Trust Ponzi10c967

Case 1:10-cv-00967-UNA Document 1 Filed 11/10/10 Page 1 of 40
IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF DELAWARE
JAMES R. ZAZZALI, as Trustee for the DBSI

Estate Litigation Trust and as Trustee for the
DBSI Private Actions Trust, Civil Action No.
Plaintiff,
v. COMPLAINT
MOFFATT THOMAS BARRETT ROCK &

FIELDS, CHTD; JOHN DOE 1-10,
Demand for Jury Trial
Defendant.
INTRODUCTION
This action is brought by James R. Zazzali (the “Trustee”), the Bankruptcy Court-
approved trustee for the DBSI Estate Litigation Trust (“Estate Litigation Trust”) and the DBSI
Private Actions Trust (“Private Actions Trust”), in his own name as the duly authorized
representative to hold, manage and dispose of: (a) all claims and causes of action formerly
owned by the bankruptcy estate of DBSI Inc. (formerly DBSI Housing Inc., and hereinafter
“DBSI Inc.”) and its direct and indirect debtor and non-debtor subsidiaries (the “Debtors”,
“Debtor Entities” or “Transferors”); and (b) all claims and causes of action formerly owned by
creditors and equity interest holders of DBSI Inc. and its subsidiaries (collectively “DBSI” or the
“DBSI Companies”). The Trustee brings this action against Moffatt Thomas Barrett Rock &
Fields, CHTD (“Moffatt Thomas”) for its role in a massive scheme of financial fraud that
allowed DBSI to be looted by its Insiders, as hereinafter defined.
NATURE OF THIS ACTION
1. This action seeks to recover at least a portion of the hundreds of millions of
dollars defrauded from investors in the debacle of the DBSI Companies. In 2004, the DBSI
1
Companies presented to the world the illusion of a monolith of wealth, competence and power.
Investors were told of substantial commercial real estate holdings throughout the country, of a
history of successful and sophisticated real estate ventures, of assets into nine figures, and that no
investor had ever lost money on a DBSI investment. Among other investment vehicles, DBSI
invited investors, mostly owners of small, commercial real estate, to share in comp lex tax
avoidance transactions.
2. Four years later, the world learned that this monolith was rotten to the core.
Obligations to investors had outstripped receipts for years. The edifice was supported by
hundreds of empty or half- formed entities that passed assets back and forth to create the
impression that it could keep its promises to investors. Assets were not as represented. Positive
cash flow came only from new investor money, which was used to pay off old investors, a
classic Ponzi scheme.
3. Most important for purposes of this Complaint, DBSI, with the substantial aid and
assistance of its lawyers, Moffat Thomas, began siphoning off investor funds known as
“Accountable Reserves,” as hereinafter defined, funds that were supposed to be reserved for
specific purposes. Through the structure of DBSI’s offerings, the creation of a complex master
lease structure, and the drafting of misleading language with respect to the Accountable
Reserves, DBSI, with the knowing aid and assistance of Moffat Thomas, used over $80 million
in Accountable Reserves funds for improper purposes, including misappropriation to the
Insiders.
4. In November 2008, certain of the DBSI Companies filed for bankruptcy. Tens of
thousands of investors learned that they had lost everything. The docket of the Bankruptcy Court
is crowded with letters from individual investors telling of lost savings accumulated in some
2
cases through the effort of generations. With this Complaint, the Trustee represents the victims
of this fraudulent scheme -- to prevent the Insiders and their aiders and abettors from enjoying
the fruits of their wrongdoing and to force a reckoning with them to make good the harm that
they caused. This Complaint also seeks the recovery of sums paid to Moffatt Thomas that
constitute fraudulent transfers and/or are otherwise avoidable payments to them under the
Bankruptcy Code and applicable non-bankruptcy law.
NATURE OF PROCEEDING
5. This action is brought to remedy Moffat Thomas’ conduct, which resulted in,
inter alia, (i) racketeering in violation of federal and state law; (ii) professional negligence / legal
malpractice; (iii) aiding and abetting breaches of fiduciary duty; (iv) aiding and abetting fraud;
(v) civil conspiracy; (vi) fraudulent transfers; and (vii) preferences.
PROCEDURAL HISTORY
6. On November 6, 2008 (the “Petition Date”), One Executive To wer LLC, a DBSI
entity and Delaware limited liability company, filed a voluntary petition for relief under chapter
11, title 11, United States Code, 11 U.S.C. §§ 101-1532 (the “Bankruptcy Code”) in the United
States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). On various
dates thereafter, multiple other Debtor Entities, including but not limited to DBSI Inc., similarly
filed parallel bankruptcy petitions in the Court. Since the Petition Date, certain of the Debtor
Entities’ cases have been converted to chapter 7. The Debtor Entities’ cases that are currently
administered under chapter 11 are jointly administered pursuant to Orders of the Bankruptcy
Court.
7. On November 21, 2008, the Office of the United States Trustee for Region Three
(the “U.S. Trustee”) appointed an Official Committee of Unsecured Creditors.
3
8. On April 3, 2009, the U.S. Trustee filed her Notice of Appointment of Examiner
wherein she notified Joshua R. Hochberg (the “Examiner”) of his appointment to serve as
Examiner, pending approval of the Court. On April 14, 2009, the Bankruptcy Court entered its
Order Approving Appointment of Examiner [Docket No. 3308]. The Examiner issued his First
Interim Report on August 3, 2009 [Docket No. 4159], and his Final Report on October 19, 2009
(“Final Report”) [Docket No. 4544].
9. By Order dated August 14, 2009, the Bankruptcy Court directed the U.S. Trustee
to appoint a chapter 11 trustee in the Debtor Entities’ jointly-administered chapter 11 cases. By
Notice of Appointment dated August 31, 2009 (the “Appointment Date”), the U.S. Trustee
appointed the Trustee as trustee in the Debtors’ chapter 11 cases [Docket No. 4327]. By Order
dated September 11, 2009, the Bankruptcy Court approved the U.S. Trustee’s appointment of the
Trustee [Docket No. 4375].
10. By Order dated October 26, 2010, the Bankruptcy Court entered an Order of
Confirmation, confirming the Second Amended Joint Chapter 11 Plan of Liquidation for DBSI
(the “Plan”), in the Chapter 11 cases and proceedings of the Debtor Entities. The Plan
substantively consolidated the estates of the Plan Debtors and certain Consolidated Non-Debtors,
nunc pro tunc to November 10, 2008. The Plan created two trusts: the Estate Litigation Trust
and Private Actions Trust. Upon the substantial consummation and effectiveness of the Plan, on
October 29, 2010, the claims and causes of action asserted herein were transferred from the
consolidated bankruptcy estate of the Debtor Entities to the Estate Litigation Trust and from the
creditors and equity interest holders of DBSI to the Private Actions Trust in exchange for
beneficial interests therein. Those investors who, pursuant to the Plan, assigned or will assign
4
their claims against Moffatt Thomas to the Private Actions Trust will be referred to as
“Assigning Investors.”
PARTIES
11. Plaintiff James R. Zazzali is the court-approved Trustee of the Estate Litigation
Trust and the Private Actions Trust. Plaintiff is an individual who is a citizen and domiciliary of
the State of New Jersey.
12. Defendant Moffatt Thomas is an Idaho corporation with its principal place of
business in the State of Idaho.
13. Defendants John Doe 1-10 are fictitious names representing one or more persons,
corporations or other entities for whose benefit Moffat Thomas received the transfers at issue in
this Complaint and/or are the immediate or mediate transferee(s) of the initial transfer(s) at issue
in this Complaint.
JURISDICTION AND VENUE
14. By Order dated October 26, 2010, confirming the Plan, the Bankruptcy Court
expressly retained jurisdiction over “all matters arising under, arising out of, or related to,
[DBSI’s] Chapter 11 Cases and the Plan, to the fullest extent permitted by law,” including
jurisdiction “to hear and determine all Causes of Action by or on behalf of . . . the DBSI
Litigation Trustee, and the Private Actions Trustee.”
15. This Court thus has original jurisdiction over these bankruptcy matters pursuant to
28 U.S.C. § 1334(b). Nevertheless, despite the general order of reference to the Bankruptcy
Court, because there are additional bases for this Court’s jurisdiction, as set forth below, and
because Plaintiff seeks trial by jury, in an abundance of caution, Plaintiff brings this action in the
District Court in the first instance.
16. This Court has original jurisdiction pursuant to 18 U.S.C. §§ 1331 and 1337.
5
17. This Court has original jurisdiction over the Trustee’s avoidance and fraudulent
transfer causes of action under 11 U.S.C. §§ 502, 544, 547, 548, 550 and 551.
18. This Court also has jurisdiction over the Trustee’s claims for violations of the
federal Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1961, et
seq., under 18 U.S.C. § 1964.
19. This Court has supplemental jurisdiction over the Trustee’s state law claims under
28 U.S.C. § 1367(a).
20. This Court also has jurisdiction under 28 U.S.C. § 1332. There is complete
diversity of citizenship and the amount in controversy exceeds $75,000.
21. Venue is proper in the District of Delaware pursuant to 18 U.S.C. § 1965, 28
U.S.C. § 1391, and 28 U.S.C. §§ 1408 and 1409(a).
FACTUAL BACKGROUND
DBSI and Moffat Thomas’ Fraudulent Conduct
22. The DBSI operation was a sprawling, fraudulent real estate investment empire,
involving hundreds of corporations and properties, but dominated and controlled by Douglas
Swenson, with the substantial aid of a cadre of insiders including, among others, Charles
Hassard, John M. Mayeron, Walter E. Mott, Farrell Bennett, John D. Foster, Thomas Var Reeve,
Gary Bringhurst, Jeremy Swenson, and David Swenson (collectively, the “Insiders”).
23. At times relevant to this Complaint, each Insider served as officers and/or
directors of various DBSI entities and Debtor Entities.
24. Whatever DBSI’s original business plan may have been, for many years DBSI
had come loose from and operated unattached from any rationa l economic moorings, and
ultimately became nothing more than the instrument of the Insiders’ elaborate pyramid or
“Ponzi” scheme to defraud investors. For as many as six years before its Chapter 11 filings took
6
place, DBSI had been rapidly losing vast sums of money. Very substantial obligations to
investors were met by raising new money bilked from new investors, who were repaid with
money bilked from yet newer investors. New real estate inventory was constantly needed to
create vehicles for these new investments. Defendants, meanwhile, paid themselves handsomely
with other people’s money and appropriated valuable tax advantages to themselves. The
corporate entities were routinely disregarded; cash, assets and liabilities were shifted among
them without regard for actual ownership or equivalent value; funds were commingled with
impunity. The entire organization was a fraud on investors.
25. At times relevant to this Complaint, Moffatt Thomas served as legal counsel to
DBSI.
26. Prior to joining DBSI Inc. as its general counsel in or about October 2004, Mark
Ellison was a shareholder and member of the board of directors at Moffatt Thomas, where he
personally did legal work for DBSI.
27. Section 1031 of the Internal Revenue Code permits owners of real estate to shelter
gain they might have in their property when it is sold if the proceeds are used to purchase a
similar or “like-kind” property within a certain time. In 2002, the I.R.S. ruled that the like-kind
property may be a tenant- in-common (“TIC ”) interest in the new property, provided the TIC
interest is of equivalent value. This permitted 1031 exchange syndicators to sell numerous TIC
interests in large real estate properties to investors with gains in smaller properties.
