Real Estate Development Scam Results in Prison Time

Allison Tussey —  May 2, 2012 — Leave a comment

Elizabeth P. Johnson, 35, Bozeman, Montana, appeared for sentencing in Missoula, Montana, on April 27, 2012, before U.S. District Judge Donald W. Molloy. Johnson was sentenced to a prison term of 34 months, a special assessment of $200, restitution in the amount of $1,457,770.34 and supervised release for 3 years following her release from prison.

Johnson was sentenced in connection with her guilty plea to wire fraud and money laundering.

According to court documents, in 2005 Johnson came up with a development idea in Star Valley, Wyoming, located about an hour southwest of Jackson Hole, Wyoming on the border with Idaho. Some property located there had hot springs rising to the surface and Johnson wanted to harness the geothermal features and create a luxury health spa and resort catering to high-end clientele. In an effort to fund this project, Johnson recruited investors.

Johnson purchased 20 acres in the Star Valley in June/July of 2006 for $265,000. The property purchase was financed by the former owner, referred here to as “A.A.” Johnson additionally financed the property with an investment of $250,000 from another individual, referred here to as “B.B.” Both “B.B.” and “A.A.” received mortgages on the property which was encumbered for $450,000 shortly after it was purchased. “B.B.’s” investment was short term, and he was supposed to be paid $290,000 for the use of his “bridge funds.”

As the months passed, “B.B.” was anxious for his $290,000 to be returned, plus $50,000 that Johnson owed him from a previous investment. So on January 4, 2007, Johnson made contact with yet another individual, referred here to as “X.X.” On January 5, 2007, Johnson sent him a buy/sell agreement which purported to show that a company had put $100,000 earnest money down on the 20 acres with an offer to buy it for $5.4 million. This “agreement” was faxed from Bozeman to “X.X.” in Utah.

After Johnson gave “X.X.” the buy/sell, she sought an investment from him in the form of a $1.2 million loan. She assured “X.X.” that no one related to her was involved in the project. But just prior to entering into an agreement with Johnson, “X.X.” discovered that her father’s company was the “buyer” on the buy/sell agreement. Johnson assured “X.X.” that her father was only a middle man and was processing the deal for out of state buyers/financiers.

She assured “X.X.” this was a no-lose deal because they could sell the property in weeks for millions. But she never told “X.X.” she had purchased the 20 acres for $265,000 only 6 months before.

“X.X.” ultimately entered into a partnership with Johnson and provided $1.2 million in loan proceeds to Johnson and required her to co-sign on the loan. Per their agreement, all the funds were supposed to be used for developing the project. Johnson assured “X.X.” in the agreement and by email that she was not receiving any funds for her personal use.

However, only a portion of the funds were used to clear title to the land: “B.B.” and “A.A.” were paid off, and Johnson paid her “promoters” to continue to market the project. And then Johnson used over $400,000 for her own personal use and to pay other personal debt. These funds were wired to a handful of individuals listed on the settlement statement for the loan and she assured “X.X.” that they were all prior investors that he needed to buy out.

In reality, many of them were investors that she owed money to from other projects. And two of them were her sister and sister-in-law who received over $200,000 and re-routed these funds to Johnson’s personal bank accounts. One of these transfers comprised a $106,250 transfer to “C.C.” on February 14, 2007. This money was then transferred into Johnson’s personal account on February 15, 2007, as alleged in Count II of the Indictment.

Johnson‘s sister and sister-in-law stated that Johnson approached them and asked if she could use their account to transfer money into and out of. They did not understand why this was necessary, but consented. Once Johnson received the funds in her own account, she spent them on personal items including living expenses, car payments, travel to Mexico, and large deposits ($60,000) into Children Family Films which was a fraudulent investment scheme where she lost all the money.

Upon further investigation, agents discovered that the buy/sell agreement was completely fabricated by Johnson. The real estate agent listed on the agreement was her cousin. He stated that he had generated a $5.4 million buy/sell where Johnson was the buyer of a 640 acre parcel, but he never created a document for Johnson‘s 20 acres in Star Valley. He said that his signature was forged on the document, and the dates on the document predated the form’s date listed on the bottom.

Agents confronted Johnson and she confessed that the buy/sell was fabricated and she forged the real estate agent’s signature. She said that she did this to convince “X.X.” to invest. She also admitted that the $100,000 earnest money check was never deposited and she gave it to “X.X.” to make the buy/sell appear more legitimate.

“X.X.” stated that if he had known monies were used personally by Johnson, and that the buy/sell was fabricated, he never would have invested in the project, but Johnson repeatedly convinced him that the buy/sell was real and all money was used for business purposes. In the end, “X.X.” spent $300,000 of his own money trying to pay off the loan when everything collapsed and he now has a judgment against him for the entire amount of the loan plus costs and interest.

Because there is no parole in the federal system, the “truth in sentencing” guidelines mandate that Johnson will likely serve all of the time imposed by the court. In the federal system, Johnson does have the opportunity to earn a sentence reduction for “good behavior.” However, this reduction will not exceed 15% of the overall sentence.

The United States Attorney’s Office announced the sentence.

Assistant U.S. Attorney Timothy J. Racicot prosecuted the case for the United States.

The investigation was a cooperative effort between the Federal Bureau of Investigation and the Criminal Investigation Division of the Internal Revenue Service.

Allison Tussey

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