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Bonus- The Fund

Swindled

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  • Early Signs of Deceit
    • Darren Berg, while at University of Oregon, was accused of embezzling $21,000 from his fraternity.
    • He later dropped out and started an advertising agency with a former fraternity brother, which also failed. Transcript: Unknown Speaker Darren Berg started his first business while attending the University of Oregon in the early 80s. It was a charter bus company called Darren Berg Tours that sold bus tour packages to Las Vegas and elsewhere. He even had an office in downtown Eugene. Charter buses would prove to be a lifelong passion for Darren Berg. His grandfather drove a bus for Greyhound, which fascinated Darren as a kid. The fact that he gravitated towards that industry was no surprise to anyone who knew him. Darren’s zeal for business also impressed his U of O fraternity brothers and Pi Kappa Alpha. The Pikes elected Darren Berg to be the treasurer of the frat, and later the president. He was a hair-on ball of energy, one of the brothers, Michael Stone, told the Seattle Times. Lots of charisma. Lots of confidence. But soon enough, there would be lots of questions about Darren’s scruples. In October 1983, the rent check for the fraternity house bounced. Michael Stone, the assistant treasurer, investigated and found that the Pike’s bank account was empty, which seemed impossible. All 35 brothers had just paid for a full quarter of room and board. After examining the books, it became clear what had happened. More than $21,000 of the fraternity’s funds had been transferred to the bank account of the Darenberg’s Tours Corporation. Michael Stone confronted Darenberg. Darenberg said he was simply reimbursing himself for out-of expenses that he had incurred on behalf of the frat. However, after he failed to produce any evidence of the claim, Michael Stone contacted the Eugene police. No charges were filed, Stone said, because the police discounted it as a he said, he said kind of situation. Darren Berg moved out of the fraternity house and dropped out of school the following week. The last time Michael Stone heard from the suspected fraudster was via letter. I have at no time ever embezzled any funds from the Pi Kappa Alpha fraternity, he wrote. What an erroneous assumption. Any money deposited into any account will have a tangible and reasonable explanation. Darenberg then instructed Stone and anyone else at the fraternity to direct any future inquiries to his lawyer. Quote, He has paid good money to answer stupid questions, and I’m sure he’ll be happy to answer yours. So Michael Stone contacted the attorney named in that letter. (Time 0:06:49)
  • Bank Fraud and Probation
    • After his advertising agency failed, Berg was indicted for bank fraud, obtaining $19,000 illegally.
    • He pleaded guilty, receiving probation and an order for psychiatric counseling. Transcript: Unknown Speaker He had never heard of Darren Bird. After fleeing Eugene, Derenberg resurfaced in Portland, Oregon. There, he crossed paths with a former fraternity brother named Drew Shavir. Using his unmatched charm, Deren convinced Drew that not only was he wrongfully accused by the Pikes, but also that they should start a business together. Unfortunately, Derenberg had little to contribute financially. Fortunately, Drew Shavir had just scored $12,000 from a recent marketing project he had worked on. Together, they launched Berg, Shavir, and Associates, an advertising agency that served the greater Portland area. The agency landed a few clients, restaurants, a chain of tire stores, and a jewelry store. It was enough to keep the lights on, but by no means were they getting rich. However, you be able to tell, judging by Darren Berg’s lifestyle. He drove a nice car, lived in a fancy apartment. Meanwhile, Drew Shavir was scraping to get by. Oh, it’s the charter bus business, Darren told Drew. My new company, Tor Design, is doing really well. Berg, Shavir, and Associates ran out of money and shuddered in 1987. It came as a complete surprise to Drew Shavir. What happened next? Not so much. A federal grand jury indicted Darren Berg for eight counts of bank fraud. Allegedly, Berg was kiting checks, meaning he had deposited checks from one of his accounts into another and withdrew the cash before the bank realized there were insufficient funds, Similar to what the kids these days call the Chase Bank glitch. Darren Berg had illegally obtained more than $19,000 in this way. He ultimately pleaded guilty to one count of bank fraud. Berg received five years of probation on the condition that he repay almost $10,000 of the funds. He was also ordered to live in a residential treatment center and undergo psychiatric counseling. Less than a year later, 25-year Darren Berg arrived in Seattle as an unemployed college dropout with multiple failed businesses under his belt, a felony on his record, and $150 to his Name. (Time 0:09:14)
  • Meridian Group’s Rise
    • Despite past failures and a felony, Darren Berg established the Meridian Group in Seattle.