28. Following the I.R.S. ruling in 2002, DBSI became a major syndicator of 1031
exchange properties.
7
29. Much of DBSI’s syndication of TIC properties was conducted through FOR 1031
LLC (“FOR 1031”), an Idaho limited liability company that was controlled and managed by
DBSI and the Insiders.
30. FOR 1031 was formed in August 2003 for the purpose of acquiring and
syndicating real estate to TIC investors in the form of real estate.
31. Since its formation, FOR 1031 has been managed and controlled by Douglas
Swenson, Thomas Var Reeve, and/or Gary Bringhurst.
32. Indeed, from on or about January 1, 2004 to on or about January 1, 2006, FOR
1031 was owned by Douglas Swenson and Thomas Var Reeve.
33. To lure purchasers, FOR 1031 -- i.e. Douglas Swenson and Thomas Var Reeve --
guaranteed rent proceeds through a master lease structure. The TIC owners leased the property
to a DBSI affiliate- master lessor, often times FOR 1031. The master lessor sublet the property
with DBSI guaranteeing the rent stream to the TIC investors.
34. But, the guaranteed investment return was not provided by FOR 1031, but rather
by another DBSI entity -- DBSI Master Leaseco (“Master Leaseco”), an entity wholly owned
and controlled by DBSI and formed for the specific purpose of serving as master tenant for a
fully syndicated FOR 1031 property.
35. Master Leaseco bore the expenses associated with capital improvements and
tenant improvements on TIC property. It was also obligated to bear the loans associated with
rent shortfalls. In short, DBSI, vis-à-vis Master Leaseco, bore, in full, whatever losses the TIC
properties might suffer under the master lease structure.
36. This master lease structure was part and parcel of DBSI’s fraudulent Ponzi
scheme perpetuated on an unknowing public. The agreements by and among DBSI, Master
8
Leaseco, and FOR 1031 were not at arm’s length and were not market-based. In other words, no
reasonable third-party would agree to assume the guaranty liability and other obligations that
DBSI assumed for the benefit of FOR 1031’s TIC syndication business.
37. The risks and liabilities borne by DBSI were substantial because the real estate
assets purchased by FOR 1031 and its subsidiaries were substandard, incapable of producing
reliable revenue, financially insecure and generally “toxic.”
38. In exchange for DBSI’s substantial acceptance of risks and liabilities, FOR 1031
paid DBSI a “fee” for its role as master lessee and guarantor. But that fee was woefully
inadequate in relation to the scope of the liabilities being transferred.
39. As a result of the master lease structure, FOR 1031 was not assuming any of the
enormous future liabilities owed to TIC investors. As a result, FOR 1031 -- and its owners
Douglas Swenson and Thomas Var Reeve -- enjoyed all of the profits from the TIC syndications.
40. With DBSI bearing the financial risks and liabilities, FOR 1031 prepared
fraudulent financial statements that demonstrated financial health.
41. In reality, the financial figures used by FOR 1031 to demonstrate financial health
were fiction and illusion. FOR 1031 was hopelessly insolvent, beginning no later than 2005.
42. On information and belief, Moffatt Thomas and Mark Ellison advised DBSI in the
creation and structure of the master lease structure.
43. The TIC bus iness did not generate a profit.
44. As the TIC syndication business failed, the Insiders tried to prop it up with cash
raised from, inter alia, new TIC syndications. This led to their increasingly desperate search for
new properties for which DBSI paid sums well in excess of what a prudent investor would have
paid. The increased volume of TIC syndication projects led to additional overhead and financing
9
costs, which, in turn, led to a permanent scramble to find new properties to purchase and
syndicate.
45. One way in which TIC offerings were made attractive to investors was to tout
DBSI’s “responsibility” to maintain and/or improve the properties.
46. In 2005, the DBSI Companies began routinely designating no less than five
percent of the funds from investors at closing to be set aside to pay costs and expenses in
connection with the asset over the term of the master lease (“Accountable Reserves”).
47. Pursuant to the private placement memorandums and other offering materials
issued by DBSI with respect to TIC offerings (collectively, “PPMs”), the specified, authorized
uses of Accountable Reserves funds included, inter alia, tenant improvements, leasing
commissions, capital improvements for improved real estate, management fees, taxes, insurance
and other related fees for unimproved real estate.
48. On information and belief, the term “Accountable Reserves” was created for or by
the DBSI Companies.
49. PPMs were disseminated to investors by and through the mail and/or wires, and
affected interstate commerce.
50. After August 15, 2005, Accountable Reserves were collected in connection with
almost every real estate project sold by the DBSI Companies.
51. Investors were falsely assured that the collection of Accountable Reserves would
ensure that the investment would be properly maintained over the course of the master lease
without the risk of Investors being required to invest additional funds for improvement or
maintenance of the assets.
52. Those statements were knowing, material, false misstatements.
10
53. It was never the intent of the Insiders to use the Accountable Reserves for the
limited uses stated in PPMs.
54. Investors were also falsely assured that collected Accountable Reserves would not
be commingled with funds from any other source.
55. Those statements were knowing, material, false misstatements.
56. It was never the intent of the Insiders to not commingle the Accountable Reserves
funds.
57. Rather, the Accountable Reserves funds were commingled with other DBSI funds
and used for DBSI’s general corporate purposes to satisfy its cash needs at a particular moment,
including servicing the debt of earlier investors and making distributions to the Insiders.
58. The Accountable Reserves funds found their way into every corner of DBSI’s
massive, fraudulent operation.
59. On information and belief, Moffatt Thomas provided advice and counsel to DBSI
with respect to the drafting of the PPMs used to market TIC offerings.
60. With the substantial aid and assistance of Moffatt Thomas, the DBSI Companies
collected nearly $100 million in Accountable Reserves funds through the use of misleading
PPMs.
61. Only approximately $18 million of the Accountable Reserves funds were used by
the DBSI Companies to pay authorized expenses related to the stated uses for the funds.
62. Accordingly, approximately $82 million of Accountable Reserves funds were
spent for unauthorized purposes, including, misappropriation by the Insiders.
63. What’s more, the DBSI Companies reported Accountable Reserves funds as
liabilities on the financial statements and tax returns of the DBSI Companies. Those liabilities
11
were then reduced over time as monies were spent on leasing commissions, tenant improvements
and/or capital expenses.
64. The DBSI Companies did not report the Accountable Reserves funds as income of
the DBSI Companies. Accordingly, the DBSI Companies did not report the Accountable
Reserves funds as revenue on tax returns.
65. In addition, DBSI’s statements to investors regarding the tax treatment of
Accountable Reserves clearly distinguished Accountable Reserves from other costs and
payments in connection with the purchase of TIC offerings.
66. Although the PPMs distributed to investors in connection with TIC offerings
noted that DBSI provided no opinion regarding how Accountable Reserves funds should be
treated for purposes of the investors’ tax returns, DBSI did convey to investors that Accountable
Reserve funds needed to be treated separate and apart from the purchase price of the investment.
67. Thus, DBSI conveyed to investors that to the extent that 1031 exchange funds
were used to fund Accountable Reserves, these funds could not be treated as part of the purchase
price and were believed to be “taxable boot” to the investor.
68. Annual letters sent to the investors confirmed that such Accountable Reserve
funds should be treated separate and apart from the purchase price, and indicated that
Accountable Reserves were something different than the purchase price.
69. Moffatt Thomas was deeply entrenched in the affairs of DBSI. Its partner, Mark
Ellison, was the sometime General Counsel of DBSI.
70. Moffatt Thomas provided advice and counsel to DBSI with respect to tax issues
relating to TIC offerings.
12
71. Moffatt Thomas was involved in the preparation of PPMs and other materials
used to market TIC and other DBSI investments to Assigning Investors.
72. Moffatt Thomas advised DBSI and the Insiders regarding the structure of the
DBSI enterprise, including without limitation the FOR 1031/Master Leasco/DBSI guarantor
structure alleged above and used to defraud investors and present a false picture of FOR 1031’s
financial health to the public.
73. By representing both DBSI and FOR 1031, Moffatt Thomas acted under an
impermissible conflict of interest, including without limitation that obligations were transferred
to DBSI and assets were transferred to FOR 1031 in derogation of the fiduciary duties of the
officers and directors of DBSI, without any reasonable exchange of value, and for the purposes
of defrauding investors rather than as an arm’s length transaction.
DBSI’s Insolvency
74. The Debtors were insolvent using traditional accounting standards and tests.
75. DBSI was also insolvent as a matter of law by virtue of their fraudulent scheme.
76. The Debtors were able to mask their insolvency on their unaudited consolidated
balance sheets during the four years prior to the Petition Date (“Four Year Period”) by failing to
follow Generally Accepted Accounting Principles (“GAAP ”). In his Final Report, the Examiner
concluded that DBSI’s unaudited financial statements were not compliant with GAAP.
77. By failing to follow GAAP, the Debtors issued materially inaccurate financial
statements during the Four Year Period that permitted DBSI to conceal its insolvency from the
investing public.
78. During the Four Year Period:
13
(a) DBSI disbursed funds on a monthly basis to support TIC properties that
were failing to generate sufficient operating income to satisfy their rent and loan obligations to
TIC investors. In short, DBSI’s guarantees of the master lessees’ obligations were no longer
contingent. DBSI was covering all of the TIC properties’ cash shortfalls.
(b) DBSI also guaranteed the repayment of principal and interest in the
amount of approximately $300,000,000 in bond and note issuances. This guaranty liability was
not fully recognized, recorded or disclosed by DBSI in its financial statements.
(c) DBSI posted receivables due from its affiliates at full value without testing
those receivables for impairment, even though many of the borrowing affiliates were known to
be insolvent and known to be unable to repay the amounts due. DBSI should have -- but failed
to -- establish off-setting reserves for the value of the impaired receivables due from its affiliates.
(d) DBSI made no effort to accurately reflect the near total impairment of its
investments in DBSI’s technology subsidiaries, which as recently as June 30, 2008, DBSI carried
on its books and records at $235,000,000.
(e) The Examiner found that DBSI’s financial statements were misleading
because they netted as a single line item receivables due from, and payables due to, affiliated
entities, including the bond and note entities. According to the Examiner:
DBSI Inc.’s balance sheet for the period ended December 31, 2007
presented, under current assets, a “Net receivable from affiliates”
of $1.4 million and nothing for liabilities owed to the bond and
note holders. Yet, the amount due at that time to the bond and note
holders was approximately $194 million.
The netting of receivables and payables was misleading because

