Windsor man indicted on fraud charges

The search is on for a former Windsor businessman accused of theft and securities fraud who has left the area for parts unknown, leaving behind dealings that could involve a failed factoring company that lost about $20 million from hundreds of local investors.

The Weld County Grand Jury indicted Darin DeVoe on March 10 on 11 counts of securities fraud and theft. The Weld County District Attorney’s office officially filed the charges on April 11.

The indictment alleges that between September 2001 and October 2005 DeVoe gathered funds from 19 investors or investor groups, issuing at least 63 promissory notes, for supposed real estate opportunities. DeVoe is accused of not repaying more than $2.6 million to the investors.

“We had some victims who said they had lost some money,´ said Weld County District Attorney Ken Buck, whose office began investigating DeVoe more than a year ago. “In my two-and-a-half years (in Weld County), this is the largest fraud I’ve seen.”

One alleged victim of DeVoe said that he had considered DeVoe a friend. Steve Short, a part-owner of now-defunct factoring company Blue Bear Funding LLC, made several successful investments with DeVoe from 2000 to 2003.

“They turned out pretty well,” he said.

But in August 2003, DeVoe approached Short for a loan. Although reluctant to make another investment, Short loaned DeVoe $325,000 – money that Short never saw again.

Short is not named as an alleged victim in the indictment. He said that he didn’t have proper documentation – like promissory notes or deeds of trust from DeVoe – to make prosecution likely. Short said he executed the loan on a verbal agreement, because he considered DeVoe a good friend.

While Short is not part of the indictment, he has started an online forum aimed at creating a network of people who have dealt with DeVoe. The forum started on Sept. 5 as a place to try to piece together DeVoe’s dealings.

“I was trying to stir the pot,” Short said.

Short and other forum members are using the site to supply contact information to various law enforcement agencies. A recent post encourages users to contact the Nebraska Division of Banking and Finance.

Although DeVoe is a former resident of Nebraska, a spokeswoman for the Division of Banking and Finance said he was not listed in its database.

Finding DeVoe

With the indictment issued, the forum will shift from getting an investigation going to finding DeVoe, who has presumably left the state.

The nine securities charges are class 3 felonies and could carry sentences of four to 12 years each, according to Colorado Division to Securities Commission Fred Joseph. Joseph is confident in the strength of the case against DeVoe. In his eight years as securities commissioner, Joseph estimates the office has had a 98 percent conviction rate.

He credits that to the amount of time and resources put into each case. Situations involving securities fraud usually involve a long paper trail, Joseph explained. Combine that with the necessary steps to bring about an indictment, and a single case can take over 12 months from opening the investigation to filing the charges.

In DeVoe’s case, the Division of Securities worked with the Weld County DA’s office to conduct the investigation.

In 2005, Buck gathered together Weld County bankers to form a white-collar crime task force, which dedicated funds to help prosecute financial crimes. Since its inception, task force resources have helped the DA’s office convict at least seven individuals of financial crimes.

“(The DeVoe case) is one of those cases that should be done by the federal government or the attorney general’s office,” Buck said.

He explained that the extra funds from the task force allowed the county to hire a former federal investigator to assist on the investigation, as well as to bring on another investigator to handle other cases.

Blue Bear connection

Buck said that the DeVoe indictment represents the most manageable case, given Weld County’s resources. However, investigators could also be evaluating DeVoe’s involvement with Blue Bear Funding.

Blue Bear started business in late 2003 as 1st American Factoring LLC. Factoring companies generally purchase accounts receivable from cash-strapped companies for around 80 percent to 90 percent of total value, then attempt to make money by collecting the entire amount owed. As Blue Bear, the company acted as an account broker for nine independent factoring companies, known as IFCs, purported to have the right to approve all accounts.

Many early investors reported that their money was accruing interest of about 12 percent; most left those earnings invested with the company. Around May 2005, Blue Bear’s investors stopped receiving a return.

The company filed for bankruptcy in August 2005, owing creditors – many non-accredited investors with low individual net worth – more than $20 million.

While DeVoe case investigators from several agencies admitted that they had knowledge of Blue Bear and its bankruptcy, none would confirm whether the ongoing investigations included the factoring company. Last year, when it became public that DeVoe was being investigated by Weld County, a spokeswoman with the Colorado Attorney General’s office said that the agency’s investigation did involve Blue Bear.

“There’s a lot of different elements to it,” she said in a Business Report interview, adding that a number of agencies are involved with the investigation. Also last year, an official at the Colorado Bureau of Investigation indicated that the CBI was assisting the attorney general’s office.

“We don’t know much about the indictment of Darin DeVoe, only that he was involved in planning the structure of Blue Bear, though he never became a member of the LLC,” according to Risa Wolf Smith, attorney for Blue Bear’s unsecured creditors committee.

A court filing by Blue Bear part-owners Don and Kris Donahoo and Gerald and Peggy Makey alleges that DeVoe was largely responsible for the formation of Blue Bear.

“DeVoe had already established mortgage and real estate investment companies that were part of a business model that was going to include a title company, an insurance company, a credit repair company, a bank and a factoring company. DeVoe contacted us and asked if we would be interested in participating in this business model,” the filing states. “He offered us ownership in current and future businesses if we would help develop the investor base he needed.”

Bankruptcy saga continues

Whether or not the factoring company is part of a criminal investigation, the Blue Bear saga continues. Bankruptcy proceedings continued for over a year just to determine whether Blue Bear would be liquidated or allowed to reorganize. On Aug. 4, U.S. Bankruptcy Judge Bruce Campbell approved Blue Bear’s reorganization plan, even as the U.S. Trustee fought to have the company liquidated. A majority of the unsecured creditors approved the reorganization plan and became the company’s shareholders.

The company attempted to resurrect itself as Pelican Financial Services Inc. in October. However, in January, the shareholders voted to discontinue factoring activities, because financial milestones were not being met.

Now, attorneys representing the unsecured creditors are attempting to collect funds through litigation with numerous parties, including the owners of record of Blue Bear – the Donahoos, the Makeys, Short, Russell Disberger and David Karst.

Some judgments have already been made, even as discovery continues. In February, Campbell ordered a partial summary judgment against Karst and his company DK Corp. Karst has been ordered to pay almost $2.2 million plus interest and fees based on Blue Bear’s claim that he is in breach of contract on promissory notes issued to the independent factoring companies.

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