Idaho Sues 4 Men Amid Allegations Of ‘Upline’ And ‘Downline’ Fraud From Scheme Within A Scheme; State Seeks Return Of More Than $2.1 Million, Alleging Sale Of Unregistered Securities

EDITOR’S NOTE: The story below outlines civil allegations filed in Idaho against Brock Bruegeman, Brian Birch, Brandon Johnson and Sonny Jensen in which the state alleges they operated a pyramid scheme tied to what federal prosecutors have alleged was an upstream, $100 million Ponzi scheme operated in Utah by Rick Koerber. Koerber, who has denied wrongdoing, was charged with crimes such as mail fraud, money laundering, wire fraud, securities fraud and tax evasion in a 22-count, superseding indictment handed up by a federal grand jury in November 2009. He initially was charged in a three-count indictment in May 2009.

Idaho’s lawsuit against Bruegeman, Birch, Johnson and Jensen demonstrates the perils of jumping aboard investment ships state and federal regulators say never should set sail. The men are accused of withholding crucial information from investors and of selling unregistered securities totaling more than $2.1 million — in essence, operating their own pyramid scheme to feed Koerber’s alleged Ponzi scheme.

Here, now, the story of an alleged pyramid scheme within an alleged Ponzi scheme . . .

Although Utah businessman Rick Koerber called it “equity milling” — a process by which investors could profit through real estate — federal prosecutors called it a $100 million Ponzi scheme.

Now, four men have been accused in Idaho of funneling money to Koerber’s alleged Ponzi scheme by operating a pyramid scheme. Sued civilly by the state of Idaho were Brock Bruegeman, Brian Birch, Brandon Johnson and Sonny Jensen.

The state is seeking the return of more than $2.1 million that passed through uplines and downlines, calling the sum the proceeds of a securities swindle that packaged money to be sent to Koerber’s company, Franklin Squires.

“Investor money was sent ‘upline’ through a series of companies before it eventually arrived at Franklin Squires,” according to the Idaho lawsuit. “Franklin Squires made ‘interest’ payments ‘downline’ back through the companies.”

The scheme, according to the lawsuit, worked this way: Franklin Squires offered a 60 percent annual return to the “layer of companies immediately ‘downline’ from it. Each succeeding layer took part of the payment — often 1 percent — “and passed the rest on to the next lower layer,” thereby making a purported profit. Idaho investors were promised an annual return of 24 percent.

Among the problems with the scheme, according to federal prosecutors, was that Koerber advertised safe returns even though “Franklin Squires did not make a profit in 2005, 2006, and 2007 and, in fact, lost money those years, that the 1-5% paid on investors’ money came from other investors’ money, and the money invested was not safe.”

A Koerber company known as Founders Capital also was part of the scheme, federal prosecutors charged.

“Koerber operated Founders Capital and other related entities as a [P]onzi scheme to convince earlier investors that their funds were earning money and to convince potential investors that the program was working and earning money,” federal prosecutors said. “The [P]onzi payments created the false impression that the businesses were profitable, investments were safe, and interest was being paid. Koerber obtained approximately $100 million in investor funds and over $50 million of those investor funds were used to make [P]onzi payments.”

Meanwhile, back in Idaho, Bruegeman, Birch, Johnson and Jensen were selling unregistered securities and duping investors by “failing to provide required material information,” the state alleged.

“Rick Koerber and Franklin Squires paid Jensen 5% monthly,” the state alleged. “Jensen paid Johnson 3-3.5% monthly. Johnson paid Birch and Bruegeman 2.5% to 3% monthly. Birch and Bruegeman paid their investors 2% monthly.”

Among the information withheld from investors was that Koerber was the subject of a securities action in Wyoming, that Koerber and Birch both had declared bankruptcy and that Bruegeman had unpaid money judgments.

Investors needed that information to make informed investment decisions, the state said.

At the same time, the state alleged that not all of the money had been sent to Franklin Squires. Some of it was used to “repay earlier investors” and for “personal purchases.”

“Bruegeman and Birch continued to solicit new investor money” even though their “upline” payments had ceased, the state charged, adding that they “did not tell potential investors that the ‘upline’ payment stream had dried up.”

Franklin Squires or Jensen’s company, TSS Investments LLC of Utah, ceased making payments “in or around” May 2007, Idaho securities officials alleged in the lawsuit.

Birch, of Rigby, Idaho, conducted business as Idaho Quadrant Holdings LLC, according to the state. Bruegeman, of Idaho Falls, Idaho, conducted business as Quadrant Holdings and Development LLC and as Quadrant Holdings LLC, and Johnson, also of Idaho Falls, conducted business as Premiere Holdings Inc.

The Idaho portion of the scheme addressed in the lawsuit began as early as August 2006 and continued through October 2007, state authorities alleged.

Only four of the 19 investors identified by the state cooperated fully in the probe, authorities said.

To gain favor with prospects, the Idaho defendants showed them “opulent cabins in Island Park, luxurious homes in the Idaho Falls area, expensive new cars that they were driving and and new snowmobiles and other items they had recently purchased,” Utah authorities charged.

Read the Idaho lawsuit.

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3 Responses to “Idaho Sues 4 Men Amid Allegations Of ‘Upline’ And ‘Downline’ Fraud From Scheme Within A Scheme; State Seeks Return Of More Than $2.1 Million, Alleging Sale Of Unregistered Securities”

  1. i am one of the investors in this action was curious if this meens I may be intitled to my investment back

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  2. I was presented with the opportunity to invest in Quadrant Holdings in the latter part of the year 2006. I was shown large paystubs, deposit slips and socialized with defendents in very elaborate homes. Fortunately, I researched the company Franklin Squires to discover that the promised return on my potential investment made absolutely no sense..The defendents were very convincing in their presentation and I feel for any who lost their home equity to satisfy anothers personal greed..Bryan

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  3. I too, lost everything. My money went to Founders Capital. I sat across a table from Sonny where he guaranteed me that my money would be safe, when he knew it would not. I too, saw all the wonderful cars and houses. I told him how difficult it would be for me if I were to lose the money because my husband had Alzheimer’s and could no longer work. I was promised that everything was guaranteed with Real Estate and this was the very best way to secure my future. I now have no future and can only hope for an early death for my husband and myself so not to be a burden to our children. It has been devastating to us. He got me at the right time. I had just received my husbands diagnosis and was not very clear in my own mind at the time. I cannot believe anyone would lie to someone in my situation.

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