaid and its TIC program, which was losing $3 million per month.
Attorneys for the four executives weren't available for comment.
Along with Medical Capital Holdings Inc. and Provident Royalties LLC, DBSI raised hundreds of millions of dollars through small to midsize independent broker-dealers. Armed with due-diligence reports paid for by DBSI, Medical Capital and Provident, the broker-dealers raised close to $3.5 billion in capital for the three private-placement syndicators.
Each of the firms promised high yields just as investors began a frantic search for yield in 2006, 2007 and 2008.
The results were disastrous. DBSI, which sold a variety of real-estate-linked investments and private notes, declared bankruptcy in 2008. Medical Capital and Provident shut down in 2009 after the Securities and Exchange Commission charged them with securities fraud.