WILMINGTON, Del. – The State of Idaho’s Department of Finance has won approval for a court-appointed examiner in the closely watched bankruptcy proceedings of DBSI, Inc., an Idaho-based investment firm. Judge Peter Walsh of the U.S. Bankruptcy Court for the District of Delaware has given the examiner the authority to probe $2 billion in allegedly fraudulent securities transactions made by DBSI. The scheme involved more than 12,000 investors and 270 properties throughout the country. Idaho, the state where DBSI is located, was joined by other states in the action, including Alabama, California, Colorado, Hawaii, Montana, Nevada, Oregon, Pennsylvania, South Carolina, Tennessee, and Washington.
“This is more than just a bankruptcy case. The State of Idaho alleges fraudulent activity that mirrors a Ponzi scheme, making it a sophisticated investor fraud,” said David J. Baldwin, a partner with Potter Anderson & Corroon LLP and lead trial counsel to the State of Idaho. “We’re pleased the court accepted our motion and appointed an examiner. It is important to have someone whose focus is on the potential wrongdoing of the companies and not just on the process of a typical bankruptcy proceeding.”
DBSI allegedly used powers of attorney, signed by investors at real estate closings, to convert non-recourse loans to recourse loans – making investors personally liable without their knowledge.
“Investors were also assured there would be ‘accountable reserves’ benefitting their properties,” said Baldwin. “It’s now been shown that DBSI never set aside such reserves at all. These investors arguably are now personally liable and the reserves they expected would be there with their properties don’t exist.”
Potter Anderson & Corroon represents State of Idaho in case