the payables and receivables being netted were two very different
14
things. The payables consisted of hard debt owed to bond and note
holders with a defined maturity date. On the other hand, the
receivables from the Technology Companies were likely
uncollectible debts that neither Stellar nor the Technology
Companies could pay off.
(f) DBSI carried long-term assets and inventory (real property) at cost,
without regard to realizable market value and without establishing off-setting reserves to account
for the difference between cost and market value. Notably, this was done at a time when real
estate values were declining.
79. DBSI’s management of its bank account structure also evidences a business that
was hopelessly insolvent.
80. Throughout its his tory, the DBSI entities maintained hundreds of bank accounts.
The accounts were designated for various purposes, including liquid reserve accounts, escrow
accounts, operating accounts and individual corporate accounts.
81. A number of the DBSI accounts were zero balance accounts (“ZBA”), in that at
the end of each day, the monies deposited in those accounts were swept up into an interest
bearing liquid reserve account. Master Leaseco accounts were typically ZBAs.
82. To the extent checks or other charges drawn for payment on a ZBA were
presented, the ZBA would be reimbursed from one of the Debtors’ liquid reserve accounts on an
automatic basis. Expenses presented to the ZBAs were monitored so that the liquid reserve
accounts could be funded as needed.
83. DBSI monitored and managed its cash in a globally-consolidated, commingled
manner. If one of the DBSI entities needed funds to meet operating expenses, purchase property,
make payroll, make distributions to Insiders, satisfy third-party debt obligations or meet other
cash needs, funds would be transferred from one entity to another where needed, often
15
automatically. These transactions were not the result of an arm’s length transaction between
unrelated parties.
84. DBSI routinely moved money wherever it was needed without regard for the
source of the funds. The source of funds varied from day to day without regard for where the
funds originated.
85. By late 2006, cash shortages were such an acute problem that management was
consumed by the machinations of managing and obtaining cash. From early 2005, management
met frequently to address cash-flow needs. These meetings were typically attended by Douglas
Swenson, Gary Bringhurst, Matthew Duckett or Paris Cole, Thomas Var Reeve, David Swenson
and Jeremy Swenson. Matthew Duckett communicated the decisions made at the cash meetings
to the accounting staff so they could execute them.
86. In preparation for these meetings, a “cash sheet” was prepared that summarized
all the sources and uses of cash within the DBSI consolidated enterprise and projected where
cash balances would be over an ensuing 90-day period. But the focus of the cash meetings was
much shorter term because, for a large number of the time periods, despite massive flows of cash
in and out of its accounts, a snapshot on any given day would show either a very meager cash
balance or a collective deficit These meager balances and constant need to feed cash to meet the
onerous obligations DBSI had incurred required an exceptional level of attention to maintain
liquidity by moving money to wherever it was needed.
87. At the end of September 2008, the Debtors ceased making (i) all TIC rent
payments under numerous master leases, and (ii) all interest payments due investors in certain of
the Debtors’ note and bond funds. This freed up approximately $10 million in cash for the
16
months of October and November 2008 and facilitated the Debtors’ ability to make payments to
certain preferred creditors during the ninety days prior to the Petition Date (“Preference Period”).
88. During the two year period before the Petition Date, that is, November 10, 2006
through and including November 10, 2008 (the “Two Year Period”), the Transferors made one or
more transfers of an interest in the Debtors’ property to, or for the benefit of, the Defendant (the
“Two Year Transfers”). A schedule identifying each Two Year Transfer, including the identity
of the Transferor and of the Defendant transferee, is attached hereto as Exhibit A and is
incorporated herein by reference.
89. During the four year period before the Petition Date, that is, from November 10,
2004 through and including November 10, 2008 (the “Four Year Period”), the Transferor made
one or more transfers of an interest in the Debtors’ property to, or for the benefit of, Defendant
(the “Four Year Transfers”). A schedule identifying each Four Year Transfer, including the
identity of the Transferor and of the Defendant transferee, is also included in Exhibit A and is
incorporated herein by reference.
COUNT ONE
(By James R. Zazzali as Trustee of the Estate Litigation Trust and by James R. Zazzali as
Trustee of the Private Actions Trust)
(RICO, 18 U.S.C. § 1962(C), Idaho Racketeering Act, Idaho Code § 18-708(c))
90. Plaintiff repeats each of the allegations of the above paragraphs as if fully set
forth herein at length.
THE ENTERPRISE
91. Two enterprises are pled in the alternative in this Complaint for the racketeering
violation under 18 U.S.C. § 1962(c) and Idaho Code § 18-7804(c). The first is the enterprise
comprised of the Insiders together (the “Insider Enterprise”). The second is the enterprise
comprised of the DBSI Companies together (the “DBSI Enterprise”). Where the allegations are
17
equally applicable to either enterprise pled in the alternative, they are referred to by the single
term “Enterprise” although either of the enterprises is intended.
The Insiders Enterprise
92. At all times relevant hereto, Moffatt Thomas was a “person” within the meaning
of 18 U.S.C. § 1961(3) and Idaho Code § 18-7803(b).
93. At all relevant times hereto, the Insiders were members of and/or were associated-
in- fact with an “enterprise” consisting of all of them engaged in or the activities of which
affected interstate or foreign commerce within the meaning of 18 U.S.C. § 1961(4) and Idaho
Code § 18-7803(c).
94. The Insider Enterprise included all of the Insiders who were associated- in- fact in
the creation, acquisition and operation of the DBSI Companies. The members of the Insiders
Enterprise included each of the Insiders.
95. The Insider Enterprise had an ascertainable structure, and a continuity of structure
and personnel. In particular, the Insider Enterprise was formed by Douglas Swenson and the
other Insiders for the purpose of influencing, operating and dominating the DBSI Companies.
96. The Insiders were directors, officers, partners, members and/or employees of the
DBSI Companies. Douglas Swenson held a direct or indirect controlling interest in substantially
all of the DBSI Companies and others of the Insiders had ownership interests and served as
board members, managers or officers of each of them.
97. The Insider Enterprise had an existence separate and apart from the particular
instances of racketeering activity described below. In particular, the DBSI Companies existed as
corporate entities and the Insiders controlled them in their roles as owners, directors, officers
and/or employees of them.
18
The DBSI Enterprise
98. At all times relevant hereto, Moffatt Thomas was a “person” within the meaning
of 18 U.S.C. § 1961(3) and Idaho Code § 18-7803(b).
99. In the alternative to the foregoing allegations at paragraphs 93 through 97, at all
relevant times hereto, the DBSI Companies constituted, were members of and/or were
associated- in-fact as an “enterprise” consisting of all of them engaged in or the activities of
which affected interstate or foreign commerce within the meaning of 18 U.S.C. § 1961(4) and
Idaho Code § 18-7803(c).
100. The DBSI Enterprise included all of the DBSI Companies who were corporate
affiliates and/or associated-in- fact in the perpetration of the ongoing fraud and Ponzi scheme by
which the Insiders bilked Investors in the DBSI real estate empire.
101. The DBSI Enterprise had an ascertainable structure, and a continuity of structure
and personnel. In particular, the DBSI Enterprise was formed by Douglas Swenson, the other
Insiders, and Moffatt Thomas for the purpose of carrying on a fraudulent Ponzi scheme and to
cheat Investors and misappropriate funds Investors entrusted to them.
102. As previously alleged the Insiders were directors, officers, partners, members
and/or employees of the DBSI Companies. Douglas Swenson held a direct or indirect
controlling interest in substantially all of the DBSI Companies and others of the Insiders had
