Lessons From A Multi-Millionaire!!!
If there's one thing Bill Marvel knows after 40 years of flying light aircraft, it is this: Never leave the controls of your plane to someone else.
"You don't start fiddling with radios or fuel systems and forget to fly the airplane," he said. "You might crash while you are trying to solve some other problem."
Mr. Marvel, 66 years old, is a careful and methodical man who has flown single-engine aircraft across the Pacific and Atlantic oceans. Yet in 2004, he handed over control of his real estate investments to DBSI Inc., a Meridian, Idaho, company that went down with the market in 2008.
"DBSI essentially operated like a Ponzi scheme...almost entirely dependent on funds from new investors to pay old investors," according to an indictment from a federal grand jury in Boise, Idaho, last week.
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Eighty-three counts allege everything from bank fraud, securities fraud, wire fraud and mail fraud to the transportation of stolen property across state lines. Prosecutors say DBSI executives touted a profitable enterprise worth $105 million, while they lost $3 million a month.
Money DBSI collected from real estate investors such as Mr. Marvel often was siphoned off to fund risky technology startups, prosecutors allege.
Former Chief Operating Officer Gary Bringhurst has agreed to plead guilty to one count of conspiracy to commit securities fraud.
Lawyers for co-founder and President Douglas L. Swenson, 64, and co-founder and general counsel Mark Ellison, 64, have said their clients are not guilty, that everything their clients did was disclosed to investors, and that DBSI's spiral into bankruptcy was due to market conditions.
Mr. Swenson's sons Jeremy S. Swenson, 40, and David D. Swenson, 35, also were named in the indictment.
The indictment seeks to recover $169 million in assets that would be returned to thousands of investors like Mr. Marvel--a thin hope after DBSI's 2008 bankruptcy filing.
You know how some people say it doesn't take a rocket scientist to invest in real estate? Well, Mr. Marvel actually is a rocket scientist. He studied astronautics at the U.S. Air Force Academy in Colorado Springs, Colo. He then went on to Purdue University for a master's degree. Then he became a spacecraft systems engineer, working on spy satellites in the Air Force.
After Mr. Marvel left the military, he moved to Southern California and started buying up apartment buildings, an entrepreneurial career he enjoyed for 30 years while he pursued his hobbies of building and flying small planes.
As long as he kept his hands on the stick, his real estate investments went fine. He took his hands off the stick in 2004 when he learned about an amazing opportunity offered by DBSI.
DBSI bought commercial buildings and sold them to groups of investors it organized. An attractive part of the pitch was that DBSI offered tax-free exchanges, what are known as 1031 Exchanges under the tax code.
Mr. Marvel learned he could sell all of his California apartment buildings and then reinvest the proceeds in DBSI deals without paying taxes on his gains.
The deal allowed Mr. Marvel to quickly diversify his portfolio from a few apartment buildings in one state to 15 office and retail properties in nine states. This alleviated his worries about a softening real estate market in California. Plus, he was no longer a hands-on manager as he approached retirement years. DBSI would operate the properties. All he had to do was sit back and collect monthly checks.
Mr. Marvel said he did exhaustive research on DBSI before taking this leap. He was comforted to learn the company was founded in 1979 and that its executives didn't have rap sheets.
He said he received $3.5 million from the sale of his California apartment buildings and then used the money to purchase fractional interests in shopping centers and office buildings from Georgia to New Mexico through DBSI.
For about three years, DBSI delivered the monthly payments as promised. Nevertheless, Mr. Marvel said he became suspicious in 2005 when he discovered all of the buildings in which he had invested were badly managed and losing money.
He organized an online discussion group with more than 400 other DBSI investors who were having similar experiences. Then he confronted some of the DBSI executives who are now criminal defendants.
He said the DBSI guys warned him he shouldn't be organizing investors and sharing private information. They also told him that while his buildings were indeed losing money, other DBSI properties were doing well, which was why he was still getting paid. So what was the problem?
He was making a reasonable return on his money. And he continued getting paid...up until the day DBSI went bellyup.
Mr. Marvel now lives in Grand Junction, Colo. He takes 4-wheeler tours of the nearby mountains instead of fancier trips to Europe and Australia. He says he'll be lucky to recoup $500,000 of his $3.5 million investment. Letting someone else take the stick is his biggest regret. He would never do that in a plane.
"There's no way any third party is going to take care of your money like you're going to take care of it," he said. "As obvious as that is, thousands of us made this mistake."
(Al's Emporium, written by Dow Jones Newswires columnist Al Lewis, offers commentary and analysis on a wide range of business subjects through an unconventional perspective.
The column is published each Tuesday and Thursday at 9 a.m. ET.
Contact Al at firstname.lastname@example.org or tellittoal.com)