Rick Koerber testified Friday that his companies had $120 million or so in equity in 2007 when they became illiquid, enough to back the $100 million in investments that came in during the enterprise’s short, spectacular rise.
But, on the witness stand for the fifth day in his federal court trial, the former Utah County businessman pointed to the 2007 crash of real estate values and “rumors” spread by state regulators looking into possible fraud for the equally spectacular crash of his operation that left behind the wreckage of $40 million or more owed to investors.
Koerber is facing 17 fraud-related and tax evasion charges stemming from his Utah County real estate businesses from 2004 to 2008. A grand jury indictment says he used about half of the $100 million in investments and loans to pay interest to investors in an alleged Ponzi scheme.
Koerber is expected to wrap up questioning by his attorney on Tuesday when the trial resumes and then should be on the stand several more days as prosecutors get their shot at cross-examination in what will be the sixth week of the trial.
Koerber said on the witness stand that any loans or investments he took in were backed by equity in property measured by its market value and backed by appraisals.
He also insisted several times that he checked the equity in all his companies properties daily before taking in new investments to ensure each was backed by sufficient collateral.
But the crash of property prices and the end of free-wheeling loans in 2007 proved a disaster for his companies, he said.
And he also blamed their demise on “rumors” coming from state regulators who started looking into his operations, wondering if they indeed held the real estate he claimed.
The indictment alleges that Koerber lied to investors or failed to tell them how their money was being used. He insisted otherwise.
Koerber spent much of Friday explaining his “Equity Mill,” the trademarked term for a real estate investment strategy that aimed to turn any equity in property into “cash flow.”
The Equity Mill as a metaphor for real estate investing came to him while he looked into a gold mining operation in Montana. Deposits of goldlike nuggets can be seen, while the flecks — the “micro gold“ — had to be milled from rock.
Koerber said he aimed to mill the unseen, unused micro equity in property.
Koerber’s companies bought undervalued home and the equity in them came in the difference between what was paid and their market value, he said. That’s where most of the equity came from that he said backed investors’ monies.
A Koerber company called Hill Erickson also sold some of those homes to “preferred buyers” — former students who had gone through Koerber’s training — at market value, with the company pocketing the difference.
In an example, Koerber said an undervalued home was bought for $300,000 and sold at its market value, $400,000, to a preferred buyer who used his or her credit for the purchase for little or no cash out of pocket.
Hill Erickson pocketed the difference and then another company called New Castle Holdings would enter into a contract with the preferred buyer to either rent the home, engage in a lease with an option to buy or finance a sale itself.
The preferred buyer would receive monthly payments that covered their mortgage plus perhaps $100 more. That “cash flowed” the investment in the home, giving the preferred buyer a steam stream of cash instead of stagnant equity, Koerber said.