ownership interests and served as board members, managers or officers of each of them.
103. The DBSI Enterprise had an existence separate and apart from the particular
instances of racketeering activity described below. In particular, the DBSI Companies that
comprised the DBSI Enterprise existed as corporate entities and the Insiders and Moffatt Thomas
controlled them in their roles as owners, directors, officers, attorneys and/or employees of them.
19
THE PATTERN OF RACKETEERING ACTIVITY
104. Beginning no later than 2004, Moffatt Thomas did conduct or participate, directly
or indirectly, in the conduct of the affairs of the Enterprise through a “pattern of racketeering
activity,” within the meaning of 18 U.S.C. § 1961(1) and Idaho Code § 18-7803(d).
105. Moffatt Thomas was able to commit and aid and abet the racketeering activity
described below by virtue of their control over the affairs of the Enterprise. These offenses were
committed as part of racketeering activity in that they had the same or similar purposes, results,
participants, victims and/or methods of commission, and include two or more related individual
offenses which were separate in time and committed with the express intention and common
design and purpose of fraudulently marketing securities and real estate, obtaining money by false
representations that it would be kept in trust and assisting the Insiders in the misappropriation of
substantial corporate funds and other corporate opportunities at a time the DBSI Companies were
not able to meet their obligations to their investors. This series of related offenses extended over
a substantial period of time and posed a threat of continuing activity.
106. The above-alleged pattern of racketeering offenses included, among others, the
separate acts and episodes of racketeering activity set forth below.
107. The acts of mail fraud and wire fraud detailed elsewhere in the Complaint
occurred in a continuous pattern, beginning no later than 2004 and continuing until the Petition
Date.
MAIL FRAUD
108. Specific acts of fraud previously alleged in this Complaint are incorporated here
by reference as if fully set forth herein. These acts fo rmed a pattern of fraud on investors that
continued from at least 2004 to November 2008 in which the Moffatt Thomas unlawfully,
20
willfully and knowingly devised and intended to devise a scheme and artifice for inducing TIC
purchasers and purchasers of instruments issued by DBSI to invest in the DBSI Companies and
their real estate offerings even though the Insiders knew that the DBSI Companies were failing,
that the representations and undertakings they were making were false and could not be complied
with and that the only way the investors could ever get any of their money back was by inducing
yet more Investors to purchase the fraudulently marketed instruments and properties. Thus, with
the knowing and substantial aid of Moffat Thomas, the Insiders obtained funds and tax
advantages from Investors and from the DBSI Companies which they diverted to themselves by
means of false and fraudulent pretenses, representations and promises, and through the
concealment of material facts.
109. Moffatt Thomas unlawfully, willfully and knowingly, and for purposes of
executing and attempting to execute, the scheme and artifice to defraud, and for obtaining money
and property from the investors and the DBSI Companies, did place and cause to be placed in
post offices and authorized depositories for mail matter certain mail matter to be sent or
delivered by the U.S. Postal Service and/or did deposit or cause to be deposited certain mail
matter to be sent or delivered by any private or commercial interstate carrier, and did cause to be
delivered by mail and/or private or commercial interstate carrier, according to the directions
thereof, certain mail matter, in violation of 18 U.S.C. § 1341.
110. Each of the mailings, as well as others, was in furtherance of the scheme to
defraud alleged in this Complaint. Moffatt Thomas knew of and/or authorized such mailings and
knew that such mailings were in furtherance of and for the purpose of executing the scheme or
were incidental to an essential part of the scheme. Each of these mailings furthered the scheme
21
to defraud which was intended to and did, in fact, injure the Debtor Entities and the Assigning
Investors and in their business and property.
WIRE FRAUD
111. From at least 2004 to in or about Nove mber 2008, Moffatt Thomas unlawfully,
willfully and knowingly, and for purposes of further executing and attempting to execute, the
scheme and artifice to defraud, and for obtaining money and property from the investors and
DBSI Companies, did use interstate wire services to place interstate telephone calls, and send
interstate emails and telefaxes in violation of 18 U.S.C. § 1343.
112. Each of the telephone calls, emails and telefaxes, as well as others, was in
furtherance of the scheme to defraud alleged in this Complaint. Moffatt Thomas knew of and/or
authorized the use of interstate and transatlantic wire services to place such telephone calls and
send such emails and telefaxes, and knew that such telephone calls, emails and telefaxes were
being made in furtherance of and for the purpose of executing the scheme or were incidental to
an essential part of the scheme. The use of interstate wire services to place such telephone calls
and send such emails and telefaxes furthered the scheme to defraud which was intended to and
did, in fact, injure the Debtor Entities and the Assigning Investors in their business and property.
DAMAGES CAUSED BY THE RACKETEERING
113. By engaging in the conduct set forth above, and conducting or participating in the
conduct of the affairs of the Enterprise through a pattern of racketeering activity, Moffatt
Thomas caused the Debtor Entities and Assigning Investors to be injured in their business and
property.
114. By reason of the foregoing, the Trustee is entitled to recover from Moffatt
Thomas threefold such actual damages as the Court finds the Debtor Entities and Assigning
22
Investors have sustained, together with the Trustee’s cost of suit, including reasonable attorneys’
fees, pursuant to 18 U.S.C. § 1964(c) and Idaho Code § 18-7805(a).
Wherefore, Plaintiff demands judgment in his favor, for the benefit of the Estate
Litigation Trust and the Priva te Action Trust and against Moffatt Thomas for threefold such
actual damages as the Court finds the assignors and beneficiaries of the Estate Litigation Trust
and Private Action Trust have sustained, the Trustee’s cost of suit, including reasonable
attorneys’ fees, pursuant to 18 U.S.C. § 1964(c) and Idaho Code § 18-7805(a), and such
additional compensatory damages, punitive damages, costs of suit and other relief as the Court
deems just and equitable.
COUNT TWO
(By James R. Zazzali as Trustee of the Estate Litigation Trust and by James R. Zazzali as
Trustee of the Private Actions Trust)
(RICO Conspiracy, 18 U.S.C. § 1962(d), Idaho Racketeering Act Conspiracy, Idaho Code §
18-7804(d))
116. Beginning no later than 2004, Moffatt Thomas combined, conspired and agreed
together and with the Insiders to commit the aforementioned violations of 18 U.S.C. § 1962(c)
and Idaho Code § 18-7804(c), in violation of 18 U.S.C. § 1962(d) and Idaho Code § 18-7804(d).
117. In furtherance of the aforementioned conspiracy and to effect the objects thereof,
the conspirators committed the overt acts described above, among others.
118. By engaging in the conduct set forth above, and conspiring to conduct or
participate in the conduct of the affairs of the Enterprise through a pattern of racketeering
activity, Moffatt Thomas directly and indirectly, caused the Debtor Entities and Assigning
Investors to be injured in their business and property.
23
119. By reason of the foregoing, the Trustee is entitled to recover from Moffatt
Thomas threefold such actual damages as the Court finds the Debtor Entities and Assigning
Investors have sustained, together with Plaintiff’s cost of suit, including reasonable attorneys’
fees, pursuant to 18 U.S.C. § 1964(c) and Idaho Code § 18-7805(a).
Litigation Trust and the Priva te Action Trust and against Moffatt Thomas for threefold such
actual damages as the Court finds the assignors and beneficiaries of the Estate Litigation Trust
and Private Action Trust have sustained, the Trustee’s cost of suit, including reasonable
attorneys’ fees, pursuant to 18 U.S.C. § 1964(c) and Idaho Code § 18-7805(a), and such
additional compensatory damages, punitive damages, costs of suit and other relief as the Court
deems just and equitable.
COUNT THREE
(By James R. Zazzali as Trustee of the Estate Litigation Trust)

