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DBSI Investors Suffer Losses – Serious Problems Emerge

The U.S. trustee for Delaware, where DBSI is incorporated, will ask a bankruptcy court Tuesday to appoint a trustee to run the company, ending DBSI owners’ control.

“It appears that certain of the debtor’s officers and directors, including (President) Douglas Swenson, have engaged in misconduct, fraud and mismanagement which collectively caused damage to the debtors’ investors and creditors,” the U.S. trustee’s office said in a court document Monday. The office is an arm of the U.S. Justice Department.

Swenson started DBSI in 1980. The company, formerly based in Meridian, manages commercial property investments for well-heeled investors around the country.

Before it filed for bankruptcy in November, DBSI controlled 248 commercial properties around the nation and had more than 8,500 investors. Its holdings include several shopping centers and office buildings in the Treasure Valley. DBSI collapsed as real estate values fell and lending dried up.

DBSI was sued by investors in October after it stopped paying them and was sued for fraud by Idaho securities regulators in February. Those lawsuits are pending. DBSI has denied the state’s fraud allegations.

What’s left of the company is now in Boise. While a Chapter 11 bankruptcy filing allows a company to reorganize, the DBSI bankruptcy is expected to end in the company’s dissolution.

The U.S. trustee’s office – which monitors the conduct of companies involved in a bankruptcy – sought its motion based on an interim report on the company’s affairs filed Monday by a court-appointed examiner, Joshua R. Hochberg, who spent months reviewing DBSI’s internal records.

Among Hochberg’s findings:

• DBSI had “serous cash flow problems and operating losses” when it sought investors in a 2008 notes offering, which is like a prospectus.

• Most of the notes’ proceeds, which totaled about $90 million, were not truly “invested” in ways the notes offering promised.