Koerber said Ponzi schemes are legal in Utah, ex-bookkeeper says in fraud trial

(Al Hartmann | The Salt Lake Tribune) Acccused fraudster Rick Koerber arrives a few minutes late for trial at Federal Court in Salt Lake City Tuesday August 22. He was first charged eight years ago. Koerber faces 18 charges revolving around allegations he ran a $100 million Ponzi scheme based on his real estate investing strategy he called the "Equity Mill."

Former real estate investment guru Rick Koerber frequently used investors’ own monies to send interest payments back to them and told his bookkeeper that running a Ponzi scheme was not illegal in Utah, according to testimony at Koerber’s federal court trial.

Koerber’s former bookkeeper, Forrest Allen, told a jury on Wednesday that Koerber’s companies were using investor funds to make interest payments on millions of dollars of investments or loans that poured into the Utah County operation from 2004 to 2007.

“I would say it was very common,” Allen testified during the trial, in which Koerber faces 18 charges of fraud, money laundering and tax evasion.

A January indictment alleges Koerber took in $100 million from investors, supposedly to fund purchases of single-family homes with the promise of returns of up to 5 percent a month. But Koerber — who charged thousands of dollars to attend seminars about his ”equity milling” strategy — allegedly used about half of the investor monies for interest payments, in what’s commonly known as a Ponzi scheme.

Koerber has pleaded not guilty. His attorney said during opening statements that Koerber’s companies had $127 million worth of real estate that could have covered repayments to investors, if the financial crisis that began in 2007 hadn’t wiped out their value.

Allen, who quit the operation in the fall of 2007 after it had stopped making interest payments, also told the jury he discussed with Koerber whether the Utah County operation was a Ponzi scheme.

“I think he just said a Ponzi scheme in the state of Utah was not illegal,” said Allen, who kept books for Koerber’s companies, including Founders Capital, FranklinSquires Cos., Hill Erickson LLC and New Castle Holdings LLC.

Koerber also told him that it wasn’t a Ponzi scheme if a company had real products and services, Allen said.

Allen will be back on the stand Thursday for cross-examination by Koerber’s attorney, Marcus Mumford.

Assistant U.S. Attorney Tyler Murray walked Allen through a series of the companies’ financial documents.

Murray focused on bank statements and other documents that showed that $1 million from one investor went into a bank account that at the time had less than $300 in it. Then over the next several days, that account was used to send out hundreds of thousands of dollars in interest payments to other investors.

Murray also brought up records that showed Koerber used company funds to buy a Lamborghini Spyker for $296,973 and also two Ferraris purchased on the same day, a 2001 model for $218,896 and a 2004 version for $213,459.

Allen confirmed that the checks for those vehicles came out of the same bank account used to deposit investor funds.

Murray also went over balance sheets of the Koerber companies that showed their value toward the end of 2007, based on their assets and liabilities. The companies had tens of millions of dollars in liabilities and negative equity, according to the documents.

But Allen said he could not say whether, as Mumford has claimed, that the companies had $127 million in equity at some point.