Federal authorities unsealed a 73-count indictment Wednesday alleging bank fraud, money laundering and wire fraud against Gregory D. Jeffreys, a Spokane developer who has been largely blamed for the complicated legal and financial mess of the Ridpath Hotel.
Jeffreys, 53, his wife and his apparent lover are accused by federal prosecutors of complicated financial schemes involving loans from investors and banks on buildings that sometimes didn’t exist.
U.S. Magistrate Judge Cynthia Imbrogno ordered Jeffreys, his wife, 53-year-old Kimberly Jeffreys, and Shannon Stiltner, 51, who is described in court records as Gregory Jeffreys’ girlfriend, to remain in the Spokane County Jail each on a $150,000 bond. All three pleaded not guilty.
Greg Jeffreys, dressed in blue jail garb, took off his glasses and rubbed his eyes as Assistant U.S. Attorney Sean McLaughlin read off the potential penalties, the highest being up to 30 years in prison and a fine of twice the amount obtained through fraudulent means. Among the 73 charges are conspiracy to commit bank fraud, bank fraud, theft of government property, wire fraud and money laundering.
Spokane attorney Mark Vovos, who represented Greg Jeffreys at the hearing but has not formally accepted the case, said federal agents arrested Jeffreys Tuesday at Spokane International Airport as he was preparing for a business trip.
Vovos said the Jeffreys “are not going anywhere,” and that the couple have known they were under federal investigation since their home was raided in July. “This has been their home forever,” he said.
As for the allegations that Jeffreys fraudulently convinced investors and banks to participate in what the government describes as a Ponzi scheme, Vovos replied: “A lot of people get involved in business. But these investors are not just babes in the woods and neither are the banks. To say someone caused a bank to do something … that’s what they do for a living.”
The indictment lists dozens of limited liability companies that Jeffreys set up to perpetrate the alleged fraud. The individual investors are identified only by their initials, but they hail from Texas, Louisiana, California, Kansas, Wisconsin, Florida, New York and Oregon.
“From in and around September 2009 and continuing through on or about June 10, 2011,” the Jeffreyses and Stiltner worked together to “defraud one or more financial institutions,” McLaughlin wrote in the indictment.
Kimberly Jeffreys’ Seattle-based attorney, Allen Bentley, asked Imbrogno to release his client on her own recognizance, noting that she has no prior criminal record.
“The indictment is merely allegations. How much of the alleged fraud was known to Mrs. Jeffreys?” Allen asked. “How much was her husband’s business dealings? That’s for the jury to decide.”
But McLaughlin argued that Kimberly Jeffreys participated in a multimillion dollar “fraud. We are asking for a bond that is meaningful,” he said. “I’m quite confident Mrs. Jeffreys can make that bond.”
Ridpath not listed in indictment
The 51-page indictment does not list any of the multiple transactions involving splitting up the Ridpath Hotel property.
The documents detail several transactions, starting in 2009 when the couple applied for and received stimulus money from the government to build a Military Entrance Processing Station in Airway Heights. They first secured a $700,000 loan from Genesis Financial for the construction of the facility.
Next, they “falsely and fraudulently solicited, and received approximately $1.35 million from private” investors, the indictment says.
The Jeffreyses paid $480,000 to a contractor to build the facility even though the federal General Services Administration had paid them $1.8 million for the building construction.
The couple is accused of “diverting remaining portions of the Genesis and private MEPS investor funds for their own use and benefit,” McLaughlin wrote.
The documents also detail how the Jeffreyses in November 2010 applied for a $6.5 million construction loan from Washington Trust Bank, using the $1.8 million from GSA as collateral. The couple also obtained a $5.12 million loan from Wells Fargo and Phoenix Life Insurance using the same $1.8 million from the GSA as collateral to secure the loan.
The Jeffreyses then deposited the $1.8 million into their personal accounts to pay debts, gave some cash to their children and spent thousands gambling in Las Vegas, according to previous court records.
The loans with Washington Trust Bank and Wells Fargo were foreclosed, “resulting in substantial losses,” McLaughlin wrote.
Emails detailed progress on false project
Much of the case is built around paperwork seized in July 2011 from the Jeffreyses’ Spokane Valley home on North Vista Court.
The 400,000 pages of documents detail how Greg Jeffreys persuaded five investors to contribute $325,000 toward a $2.8 million project to build a different Military Entrance Processing Station, in Denver.
Records detail how Jeffreys used Shannon Stiltner to send investors information about the project. In the email, Stiltner wrote that contractors were “hanging the exterior curtain wall glass now.”
The address investors were given for the processing center actually was a federal office building, the Cesar L. Chavez Memorial Building. None of the construction officials had ever heard of Greg Jeffreys. Furthermore, the government already had a Military Entrance Processing Station in Denver, which opened in 2011 at a different location.
“There is no evidence that Gregory Jeffreys has been working in the Denver areas on the aforementioned real estate projects,” FBI special agent Lisa Jangaard wrote as part of her investigation. “To the contrary, evidence to date has revealed that Gregory Jeffreys has represented to investors that he was in Denver, Colorado, while at the same time, he was also physically observed by other witnesses in Spokane.”
Money loaned on two phony condo projects
Jangaard described a “large volume” of money passing through an account jointly held by Greg Jeffreys and Stiltner. With money being paid out to investors and credits, the accounts indicate “that Gregory Jeffreys and others are likely involved in the perpetuation of a Ponzi scheme,” she wrote.
A Ponzi scheme works by creating false business proposals using financial statements, promissory notes, appraisals and other documents to lure investors, and promising high interest returns and profits, McLaughlin wrote.
For example, one of the unnamed investors in the Denver deal loaned Greg Jeffreys $600,000 for a San Francisco building that didn’t exist.
“In furtherance of the scheme, Gregory Jeffreys altered an existing appraisal on his own condominium unit by changing the address of the appraised properties, the comparable properties and other relevant data,” Jangaard wrote. “These representations were made verbally … through electronic mail messages, and in documents mailed to the investors.”
In yet another deal, Jeffreys sought investors for what he described as a 200-unit condominium in Seattle and sought financing for what he described as “Mullan Midnight Condo’s” in Mullan, Idaho, to support the burgeoning mining industry. But neither building existed.
Likewise, Jeffreys in another deal convinced an investor from Houston to wire $205,000, and another investor from Louisiana to wire $100,000, for a 100-unit apartment building on East Seltice Way in Coeur d’Alene. That building didn’t exist and Jeffreys and Stiltner diverted the money for their own use, according to court records.