Bonus: The Fund (Darren Berg)

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Hello.

We are still on break, but I figured we should drop a little bonus episode to tide you over the holidays.

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This episode of Swindled may contain graphic descriptions or audio recordings of disturbing events which may not be suitable for all audiences.

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They bribed government officials to find accounting.

You paid tens of millions of dollars.

Dumping up the tens of ten records into high payments.

The three of us together, as owners of the funds, have decided to hire a really nice guy named Darren Berg at Meridian to run the funds.

So I kind of serve two hats here.

I'm both an owner of the fund you're in, and I'm also a manager of the fund you're in.

And the company that owns these offices is actually in the business of managing deals like the ones you're in.

Seattle-based Meridian Mortgage was launched in 1987.

by a charismatic and savvy businessman named Darren Berg and partners partners whom he later bought out.

Meridian was a series of real estate investment funds that did not buy, sell, or hold properties.

Instead, Meridian Mortgage dealt in real estate contracts, most prominently, seller-financed loans.

The cool thing is we buy seller-financed loans.

Does everyone understand what a seller-financed loan is?

A loan between private parties.

For example, Party A sells their house privately to party B, but instead of a bank holding the mortgage, the seller basically issues an IOU to the buyer, who pays the seller directly.

It essentially works as an annuity where the seller receives a monthly payment, including interest, of course, over a set period of time.

Derenberg's Meridian Mortgage would seek out these types of loans and purchase them from the private lender at a discount using investors' funding.

A collection of the loans would then be packaged into funds that generated capital gains for those investors via the interest over the life of the loan.

The guaranteed returns, according to Berg, could range from 12% up to 50%.

Sound risky?

Not at all, actually.

They're as safe as buying government bonds, Berg would tell his clients.

And all of the Meridian funds were audited annually by an independent accounting firm.

Very meat and potatoes kind of stuff.

We actually run a very kind of meat and potatoes operation.

Kind of one loan at a time.

Darren Berg's conservative approach was the catalyst for the fund's success.

There would be some months when he would buy one new loan, sometimes he would buy 30, sometimes he would buy none and refuse to accept additional investment.

Idle cash is the devil's playground.

Excess cash is a burden to the organization, not only because we have to pay interest on it, but because it has a tendency to change the cycle because it gets you all excited about having to spend it.

Additionally, the Meridian funds were completely transparent.

There were mid-year reports, the aforementioned audits, and the option to receive monthly interest checks for cash out lump sums.

The returns were so impressive, most investors typically chose to reinvest.

It was a privilege, after all.

Meridian Mortgage was exclusive.

Only, quote, accredited investors who met certain income and net worth criteria were allowed to invest in the funds, which required a $100,000 minimum.

The general public was not allowed to participate, which meant that Meridian Mortgage was exempt from most SEC regulations.

It also meant that Darren Berg was not required to disclose his background.

Frederick Darren Muskoff legally changed his name to Darren Berg, his stepfather's surname, on the day he turned 18.

Darren's childhood in Grant Pass, Oregon had been traumatic.

His biological father was physically abusive to him, his siblings, and his mother.

It taught him how to disassociate, his sister Wendy told the Seattle Times.

Quote, Darren's personality was formed by some pretty weird stuff, but it never hampered his ambition.

Derenberg started his first business while attending the University of Oregon in the early 80s.

It was a charter bus company called Derenberg Tours that sold bus tour packages to Las Vegas and elsewhere.

He even had an office in downtown Eugene.

Charter buses would prove to be a lifelong passion for Derenberg.

His grandfather drove a bus for Greyhound, which fascinated Darren as a kid.

The fact that he gravitated towards that industry was no surprise to anyone who knew him.

Darren's zeal for business also impressed his U of O fraternity brothers and Pi Kappa Alpha.

The Pikes elected Darren Berg to be the treasurer of the frat, and later the president.

He was a hair-on-fire ball of energy, one of the brothers, Michael Stone, told the Seattle Times.

Lots of charisma, lots of confidence.

But soon enough, there would be lots of questions about Darren's scruples.

In October 1983, the rent check for the fraternity house bounced.