(Professional Negligence / Legal Malpractice)
121. There existed an attorney-client relationship between DBSI and Moffatt Thomas.
122. Moffatt Thomas, as attorney to DBSI, owed professional duties of care to DBSI.
123. Moffatt Thomas’s conduct fell below the acceptable standard of care and was
professionally negligent.
124. As a direct and proximate result of Moffatt Thomas’ professional negligence, the
Debtor Entities were injured.
24
Litigation Trust, and against Moffatt Thomas for compensatory damages, punitive damages, plus
interest, costs of suit, and such other relief as the Court deems just and equitable.
COUNT FOUR

(Aiding & Abetting Breach of Fiduciary Duty)
126. As directors and officers of the Debtor Entities, each of the Insiders owed the
Debtor Entities fiduciary duties of due care, good faith and loyalty.
127. The above described actions and omissions of the Insiders were grossly negligent,
a gross abuse of discretion, and recklessly indifferent to or in deliberate disregard of the interests
of the Debtor Entities and were outside the bounds of reason.
128. The above described actions and omissions were also part of a sustained and
systematic failure by the Insiders to exercise proper oversight for the benefit of the Debtor
Entities.
129. The above described actions and omissions also constituted a gross dereliction of
duty and a conscious disregard for the Insiders’ duties as officers and directors.
130. Accordingly, the Insiders have breached their fiduciary duties to the Debtor
Entities.
131. Through their above described course of conduct, Moffatt Thomas knowingly and
substantially participated in the aforementioned breaches of fiduciary duty by the Insiders.
132. As a direct and proximate result, the Debtor Entities and Assigning Investors have
been damaged.
25
Litigation Trust and the Private Actions Trust, and against Moffatt Thomas for compensatory
damages, punitive damages, costs of suit and such other relief as the Court deems just and
equitable.
COUNT FIVE
(By James R. Zazzali as Trustee of the Private Actions Trust)

