In a recording played Monday for a federal court jury, former real estate investment guru Rick Koerber suggested that when his companies found themselves short of profits, they used investor money to make interest payments.
Koerber is accused in a grand jury indictment of using about half of the $100 million he took in from investors to make interest payments in what’s known as a Ponzi scheme. He faces 18 felony charges and has pleaded not guilty. He contends his companies had assets that were worth as much as its debts.
Prosecutors opened the second week of what could be an eight-week trial with a series of audio clips from a meeting Koerber had with St. George businessman Michael Isom, who was on the witness stand for a second day.
Isom said he had gathered more than $20 million from investors though his company MIWE Holdings LLC and put it into Koerber’s Utah County operation, with the understanding the money would earn as much as 5 percent interest per month and would be used for short-term loans to purchase single-family homes, using Koerber’s “equity milling” strategy.
After interest payments stopped in mid-2007, Isom and others asked Koerber at a meeting to explain where all the money had gone. Isom recorded the meeting and provided it to federal agents.
In one clip played for the jury with an accompanying transcript, Koerber laid out a scenario where his companies had taken in $100 million from investors.
“This is not accurate, but just for the sake of argument, let’s say 40 million was paid in interest to investors,” Koerber says. “OK, I made this up. You know, I mean for all practical purposes it’s nonsense, except for it’s roughly based on my, on the reality as I see it.”
Assistant U.S. Attorney Aaron Clark asked Isom how he reacted in learning that investor money had been used to make interest payments.
“It was the reality of a horrifying nightmare that the money was gone,” Isom said. “That it was a fraud, a scam.”
In another clip, Koerber referred to the June 8, 2006, plane accident in which one of his business partners, Les McGuire, died. At that point, Koerber said, the company did not have the cash flow to cover interest payments and used investment capital “to pay interest for a while after the plane accident.”
Koerber’s attorney, Marcus Mumford, hammered at Isom’s credibility, pointing to Isom’s guilty plea to misdemeanor charge in a related case, in which he admitted taking money from an investor without disclosing that Koerber had previously stopped paying interest.
Isom said he pleaded guilty with the understanding the government would make a sentencing recommendation based on his cooperation in the Koerber case. Mumford sought to use that to explain what he said were inconsistencies between evidence and Isom’s testimony.
Mumford also pointed to a state case against imprisoned businessman Dee Randall where Isom also had cooperated with prosecutors.
“Are those the only times you’ve gotten yourself out of a spot by accusing other people of fraud?” Mumford asked.
The defense attorney also pounded on Isom over his testimony that Koerber had not disclosed that he was investing in small businesses as well as real estate, including a movie company and the Iceberg Drive-Inn restaurant chain.
Isom insisted that Koerber had not made that disclosure until after interest payments stopped. But Mumford pointed to a document Isom provided to investors about two years earlier that mentioned potential investments in small businesses.
The language from the earlier document had been provided by attorneys as a general statement, Isom said, and he continued to insist Koerber had not disclosed the small business investments.
The point might be important because part of the government’s case is based in part on the allegation that Koerber had not disclosed such investments to Isom and others and, therefore, committed fraud.
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