Idaho Criminal Lawyer & Attorney : Chuck Peterson Law Firm : Civil Rights, Trial, Felonies, Assaut, DUI : Boise, Idaho Falls, Pocatello, Idaho

 As reported here DBSI, a locally prominent real estate investment company is in serious financial trouble, having been named a defendant in civil lawsuits alleging fraud.  Investors yesterday were dealt the next card in this hand - the BK card.  DBSI has now filed for protection under the bankruptcy laws in hopes of keeping its fiscal head above water.  The Idaho Statesman reports today that the filing is in response to ten lawsuits filed by investors who have lost money.  Describing the company and its investment methods, the Statesman reported:

"Helped by the real estate boom, profits for DBSI and its investors grew effortlessly - and fast. The value of its assets grew from several million dollars in 2002 to $2.6 billion in 2008, said Paul Mangiantini, a Boise lawyer who represents investors.

But the mirage evaporated this year as the economy soured. This fall, the company began delaying payments to 12,000 investors around the globe, saying income from some rental properties is no longer enough to cover debt payments. It suspended all sales activity, closed sales offices around the country and laid off most of its staff."

Still, the final issue DBSI and its officers may have to face is the real possibility of criminal charges by either state or federal prosecutors.  The mechanism used by DBSI to provide investors with the profits they wanted and DBSI had apparently promised, sounds a lot like a "security."  If it sounds like a duck ... well you  get the point.  I said the last time that there are no guaranteed investments - and that is the case.  Ask the folks who trusted giants like AIG, Fannie Mae and Freddie Mac.  When good opportunities go bad and people lose money the tendency is to blame someone - and DBSI may find itself on the receiving end of that fickle finger.  When the checks were coming in, DBSI and its officers were financial wizards and their investors happily received their money.  But did DBSI engage in a "ponzi" scheme?  Was their investment method real or imagined?  Was it more or less than say - the Social Security "trust fund?" Only time will ultimately tell the story - but the battle lines are starting to be drawn, and the BK filing is just a defensive move.  In the Army we dug in for a fight. Looks like DBSI is doing the same.

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  An article in the Idaho Statesman describes a pending lawsuit against DBSI and its officers that alleges the real estate investment company illegally collected $500 million in profits.  According to the paper, the lawsuit alleges conduct that is frequently the subject of criminal charges.  The lawsuit says DBSI was involved in a "ponzi scheme" in which new investor dollars were used to pay "guaranteed interest payments" promised to earlier investors.  Did it happen? Time will tell I suppose, but this lawsuit reminds us that there are remedies out there for investors who may have been told one thing and now face another and there are dangers out there for employees and officers of investment companies. Persons in their shoes are frequently sued and sometimes made defendants in criminal cases.

Now I do not represent anyone in the DBSI lawsuit, nor do I know anything about it. Real estate investing is risky stuff, just ask anyone who ever tried to "flip" a house. There are other investment fraud cases pending in Boise in civil and criminal court cases.  I have been involved in these cases before (and currently) so I have seen how they progress.  Investors who believe they were promised a particular rate of return frequently find themselves on the losing end of that "promise" when the underlying investment goes south, or when there never was an underlying property.

Imagine Joe Investments promises you 15% return on your money and you invest $100,000 expecting the money is going to be pooled with other investor money to buy a commercial building. The commercial building was supposed to be rented out, but now it is empty.  When the first interest payment is due to you, Joe uses some other investor's money to pay your 15%.  Of course that may mean that Joe has used your $100,000 to pay the promised interest to some other investor. When you want your money back - it isn't there, and neither is the investment that it was supposed to be used for. In the classic "ponzi scheme" there never was any intent to use investor money to buy the underlying investment (sometimes real estate, sometimes something else). I have represented investors who lost money, and people who were part of the investment company that is alleged to have "stolen" the money. Sometimes there is a real explanation - like the investment lost all its value - so it is seldom clear from the outside.  A claim that a company has "engaged in securities fraud, banking fraud and tax fraud" is the worst kind of publicity its investors could get. Whether true or not, finding new investors will be almost impossible, increasing the risk of the investment promise.

Here's the other thing we need to remember - there is no "guaranteed investment."  Any investment carries risk, and risk makes "promised returns" nearly impossible to count on. So be careful out there as you invest. If you buy a "share" of a promise, make certain that the promise could be fulfilled. The federal government is not going to step in and bail out every investment gone bad.

Of course there is the "other shoe" waiting to drop in any securities, banking or tax fraud case. Many times the civil case sets the scene for another case, brought by your friends at the federal government.