    • This group grew to include over 20 entities, including real estate funds and a bus company. Transcript: Unknown Speaker In retrospect, those things would prove to be mere speed bumps on his road to success. It was in Seattle that Derenberg launched the Meridian Group, which over the next decade and a half would grow to encompass more than 20 corporate entities, including an investment Fund, a development company, a software company, a home building company, and of course, a charter bus called Meridian Transportation Resources, DBA, MTR Western. You know, I also own a very large bus company. I’m one of the largest charter bus companies in the country. Again, an opportunity that I saw after September 11th, Support for Swindled comes from Rocket Money. (Time 0:11:24)
  • Lavish Lifestyle and Spending
    • Darren Berg lived lavishly, owning multiple properties, luxury vehicles, and throwing extravagant parties.
    • He even paid John Mayer $400,000 to perform at a convention. Transcript: Unknown Speaker Seattle’s Entrepreneur of the Year in 2008 enjoyed the fruits of his labor. He bought a $5 million waterfront mansion on Mercer Island and spent another $5 million renovating it with his live-in boyfriend. Derenberg also owned a $2 million condo in downtown Seattle, a $1 million house in La Quinta, California, and a $1.4 million condo in San Francisco. He bought a yacht, he bought two airplanes, not to mention all the sports cars, massive art collection, and extensive travel. Darren would also throw elaborate parties, both for himself and his employees. For example, at a convention in 2008, Berg paid singer-songwriter John Mayer more than $400,000 to perform. Darren Berg was having fun. I’m actually having fun in this economy. The reason I’m having fun in this economy is because there’s nothing funner than being right. There is nothing more fun than being right. (Time 0:14:30)
  • The Downfall Begins
    • Despite the 2008 market crash and Madoff’s arrest, Berg continued raising money for Meridian.
    • When a firm requested a $27.5 million withdrawal, Meridian couldn’t pay, leading to a lawsuit and the company’s collapse. Transcript: Unknown Speaker That’s Darren at an investor presentation a few months later in March 2009. Even though the real estate market was currently imploding, Meridian Mortgage was raising additional money. The investment firm announced that it had created five new funds, but investors were properly spooked. Not only had the housing market collapsed, but Bernie Madoff had just been arrested for defrauding his clients out of at least $18 billion. Derenberg did his best to ease their fears, assuring them that he was not like the others. What happens is everyone in this business seems to be, that’s in this business that’s having trouble, seemed to be very good at raising money and very bad at running a mortgage company. The truth is Darren Berg was desperate. He was having trouble covering all the recent client withdrawals. It was like a run on the bank, and the bank of Darenburg and Meridian Mortgage was not very liquid. But before things would improve, they were about to get exceptionally worse. A local wealth advisory firm, Cornerstone Advisors, had invested in Meridian Mortgage on behalf of its clients, and in early 2010, Cornerstone asked to withdraw the entire $27.5 Million that Meridian claimed it had accumulated on paper. When Meridian couldn’t provide the funds, Cornerstone sued. Over the next few months, Meridian mortgage collapsed. Derenberg filed for personal and corporate bankruptcy. (Time 0:15:24)
  • Sophisticated Deception
    • Berg’s Ponzi scheme involved fake loans, appraisals, titles, and imaginary investors.
    • He misled auditors and managed all funds himself to maintain the facade. Transcript: Unknown Speaker All of his possessions were seized. He decided to get ahead of what was coming. He wanted to take responsibility. Derenberg met with prosecutors and the FBI and admitted that he had been operating a massive Ponzi scheme. For 10 years, Berg claimed his business Meridian Group was investing in private mortgages, but it was actually an elaborate Ponzi scheme. Search warrants turned up 700 boxes of evidence against Berg. Forensic accountants diligently followed the money in his accounts to unravel the scheme. Frederick Derenberg was charged with nine counts of wire fraud and one count of money laundering. He was not arrested, at least not immediately. This is way, way worse than your typical Ponzi scheme, Assistant U.S. Attorney Norman Barboza told the court. Few investment schemes have this level of sophistication. There were millions of documents, 93 different bank accounts, fake bank loans, fake appraisal reports, fake titles, and few real assets backing up the value of Meridian’s funds. Meridian held about $11 million worth of mortgages. That’s about one-tenth of what investors thought they owned. Darenberg maintained the facade for years by misleading auditors. Assistant employees, and co-executives. Darren managed all the funds by himself. He went so far as to create imaginary investors and rent P.O. Boxes for each of them, at least 20, so he himself could answer any auditor queries of the fund’s investors. In total, more than 500 people had invested more than $140 million with Meridian Mortgage. On paper, they had doubled their money for an expected payout of $280 million. (Time 0:16:48)
  • Extent of the Fraud
    • Berg’s scheme defrauded over 500 investors of $140 million, with $123 million lost.