(Aiding and Abetting Fraud)
134. As set forth above in more detail, each of the material misstatements identified
above made, authorized and/or directed by the Insiders was (i) a statement or representation of
material fact, (ii) kno wingly false when made, and (iii) made with the intention that investors
would rely upon the statement.
135. Each of the Assigning Investors was ignorant of each material misstatements’
falsity and justifiably relied on the material misstatements to their detriment and were injured
thereby.
136. As set forth in greater detail above, Moffatt Thomas had knowledge of the
material misstatements made by DBSI in PPMs, and Moffatt Thomas knowingly and
substantially participated in the frauds committed by others, including the Insiders.
137. As a direct and proximate result, the Assigning Investors were harmed.
Wherefore, Plaintiff demands judgment in his favor, for the benefit of the Private Actions
Trust, and against Moffatt Thomas for compensatory damages, punitive damages, costs of suit
and such other relief as the Court deems just and equitable.
26
COUNT SIX

(Civil Conspiracy)
forth herein at le ngth.
139. The wrongs alleged herein were the product of agreements among or a
confederation among the Insiders, Mark Ellison, and Moffatt Thomas during a period beginning
no later than 2004 through in or about 2008 with the common objective of accomplishing the
wrongs alleged, including, but not limited to, misleading investors.
140. As detailed above, the Insiders, Mark Ellison and Moffatt Thomas used unlawful
means to accomplish their wrongful objectives.
141. The Assigning Investors were injured thereby.
COUNT SEVEN

(Aiding and Abetting Breach of Fiduciary Duty/Breach of Trust)
143. The Insiders were de facto trustees of the Accountable Reserves funds deposited
with the DBSI Companies by the TIC investors.
144. As trustees, the Insiders owed fiduciary duties of care, good faith and loyalty to
the TIC investors.
27
145. The above described actions and omissions by the Insiders were grossly negligent,
of the TIC investors and were outside the bounds of reason.
146. The above described actions and omissions by the Insiders also constituted unfair
self-dealing, the unfair elevation of their personal interests above those of the TIC investors, and
the unfair pursuit and receipt of personal benefits as the expense of the TIC investors.
systematic failure by the Insiders to exercise proper oversight over the Accountable Reserves for
the benefit of the TIC investors.
duty and a conscious disregard for the Insiders’ duties as Trustees.
149. Accordingly, the Insiders have breached their fiduciary duties to the TIC
investors.
150. Moffatt Thomas knowingly and substantially participated in the aforementioned
breaches of fiduciary duty by the Insiders.
151. As a direct and proximate result, the TIC Assigning Investors have been damaged.
COUNT EIGHT

(Aiding and Abetting Breach of Fiduciary Duty)
28
153. At times relevant to this Complaint, the DBSI Companies and Debtor Entities
were insolvent.
154. As directors and officers of the insolvent DBSI Companies and Debtor Entities,
each of the Insiders owed the creditors of such insolvent DBSI Companies and Debtor Entities
fiduciary duties of due care, good faith and loyalty.
155. The above described actions and omissions of the Insiders were grossly negligent,
of the creditors and were outside the bounds of reason.
systematic failure by the Insiders to exercise proper oversight for the benefit of the creditors.
duty and a conscious disregard for the Insiders’ duties as officers and directors.
158. Accordingly, the Insiders have breached their fiduciary duties to the creditors.
159. Through their above described course of conduct, Moffatt Thomas knowingly and
substantially participated in the aforementioned breaches of fiduciary duty by the Insiders.
160. As a direct and proximate result, the Assigning Investors have been damaged.
COUNT NINE

(Avoidance and Recovery of the Two Year Transfers as Actual Fraudulent Transfers
Pursuant to 11 U.S.C. §§ 548(A)(1)(A), 550(A), and 551)
29
162. The Two Year Transfers were made with the Debtors’ actual intent to hinder,
delay, or defraud creditors of the Transferors because the Two Year Transfers were made in
connection with and in furtherance of the Debtors’ on-going fraudulent scheme.
163. The Transferors knew of the Debtors’ dependence on new investor money to
provide cash for operations and to fund payments to prior investors.
164. The Transferors knew: (i) that the Transferors’ assets were impaired; (ii) that the
Transferors failed to record appropriate reserves for such impairment; and (iii) that their assets
were therefore overvalued.
165. The Transferors knew that their real property portfolio barely broke even or lost
money because the income from the properties was insufficient to cover the combined burdens of
debt service and guaranteed TIC investor payments.
166. As of the date hereof, Moffatt Thomas and John Does 1-10 have not returned any
of the Two Year Transfers to the Debtors’ estates.
Wherefore, as a result of the foregoing, pursuant to sections 548(a)(1)(A), 550, and 551
of the Bankruptcy Code, Plaintiff is entitled to a judgment: (i) avoiding and preserving the Two
Year Transfers; (ii) directing that the Two Year Transfers be set aside; and (iii) recovering the
Two Year Transfers, or the value thereof, from the Moffatt Thomas and /or John Doe 1-10 for the
benefit of the Debtors’ estates.
COUNT TEN

(Avoidance and Recovery of Constructively Fraudulent Transfers Pursuant to 11 U.S.C. §§
548(a)(1)(B), 550(a) and 551)
30
168. The Transferors were: (i) insolvent when the Two Year Transfers were made, or,
in the alternative, became insolvent as a result of the Two Year Transfers; (ii) were engaged in
business or a transaction, or were about to engage in business or a transaction, for which the
property remaining with the Transferors after the Two Year Transfers were made constituted
unreasonably small capital; or, alternatively, (iii) at the time the Two Year Transfers were made,
the Transferors intended to incur, or believed that they would incur, debts that would be beyond
the Transferors’ ability to pay as they matured.
169. The Transferors received less than reasonably equivalent value in exchange for
the Two Year Transfers.
170. Each of Moffatt Thomas and defendants John Doe 1-10 are either the initial
transferee of the Two Year Transfers or the immediate or mediate transferee of such initial
transferee or are the persons for whose benefit the Two Year Transfers were made.
171. As of the date hereof, Moffatt Thomas and defendants John Doe 1-10 have not
returned any of the Two Year Transfers to the Debtors’ estates.
Wherefore, as a result of the foregoing, pursuant to sections 548(a)(1)(B), 550, and 551
of the Bankruptcy Code, Plaintiff is entitled to a judgment: (i) avoiding and preserving the Two
Year Transfers; (ii) directing that the Two Year Transfers be set aside; and (iii) recovering the
Two Year Transfers, or the value thereof, from Moffatt Thomas and/or John Doe 1-10 for the
benefit of the Debtors’ estates.
COUNT ELEVEN

