BOISE (CN) – Bondholders say in a federal class action that the Bank of the Cascades lost $23.5 million when it handed over their money to a shell company with no assets, investments or income. And they say the bank accepted as security “a number of leases to which [the shell company] was not even a party.”
Investors lost varying amounts of money, but named plaintiffs Russell and Rena Firkins say they lost the most: more than $725,000 in bonds issues through three funding corporations created by DBSI Inc., an Idaho-based commercial real estate investment company.
The Firkins say they represent nearly 1,000 bondholders of more than 400 bonds. They say bondholders lost their millions because Bank of the Cascades, trustee for the bondholders, “utterly failed to fulfill its obligations to the bondholders.”
They say the bonds were to be invested in individual income-producing real estate projects, but Bank of the Cascades gave the entire $23.5 million to a single company, DBSI Realty Corp., which “had no assets, no investments, no independent income and, in fact, was prohibited from receiving bond proceeds under the terms of the offering documents.”
In return, Firkins say, the bank “obtained ‘security’ in a number of leases to which DBSI Realty was not even a party. As difficult as this may be to believe, these are the facts found by the United States Bankruptcy Court of the District of Delaware.” They claim that DBSI Realty was just a “shell corporation” that served as paymaster for the DBSI group, and did not invest in real estate projects, which was “the purpose specified in the Offering Circulars and Indentures for use of the bond proceeds.”
They say that the bank, “by disbursing all of the bond proceeds to DBSI Realty, a company with no investments, no assets and no income, defendant left the bondholders with nothing.”
They add: “defendant and DBSI pretended that the loans to DBSI Realty were securitized when, in fact, they were not.”
Hard to believe as it may be, that “defendant would disburse $23.5 million in bond proceeds in return for nonexistent, perhaps even fraudulent, security, a federal bankruptcy judge found this to be precisely the case in an opinion issued on May 12, 2010,” the complaint states.
The Bank of Cascades is the only defendant.
Lead counsel for the putative class is Philip Gordon of Boise.