|
USTP Press Release
For Immediate Release
June 7, 1999
INDICTMENT CHARGES 54 COUNTS OF FRAUD
IN OREGON 'PHANTOM COW' INVESTMENT SCHEME;
GRAND JURY ALLEGES INVESTORS
LOST $100,000,000
PORTLAND, ORE.--Six defendants
were indicted on 54 counts of mail fraud, bankruptcy fraud,
and money laundering for their role in a long-running "phantom
cow" investment scheme operated in Eastern Oregon and Sacramento,
Calif., Assistant United States Attorney Allan Garten and
United States Trustee Jan Ostrovsky announced today. The 52-page
superseding indictment, handed down June 2 by a grand jury
for the District Court of the District of Oregon, contained
charges against Walter J. (Jay) Hoyt III, David Cross, Phyllis
King, and Darrel Smith, all of Burns, Ore., and against David
Barnes and April Barnes of Herald, Calif.
Hoyt operated many interrelated
business partnerships and companies. The indictment charged
that, between 1982 and the present, the defendants, led by
Hoyt, conspired to defraud thousands of investors out of more
than $100 million. According to the indictment, the conspirators
gave false promises and representations to obtain investments
in a cattle breeding program and an Individual Retirement
Account (IRA).
"This is a superseding indictment
raising new charges of bankruptcy fraud and money laundering,"
Assistant United States Attorney Garten explained. "Three
of the named defendants committed bankruptcy fraud in order
to conceal significant income and assets from the United States
Trustee's office and numerous creditors. The indictment charges
that these defendants committed bankruptcy fraud in order
to perpetuate their fraudulent cattle scheme. It further alleges
that the defendants violated the money laundering statute
through the use of the income that was concealed from the
creditors and the United States Trustee's office."
"This criminal indictment marks
a significant chapter in a long, sad story with at least 3,000
victims," United States Trustee Jan Ostrovsky stated. "Many
investors' lives were ruined financially by their involvement
in the Hoyt operation. Meanwhile, the United States Trustee's
office, which serves as trustee in the pending Chapter 11
bankruptcy case of the Hoyt entities, continues to administer
the bankruptcy estate and to search for assets that Hoyt may
have hidden."
The United States Trustee
Program is a component of the Justice Department that oversees
the administration of bankruptcy cases nationwide. Ostrovsky
is the United States Trustee for Region 18, which includes
Oregon, Washington, Montana, Idaho, and Alaska.
Cattle Breeding Program
The defendants sold investment
interests in herds of female breeding cattle held by partnerships,
the indictment stated. The cows were to be of very high quality
and were guaranteed to produce high quality calves. Calf sales
were supposed to generate income to cover herd expenses. The
herds were to increase in size through the addition of mature
breeding cows each year. The conspirators said the herd would
be sold after 15 years, the indictment stated. Investment returns
were to come from tax deductions and profits on the herd sale.
Defendants claimed to have as many as 4,500 investors from 41
states in over 100 partnerships, according to the indictment.
In fact, the indictment charged,
the defendants' records showed that, while 38,000 adult female
breeding cows were sold to investors, the defendants knew
that they never had more than approximately 5,000 of such
cows on hand. "In short," the indictment stated, "Defendants
sold thousands of cows they never had and which did not exist.
Individual Retirement Account Program
The indictment stated that
the defendants also sold an IRA program based upon the purchase
of ranch properties by investor partnerships. Investor funds
were to be used to purchase ranches and make improvements.
Investors received "units" in the IRA partnerships, which
were supposed to represent a portion of the combined equity
of the ranches.
According to the indictment,
the defendants promised to repurchase a portion of the units
for cash each year to provide liquid returns to retired investors.
Ranch values were supposed to increase over time as a result
of improvements and appreciation. Mortgage payments and other
expenses were to come through revenues generated from leasing
the ranches to another business the defendants controlled,
which allegedly would use the ranch land to graze the cattle
breeding partnership herds.
The indictment charged that,
in fact, the defendants artificially inflated ranch values
through self-dealing between family members; made false representations
regarding ranch values and available equity; made false promises
regarding repurchase of the IRA units; and made false representations
regarding ranch property ownership.