(Avoidance and Recovery of the Four Year Transfers as Actual Fraudulent Transfers
Pursuant to Idaho Code §§ 55-913(1)(A), 55-916, and 55-917)
31
173. The Four Year Transfers were made with the Debtors’ actual intent to hinder,
delay, or defraud creditors of the Transferors because the Four Year Transfers were made in
connection with and in furtherance of the Debtors’ on-going fraudulent scheme.
175. The Transferors knew that their management was closely monitoring the Debtors’
cash needs and that certain members of senior management and various accounting personnel
were meeting weekly to review the cash obligations of the DBSI Companies and identifying
sources and uses of cash to meet near-term funding requirements.
provide cash for its operations and to fund payments to prior investors.
Transferors failed to record appropriate reserves for such impairment; and (iii) that their assets
178. The Four Year Transfers were fraudulent transfers in violation of Idaho Code
Ann. §§ 55-913(1)(a), 55-916, and 55-917.
179. As of the date hereof, Moffatt Thomas and/or John Doe 1-10 have not returned
any of the Four Year Transfers to the Debtors’ estates.
Wherefore, as a result of the foregoing, Plaintiff is entitled to a judgment pursuant to
Idaho Code Ann. §§ 55-913(1)(a), 55-916, and 55-917 and Bankruptcy Code §§ 544(b), 550, and
551: (i) avoiding and preserving the Four Year Transfers; (ii) directing that the Four Year
32
Transfers be set aside; and (iii) recovering the Four Year Transfers, or the value thereof, from
Moffatt Thomas and/or John Doe 1-10 for the benefit of the Debtors’ estates.
COUNT TWELVE
(By James R. Zazzali as Trus tee of the Estate Litigation Trust)

(Avoidance and Recovery of the Four Year Transfers as Constructively Fraudulent
Transfers Pursuant to Idaho Code §§ 55-913(b), 55-916, and 55-917 and 11 U.S.C. §§
544(b), 550, and 551)
181. The Transferors were insolvent as that term is defined under Idaho Code Ann. §
55-912 during the Four Year Period.
182. The Transferors received less than reasonably equivalent value in exc hange for
the Four Year Transfers.
183. The Four Year Transfers were made while the Transferors were engaged, or were
about to engage, in a business or a transaction for which the Transferors’ remaining assets were
unreasonably small in relation to their businesses or transactions.
184. The Transferors reasonably should have believed that they would incur debts
beyond their ability to pay as they became due as a result of the Four Year Transfers.
185. An unsecured creditor existed at the time of or after the Four Year Transfers who
holds a claim that is allowable under Bankruptcy Code section 502 and who, under non-
bankruptcy law, could have avoided the Four Year Transfers, at least in part.
Ann. § 55-913(1)(b) as to present and future creditors.
33
187. Each of Moffatt Thomas and defendants John Doe 1-10 are either the initial
transferee of the Four Year Transfers or the immediate or mediate transferee of such initial
transferee or the person for whose benefit the Four Year Transfers were made.
returned any of the Four Year Transfers to the Debtors’ estates.
Wherefore, by reason of the foregoing, Plaintiff is entitled to a judgme nt pursuant to
Idaho Code Ann. §§ 55-913(1)(b), 55-916, and 55-917 and Bankruptcy Code §§ 544(b), 550, and
COUNT THIRTEEN

(Avoidance and Recovery of the Four Year Transfers as Constructively Fraudulent
Transfers Pursuant to Idaho Code §§ 55-914(1), 55-916, and 55-917 and 11 U.S.C. §§
544(b), 550, and 551)
190. The Transferors were insolvent as tha t term is defined under Idaho Code Ann. §
55-912 during the Four Year Period and at the time the Four Year Transfers were made or
became insolvent as a result of the Four Year Transfers.
191. The Four Year Transfers were made by the Transferors without receiving
reasonably equivalent value in exchange for the transfers or obligations.
192. An unsecured creditor existed at the time of the Four Year Transfers who holds a
claim that is allowable under Bankruptcy Code section 502 and who, under non-bankruptcy law,
could have avoided the transfers, at least in part.
34
Ann. § 55-914(1).
194. Moffatt Thomas and defendants John Doe 1-10 are the initial transferee of the
Four Year Transfers or the immediate or mediate transferee of such initial transferee or the
person for whose benefit the Four Year Transfers were made.
returned any of the Four Year Transfers to the Debtors’ estates.
Wherefore, by reason of the foregoing, Plaintiff is entitled to a judgment pursuant to
Idaho Code Ann. §§ 55-914(1), 55-916 and 55-917 and Bankruptcy Code §§ 544(b), 550, and
COUNT FOURTEEN

(Transfers in Fraud of Creditors Pursuant to Idaho Code §§ 55-906 and 11 U.S.C. §§
544(B), 550 and 551)
197. Idaho Code Ann. § 55-906 provides that:
Every transfer of property, or charge thereon made, every

obligation incurred, and every judicial proceeding taken, with
intent to delay or defraud any creditor or other person of his
demand, is void against all creditors of the debtor and their
successors in interest, and against any person upon whom the
estate of the debtor devolves in trust for the benefit of others than
the debtor.
35
199. The Transferors knew that their management was closely monitoring the Debtors’
cash needs and that certain members of senior management and various accounting personnel
were meeting weekly to review the cash obligations of the DBSI Companies and identifying
sources and uses of cash to meet near-term funding requirements.
provide cash for its operations and to fund payments to prior investors.
201. The Four Year Transfers were made with the actual intent to hinder, delay, or
defraud creditors of the Transferors because the Four Year Transfers were made in connection
with and in furtherance of the Debtors’ on-going fraudulent scheme.
Transferors failed to record appropriate reserves for such impairment; and (iii) that the assets
203. The Transferors knew that at the time the Four Year Transfers were made that the
Transferors were insolvent.
204. The Four Year Transfers were made in violation of Idaho Code Ann. § 55-906.
205. As of the date hereof, Moffatt Thomas and/or John Doe 1-10 have not returned
any of the Four Year Transfers to the Debtors’ estates.
Wherefore, as a result of the foregoing, Plaintiff is entitled to a judgment pursuant to
Idaho Code Ann. §§ 55-906 and Bankruptcy Code §§ 544(b), 550, and 551: (i) avoiding and
preserving the Four Year Transfers; (ii) directing that the Four Year Transfers be set aside; and
36
(iii) recovering the Four Year Transfers, or the value thereof, from Moffatt Thomas and /or John
Doe for the benefit of the Debtors’ estates.
COUNT FIFTEEN