If you even think that you could be a potential defendant in a criminal case, get a criminal lawyer now! I am representing a defendant in a crop insurance fraud case where the federal government simply sat back and let the civil lawyers do all the work to build its case. We have given them the transcripts from the depositions which include the other parties' answers under oath. This past week the other side flinched - demanding that the civil case THEY BROUGHT against my defendant be stayed because of a "pending criminal investigation." Yes indeed - there is a pending criminal case for those folks - but not my client. Do not go to a deposition in one of these cases (as a defendant or plaintiff) without your own criminal lawyer, and remember - your answers there may be scrutinized later by a prosecutor.  And yes, those answers WILL BE USED AGAINST you - maybe in a criminal case.

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I am in the process of looking for hidden assets of a potential judgment debtor (assuming we win the case and get the judgment) and came across another blog that focusses on this challenge.  Check out Asset Search Blog for info on this subject.  Very interesting.  In my case, we are looking for assets to satisfy a potential fraud and racketeering judgment.  This is always the problem - get the judgment but how do you get the client's money?  Anyway - if you are looking for this type of info, take a gander at Asset Search Blog.

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I was at the beach - Mission Beach to be precise - and relaxing with my bride over the weekend. The sun was shining and the sea air cooling, but like all good things - that too came to an end on Monday.  I am now in Nevada, taking depositions in a crop insurance fraud case.  There is lots of sand, but no beach.  Lots of hot air (in the depositions), and no ocean.  With no surf and no run on the beach, today I am thinking about last week's sentencing before US District Judge Winmill, in a case involving trafficking in counterfeit goods.  My client went to trial last spring on one count of conspiracy to traffick in counterfeit goods (t-shirts bearing unlicensed marks, like Polo, Gap etc...) and six counts of trafficking.  At issue - a couple thousand t-shirts that he purchased from Main Sportswear in Los Angeles. Client gave the Feds the address and phone number for Main Sportswear, and we sent an investigator to buy some more before trial.  When the trial ended, my client's wife was acquitted of all charges (he had consistently taken the blame), and he was not guilty of conspiracy.  He was, however, guilty of trafficking.  And that meant a chance to re-visit the federal sentencing guidelines. Now the law has changed markedly over the past few years, and perhaps the nail in the coffin of those dreaded, formerly mandatory guidelines, is the Supreme Court's analysis in Gall v. United States, 128 S.Ct. 586 (2007).  Gall had been a middleman in a drug trafficking conspiracy, and even with his plea of guilty, acceptance of responsibility, and substantial assistance, his guideline range was 30 - 37 months of incarceration.  The district judge looked at the changes in Gall's life - he was in college, had started a successful business, and had otherwise turned it completely around - and placed him on probation.  As you may imagine, the US was not happy.  They believed a sentence that imposed no incarceration and 36 months of PROBATION was an unacceptable departure. Justice Stephen's majority decision adopts an abuse of discretion standard for appellate review. End result - we have a new methodology for district courts applying the guidelines in every case. We still start with the guidelines, taking into account specific offense characteristics and bases for departures, but then we look at the sentencing factors under 18 U.S.C. Section 3553(a).  So judges may be judges again.  They are instructed under the law to consider the person they are sentencing as well as the crime, the deterrent effect on the defendant and the community, and the circumstances surrounding the crime.  Then, even without a departure, the court must fashion a sentence that is just - necessary, but not excessive.  And this allows the court to make the punishment fit the crime and the defendant.

And that is what happened with my client.  The Court did not bind itself to the guidelines, but rather took into account the specific conduct, its impact on the trademark owners, and my client's otherwise law-abiding conduct.  The US wanted 27 months of imprisonment for my client. That incarceration would have meant his certain deportation.  The Court's sentence included 9 months of home arrest and 1 month of actual incarceration.  He will pay restitution and a fine, and hopefully, he will not be deported.  You see his wife (acquitted) is a US Citizen, but he is not.  While on home arrest, he can continue to do what he has for over twenty years -  run his little alterations shop, pay his taxes, and continue to be part of the community.  He may still face deportation, but those formerly mandatory guidelines did not result in the certainty of incarceration and deportation.  His crime and his life are now placed in context - that is to say considered with the other factors surrounding the case.  My hope is that the immigration consequences may also consider those factors.  If you have a federal case and are facing the potential of federal sentencing under the existing law - there is good news in the Gall case and its progeny.  Your life may mean something  in determining your ultimate fate if you are convicted.  Maybe you will see the beach again - and not just the sand.

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