Rick Koerber walks on $48 million Ponzi scheme charges
A federal judge on Thursday blasted federal prosecutors as he permanently dismissed all criminal charges against Rick Koerber, the former Utah County real estate guru who now no longer faces accusations of operating a $100 million Ponzi scheme.
In dismissing the charges, U.S. District Judge Clark Waddoups cited "the government's pattern of neglect and dilatory conduct" as well as "several instances of questionable ethical conduct in prosecuting this case."
Waddoups dismissed the case with prejudice, meaning it cannot be refiled against the man who once was seen as an investment guru who could turn home equity into big returns. But that was before his operation known generally under the names FranklinSquires Cos. and Founders Capital crashed in 2008, leaving investors owed about $48 million.
The five-year-old case was tossed because prosecutors violated laws that require trials within certain time limits, and they did not file timely requests for exemptions from the deadlines. It was dismissed with prejudice because Waddoups said he found the government's conduct of the case highly problematic.
The first of three indictments against Koerber was handed up in May of 2009, and all sought to portray his operation as one of the largest financial frauds in Utah history.
They accused Koerber of running a giant Ponzi scheme that took in $100 million from investors but who then used about half that to pay back investors and make it appear the operation was profitable. In fact, prosecutors alleged, the company never was profitable.
Koerber had been facing 18 fraud, tax and money laundering charges.
Under the Speedy Trial Act, if more than 70 days pass after the charged person first appears in court without a trial or other resolution, the case must be dismissed. However, prosecutors can seek exemptions because of certain time-consuming court procedures.
Waddoups wrote in 17-page decision that the U.S. Attorney's Office had shown neglect in failing to manage the requirements of the act.
"But in addition to this administratively dilatory conduct and pattern of neglect, the court has already found significant problems with the substantive prosecution of this case essentially amounting to 'a pattern of widespread and continuous misconduct,'" Waddoups wrote, citing the language of another case.
The judge at least twice has thrown out government evidence.
He found that a draft letter taken from Founders Capital records was a confidential communication between Koerber and attorneys and couldn't be used as evidence.
But then Waddoups also said that Koerber's constitutional rights were violated when prosecutors authorized FBI and IRS agents to interview Koerber without his attorney present.
Prosecutors argued that Koerber had agreed to the February 2009 interviews and was not represented at the time. But testimony called that latter assertion into question, and Waddoups said those sessions could not be used as evidence and he suggested much of the case was tainted as a result.
In Thursday's decision, he sharply rebuked prosecutors for "the government's tactic of illegally planning and conducting impermissible ex-parte interviews."
At one point in the case, Waddoups also had stated he found the government's indictment so vague that it wouldn't have passed muster in a civil case, a condition, he wrote in his ruling, "that has not been alleviated for the court in the intervening two years."
Marcus Mumford, Koerber's aggressive and persistent attorney, said the ruling had been a long time coming.
"We've been as troubled as the court now confirms it was in what I think he calls the sordid history of the case," said Mumford, "what the court refers to as the widespread and continuous misconduct."
Mumford said Koerber would likely appear at a news conference Friday afternoon.
A spokeswoman for the U.S. Attorney's Office said only that attorneys were reviewing the ruling and declined to comment further.
Koerber styled himself as "Latter-day capitalist," and promoted a real estate investment strategy he called the Equity Mill in which equity in a home was used to produce returns.
He held expensive seminars to teach investors his techniques, and some were invited to pool funds in Koerber's companies.
Koerber promoted himself with a "Free Capitalist" radio program and through billboards.
The Utah Department of Commerce began investigating Koerber back in 2007, but the department took the case to federal authorities after what officials perceived was political interference by then-Utah Attorney General Mark Shurtleff, whose office refused to file a lawsuit against Koerber.