Buying and selling residential properties and undeveloped lots was a hot and profitable investment during Utah’s real estate boom from 2004 to 2007. But one individual took this business plan too far.
Kenneth Tebbs has been sentenced to 78 months in prison after pleading guilty to one count of wire fraud in connection with a real estate investment scheme.
According to a sentencing memorandum filed by the U.S. attorney’s office, starting in 2005, Tebbs, through his two companies Twin Peaks Financial and MNK Investments, attempted to take advantage of the housing boom by promising significant annual returns of 18% plus origination points ranging from 1% to 5% to investors.
However, federal prosecutors said his business plan exceeded economic reality and in the beginning of 2006, the investment plan became a Ponzi scheme that could only be maintained by soliciting more investors.
In his plea agreement, Tebbs admitted that he expanded Twin Peaks’ business in 2006 to focus on the purchase and acquisition of large subdivision projects of approximately 20 lots. When this happened, Tebbs said he started to lose control of the business.
Money that was needed to fund these larger projects exceeded Twin Peaks’ incoming cash flow. Therefore, Tebbs decided that in order to sustain Twin Peaks’ business operations, he needed an infusion of new investor money.
Consequently, the number of investors quickly became much greater than the number of investment properties under Twin Peaks’ ownership.
To keep the business going through new investments, Tebbs admitted to falsifying and forging recording stamps on old trust deeds and provided new investors with “new” trust deeds, knowing that multiple investors were now secured by the same property.
The plea agreement revealed that Tebbs accepted anywhere from $15,000 to as much as $11.3 million from investors. During the fraud period, he admitted to receiving about $49 million from investors and paying out approximately $37 million in Ponzi payments.
“It’s difficult to know what was going through the defendant’s mind as he continuously lied to investors about the soundness of rolling over their investments and returns, knowing full well their investments were not even worth the paper on which fabricated trust deeds were printed and provided to investors,” said Mark Hirata, assistant U.S. attorney in the sentencing memorandum.
“The defendant’s excuse of losing control of the business, while convenient, cannot mask his irrefutable knowledge of a failing business, bereft of profits, and his unmistakable efforts to exploit investors willing to part with their hard-earned money, inheritances, and retirements so that they too could take advantage of the defendant’s genius in cornering Utah’s real estate market.”
U.S. District Judge of Utah David Sam has scheduled an Oct. 10 hearing to resolve restitution in this case.