The Defendants
Walter J. (Jay) Hoyt III was
a partner and operator of numerous partnerships related to
the breeding, ranching, transportation and sale of cattle.
The indictment stated that Hoyt led, controlled, and supervised
the overall business activities of what he called the Hoyt's
Vertically Integrated Cattle Enterprise. The indictment charged
that Hoyt "organized and led the conspiracy."
David Barnes was a general
partner in some of the partnerships controlled and operated
by Hoyt, the indictment stated. He also managed and supervised
the Hoyts' General Partner's Office and later another business
called Action Livestock Limited, which offered cattle and
sheep for sale to investors.
April Barnes, David Barnes'
wife, was a general partner in some of the partnerships controlled
and operated by Hoyt, the indictment stated. With her husband,
she supervised and managed the General Partner's Office in
Elk Grove, Calif.
David Cross was an employee
and associate of some of the Hoyt companies and partnerships,
according to the indictment. He worked as a ranch hand, bull
manager, and salesperson for several of the businesses controlled
by Hoyt, and became managing general partner of Hoyt & Sons
Certificate Sales Co. The indictment charged that Cross was
instrumental in covering up the "severe and pervasive cow
shortage" in the cattle investment program.
Darrel Smith was the managing
general partner of the IRA ranch real estate operations and
general partner for the Hoyt & Sons Ranch Properties IRA partnerships,
the indictment stated.
Phyllis King was the office
manager for Hoyt's offices, according to the indictment. She
was not charged with conspiracy or mail fraud.
The Charges
Count 1 of the indictment charged
Hoyt, David and April Barnes, Cross, and Smith with conspiracy
to commit mail fraud, in violation of 18 USC § 371.
Counts 2 through 32 charged
Hoyt, David and April Barnes, Cross, and Smith with mail fraud
in violation of 18 USC § 1341 and § 2.
Counts 33 through 37 charged
Hoyt, Barnes, and King with bankruptcy fraud in violation
of 18 USC § 152 and 18 USC § 2. In February 1997, creditors
filed involuntary bankruptcy petitions against two Hoyt entities.
United States Trustee Jan Ostrovsky of Seattle was appointed
trustee of these cases and assumed control over the business
debtors' assets, income, and operations. The indictment alleged
that the defendants continued to sell cattle to new investors,
using new names to conceal their activities and to divert
income from the trustee and creditors. Specifically, Count
33 charged that Hoyt, Barnes, and King knowingly concealed
property belonging to the bankruptcy estate, including over
$1.6 million in note payments; Count 34 charged that Hoyt
knowingly testified falsely in the bankruptcy proceedings
under penalty of perjury; Count 35 charged that King knowingly
testified falsely in the bankruptcy proceedings under penalty
of perjury; Count 36 charged that Barnes knowingly submitted
false bankruptcy schedules and documents; and Count 37 charged
that Hoyt knowingly submitted false bankruptcy schedules and
documents.
Counts 38 through 54 charged
Hoyt, Barnes, and King with money laundering in violation
of 18 USC § 1957 and § 2. The indictment alleged that the
defendants concealed from the bankruptcy trustee more than
$1.6 million in note payments after the Bankruptcy court entered
orders for relief on June 5, 1997. On 17 different dates,
according to the indictment, the named defendants "did knowingly
engage and attempt to engage in monetary transactions, in
or affecting interstate commerce, in criminally derived property
of a value greater than $10,000, by depositing, withdrawing,
transferring or exchanging funds, by, through, or to a financial
institution, such property having been derived from a specified
unlawful activity, that is mail fraud and bankruptcy fraud.
..."
An indictment contains only
allegations and is not evidence of guilt. The defendants are
presumed innocent and are entitled to fair trials at which
the government has the burden of proving guilt beyond a reasonable
doubt.
The case is being prosecuted
by Assistant United States Attorney Allan Garten and Ronald
Scott Taylor, Trial Attorney, Criminal Division, Department
of Justice. The case was referred to the United States Attorney's
office by United States Trustee Jan Ostrovsky.
Contact: Allen Garten
Assistant United States Attorney,
District of Oregon
(503) 727-1043
Jan Ostrovsky
United States Trustee, Region
18
(206) 553-2000
|