    • He spent lavishly on himself, his companies, and some funds remain unaccounted for. Transcript: Unknown Speaker Shockingly, of that $140 million, $123 million appeared to be lost. Derenberg spent most of it on himself and his companies. Besides the properties, the yacht, the airplanes, and cars and such, which accounted for about $30 million, Berg infused his home building company with at least $10 million, and another $75 million went to his bus company. At least a couple of million remained unaccounted for. Darren Berg swindled more than 500 victims out of 140 million dollars. And these people were very responsible. They were putting money away. They were trying to prepare for the future. And the bottom line is a lot of people lost a lot of money. Darren Berg pleaded not guilty and he kept himself busy while awaiting trial. An aviation company in Los Angeles wanted to hire him as a consultant. Berg asked for the court’s permission to accept the role and relocate. Permission was granted, but no job existed. Derenberg had fabricated the contract and forged the signature of the company’s executive, which he had misspelled. But investigators were not aware of that yet. They were also unaware that Berg had recently sold a house in Seattle that he had never disclosed for $400,000. He used that money to buy a new Audi and lease a condo in LA. He sent the remaining balance to a trust in Belize. Authorities became wise to Berg’s plan, according to the Puget Sound Business Journal, when a consultant working with a bankruptcy trustee found a receipt for the wire transfer while Searching his Mercer Island home. (Time 0:18:27)
  • Guilty Plea and Sentencing
    • After being arrested, Berg pleaded guilty to fraud and money laundering.
    • He was sentenced to 18 years and ordered to pay over $140 million in restitution. Transcript: Unknown Speaker Derenberg was arrested in Los Angeles in late October 2010. He had $14,000 cash stuffed in a laptop bag. He was charged with additional counts of bankruptcy fraud and money laundering. Berg would be remanded in custody until the start of his trial. But there would be no trial. In August 2011, Darren Berg pleaded guilty to two counts of fraud and one count of money laundering. Deemed a flight risk, Berg would remain behind bars until sentencing, which happened in February 2012. Mr. Berg, I’m not sure how you live with yourself and the extent of damage that you have done, U.S. District Judge Richard Jones told the 49-year These were supposed to be their golden years, the judge said, referring to his victims. Not a dark nightmare. Daren Berg apologized for, quote, the horrific mess I made. Not only do I owe you an apology, he said during his five-minute presentation, I have for a long time felt that I owed you an explanation. And I have for a long time objected to the idea that what actually happened is almost irrelevant and that the end result is all that matters. I just want you to know that I didn’t The subject of an investigation by the FBI and its law enforcement partners is sentenced to 18 years in prison for the largest fraud scheme in Washington State. (Time 0:20:05)
  • Escape and Manhunt
    • After nearly six years, Berg escaped from a minimum-security prison camp in California.
    • Authorities suspect he fled to Brazil with his partner’s help and remains at large. Transcript: Unknown Speaker To date, about $40 million has been recovered. During the initial years of his prison stay, Derenberg worked feverishly on his own case but failed to convince a judge to release him. Eventually, he was transferred from SeaTac Federal Detention Center south of Seattle to a minimum security satellite camp adjacent to Atwater near San Jose, California. That prison camp has programs that allow non-violent inmates like Darren Berg to work outside the camp in the community. Berg participated, which presented an opportunity. On Wednesday, December 6, 2017, around 3.30 p.m., the prisoner headcount was one man short. This email sent out to people connected to the biggest Ponzi scheme in Seattle’s history. Frederick Darren Berg has escaped from federal prison. Darenberg had simply walked away while working outside the facility, the third inmate to escape from Atwater in the last year. Berg was nearly six years into his 18-year sentence. The federal manhunt focused on his longtime partner, Daryl Ray Blankenship. Blankenship was a flight attendant who had access to a private jet. Authorities believed that Darren Berg had money stashed away, and Blankenship helped him flee. A search of Daryl Blankenship’s electronic devices and communications lent credence to that theory. According to the Associated Press, Daryl had photos from a hotel in Brazil that showed three men sitting on a lounge chair. You can’t quite see the faces, but one of the men supposedly has a hairline identical to that of Darren Berg’s. There were also messages to Darren’s mother sent from Blankenship’s phone. Hello from Rio, it read. The U.S. Marshals declined to confirm the AP’s report. Daryl Blankenship was never charged for assisting in the escape. And Frederick Darenberg is still on the run. Keep an eye out. So you saw what Darenberg looks like. He’s six feet tall, 170 pounds, with brown hair and hazel eyes. Now, US Marshals did not request local help from authorities here in Washington to find him, but if you see him, you’re asked to call police. (Time 0:21:44)