(Preferential Transfers Pursuant to 11 U.S.C. §§ 547, 550, and 551)
207. Upon information and belief, during the Preference Period, the Debtors continued
to operate their business affairs, including the transfer of property either by checks, cashiers
checks, wire transfers, or otherwise to certain transferees, including Defendants.
208. Plaintiff is seeking to avoid all of the preferential transfers made by the
Transferors to Defendants during the Preference Period.
209. Within the Preference Period, the Transferors made one or more transfers of an
interest in property to, or for the benefit of, Moffatt Thomas and/or John Doe 1-10. A schedule
identifying such transfers is attached hereto as Exhibit A and incorporated herein by reference.
210. The transfers on Exhibit A are transfers made to Defendants by the Transferors
during the Preference Period. All such transfers made by the Transferors of an interest in
property to or for the benefit of Defendants during the Preference Period are collectively referred
to herein as the “Preferential Transfers.”
211. The Transferors made the Preferential Transfers to, or for the benefit of,
Defendants.
212. Defendants were creditors (within the meaning of section 101(10) of the
Bankruptcy Code) of one or more of the Debtors at the time the Preferential Transfers were
made, or were acting on behalf of John Doe 1-10 in receiving the Preferential Transfers
37
213. At the time of each of the Preferential Transfers, Defendants had a right to
payment on account of one or more antecedent debts owed by one or more of the Debtors to
Moffatt Thomas and/or John Doe 1-10
214. The Preferential Transfers were to or for the benefit of a creditor within the
meaning of section 547(b)(1) of the Bankruptcy Code because the Preferential Transfers either
reduced or fully satisfied an antecedent debt then owed by one or more of the Debtors to
Defendants.
215. The Transferors were insolvent at all times during the Preference Period. Plaintiff
is entitled to a presumption of insolvency during the Preference Period for the Preferential
Transfers pursuant to section 547(f) of the Bankruptcy Code.
216. As a result of the Preferential Transfers, Defendants received more than they
would have received if: (i) the Debtors’ cases were administered under chapter 7 of the
Bankruptcy Code; (ii) the Transfers had not been made; and (iii) Defendants received payment of
their respective debts to the extent provided by the provisions of the Bankruptcy Code.
217. Moffatt Thomas and/or John Doe 1-10 are either the initial transferee of the
Preferential Transfers or the immediate or mediate transferees of such initial transferee or are the
persons for whose benefit the Preferential Transfers were made.
218. As of the date hereof, Moffatt Thomas and John Doe 1-10 have not returned any
of the Preferential Transfers to the Debtors’ estates.
Wherefore, as a result of the foregoing, pursuant to section 547(b), 550, and 551 of the
Bankruptcy Code, Plaintiff is entitled to a judgment: (i) avoiding and preserving the Preferential
Transfers; (ii) directing that the Preferential Transfers be set aside; and (iii) recovering the
38
Preferential Transfers, or the value thereof, from the Moffatt Thomas and/or John Doe 1-10 for
the benefit of the Debtors’ estates.
COUNT SIXTEEN

(Disallowance of All Claims Pursuant to 11 U.S.C. § 502)
220. Each Defendant is a person or an entity from which property is recoverable under
section 550 of the Bankruptcy Code and is a transferee of avoidable transfers under sections 544
and/or 548 of the Bankruptcy Code.
221. Each Defendant has not paid the amounts of the Two-Year Transfers or the Four
Year Transfers (together, the “Transfers”), or turned over such property, for which each of the
Defendants is liable under section 550 of the Bankruptcy Code.
222. As a result of the foregoing, pursuant to section 502(d) of the Bankruptcy Code,
any and all claims of each Defendant against the Debtors’ estates must be disallowed until such
time as each Defendant pays to Plaintiff an amount equal to the aggregate amount of the
Transfers, together with interest thereon and costs of suit.
Wherefore, to the extent any claim of Moffatt Thomas and/or John Doe 1-10 against the
Debtor Entities has been allowed prior to the filing of this Complaint, cause exists for
reconsideration of the claim pursuant to section 502(j) of the Bankruptcy Code, and Plaintiff is
authorized to file a motion for reconsideration of such allowance.
39
DEMAND FOR TRIAL BY JURY
Plaintiff hereby demands trial by jury as to all issues so triable.
Dated: November 10, 2010

Wilmington, Delaware
GIBBONS P.C.
By: /s/ Natasha M. Songonuga

Natasha M. Songonuga, Esq.
(Bar No. 5391)
1000 N. West Street, Suite 1200
Wilmington, DE 19801-1058
Telephone: (302) 295-4875
Facsimile: (302) 295-4876
E- mail: nsongonuga@gibbonslaw.com
Of Counsel:
Brian J. McMahon, Esq.

E. Evans Wohlforth, Jr., Esq.
Debra A. Clifford, Esq.
Gregory L. Acquaviva, Esq.
Counsel to James R. Zazzali, Trustee
40

Trust Ponzi10c967

Enviado por

Dados do documento

Direitos autorais

Formatos disponíveis

Compartilhar este documento

Compartilhar ou incorporar documento

Opções de compartilhamento

Você considera este documento útil?

Este conteúdo é inapropriado?

Direitos autorais:

Formatos disponíveis

Trust Ponzi10c967

Enviado por

Direitos autorais:

Formatos disponíveis

Case 1:10-cv-00967-UNA Document 1 Filed 11/10/10 Page 1 of 40

IN THE UNITED STATES DISTRICT COURT

JAMES R. ZAZZALI, as Trustee for the DBSI

MOFFATT THOMAS BARRETT ROCK &

allowed DBSI to be looted by its Insiders, as hereinafter defined.

NATURE OF THIS ACTION

1. This action seeks to recover at least a portion of the hundreds of millions of

classic Ponzi scheme.

in Accountable Reserves funds for improper purposes, including misappropriation to the

Bankruptcy Code and applicable non-bankruptcy law.

(v) civil conspiracy; (vi) fraudulent transfers; and (vii) preferences.

(the “U.S. Trustee”) appointed an Official Committee of Unsecured Creditors.

(“Final Report”) [Docket No. 4544].

to appoint a chapter 11 trustee in the Debtor Entities’ jointly-administered chapter 11 cases. By

Trustee [Docket No. 4375].

the State of New Jersey.

business in the State of Idaho.

JURISDICTION AND VENUE

Litigation Trustee, and the Private Actions Trustee.”

District Court in the first instance.

seq., under 18 U.S.C. § 1964.

diversity of citizenship and the amount in controversy exceeds $75,000.

21. Venue is proper in the District of Delaware pursuant to 18 U.S.C. § 1965, 28

U.S.C. § 1391, and 28 U.S.C. §§ 1408 and 1409(a).

DBSI and Moffat Thomas’ Fraudulent Conduct

directors of various DBSI entities and Debtor Entities.

impunity. The entire organization was a fraud on investors.

personally did legal work for DBSI.

DBSI and the Insiders.

syndicating real estate to TIC investors in the form of real estate.

Swenson, Thomas Var Reeve, and/or Gary Bringhurst.

1031 was owned by Douglas Swenson and Thomas Var Reeve.

with DBSI guaranteeing the rent stream to the TIC investors.

fully syndicated FOR 1031 property.

properties might suffer under the master lease structure.

reliable revenue, financially insecure and generally “toxic.”

inadequate in relation to the scope of the liabilities being transferred.

fraudulent financial statements that demonstrated financial health.

creation and structure of the master lease structure.

43. The TIC bus iness did not generate a profit.

DBSI’s “responsibility” to maintain and/or improve the properties.

and other related fees for unimproved real estate.

the DBSI Companies.

affected interstate commerce.

almost every real estate project sold by the DBSI Companies.

maintenance of the assets.

52. Those statements were knowing, material, false misstatements.

limited uses stated in PPMs.

be commingled with funds from any other source.

55. Those statements were knowing, material, false misstatements.

massive, fraudulent operation.

62. Accordingly, approximately $82 million of Accountable Reserves funds were

spent for unauthorized purposes, including, misappropriation by the Insiders.

and/or capital expenses.

Reserves funds as revenue on tax returns.

65. In addition, DBSI’s statements to investors regarding the tax treatment of

payments in connection with the purchase of TIC offerings.

price and were believed to be “taxable boot” to the investor.

Accountable Reserves were something different than the purchase price.

Ellison, was the sometime General Counsel of DBSI.

relating to TIC offerings.

used to market TIC and other DBSI investments to Assigning Investors.

financial health to the public.

of defrauding investors rather than as an arm’s length transaction.