Michael Stone, the assistant treasurer, investigated and found that the Pike's bank account was empty, which seemed impossible.

All 35 brothers had just paid for a full quarter of room and board.

After examining the books, it became clear what had happened.

More than $21,000 of the fraternity's funds had been transferred to the bank account of the Darren Berg's Tours Corporation.

Michael Stone confronted Derenberg.

Derenberg said he was simply reimbursing himself for out-of-pocket expenses that he had incurred on behalf of the frat.

However, after he failed to produce any evidence of the claim, Michael Stone contacted the Eugene police.

No charges were filed, Stone said, because the police discounted it as a he said, he said kind of situation.

Derenberg moved out of the fraternity house and dropped out of school the following week.

The last time Michael Stone heard from the suspected fraudster was via letter.

I have at no time ever embezzled any funds from the Pi Kappa Alpha fraternity, he wrote.

What an erroneous assumption.

Any money deposited into any account will have a tangible and reasonable explanation.

Derenberg then instructed Stone and anyone else at the fraternity to direct any future inquiries to his lawyer.

Quote, he has paid good money to answer stupid questions, and I'm sure he'll be happy to answer yours.

So, Michael Stone contacted the attorney named in that letter.

He had never heard of Darren Berg.

After fleeing Eugene, Darren Berg resurfaced in Portland, Oregon.

There, he crossed paths with a former fraternity brother named Drew Shavier.

Using his unmatched charm, Darren convinced Drew that not only was he wrongfully accused by the Pikes, but also that they should start a business together.

Unfortunately, Darren Berg had little to contribute financially.

Fortunately, Drew Shavier had just scored $12,000 from a recent marketing project he had worked on.

Together, they launched Berg, Shavier, and Associates, an advertising agency that served the greater Portland area.

The agency landed a few clients, restaurants, a chain of tire stores, and a jewelry store.

It was enough to keep the lights on, but by no means were they getting rich.

However, you wouldn't be able to tell, judging by Darren Berg's lifestyle.

He drove a nice car, lived in a fancy apartment.

Meanwhile, Drew Shavier was scraping to get by.

Oh, it's the charter bus business, Darren told Drew.

My new company, Tour Design, is doing really well.

Berg, Shavier, and Associates ran out of money and shuttered in 1987.

It came as a complete surprise to Drew Shavier.

What happened next?

Not so much.

The federal grand jury indicted Darren Berg for eight counts of bank fraud.

Allegedly, Berg was kiting checks, meaning he had deposited checks from one of his accounts into another and withdrew the cash before the bank realized there were insufficient funds, similar to what the kids these days call the chase bank glitch.

Darren Berg had illegally obtained more than $19,000 in this way.

He ultimately pleaded guilty to one count of bank fraud.

Berg received five years of probation on the condition that he repay almost $10,000 of the funds.

He was also ordered to live in a residential treatment center and undergo psychiatric counseling.

Less than a year later, 25-year-old Darren Berg arrived in Seattle as an unemployed college dropout with multiple failed businesses under his belt, a felony on his record, and $150 to his name.

In retrospect, those things would prove to be mere speed bumps on his road to success.

It was in Seattle that Darren Berg launched the Meridian Group, which over the next decade and a half, would grow to encompass more than 20 corporate entities, including an investment fund, a development company, a software company, a home building company, and of course, a charter bus company called Meridian Transportation Resources, DBA, MTR Western.

You know, I also own a very large bus company.

I'm one of the largest charter bus companies in the country.

Again,

an opportunity that I saw after September 11th.

Support for Swindled comes from Simply Safe.

For the longest time, I thought home security meant an alarm going off after someone broke in.

But if the alarm is already blaring, it's too late.

The damage is done.

That's a reactive approach, and it leaves you with that awful feeling of violation, even if the intruder runs away.

That's why I switched to Simply Safe.

They've completely changed the game with Active Guard outdoor protection, designed to stop crime before it starts.

Their smart, AI-powered cameras don't just detect motion.

They can tell you when there's a person lurking on your property.

That instantly alerts SimplySafe's professional monitoring agents in real time.

And here's the game changer.

The agents can actually intervene while the intruder is still outside.

Talk to them through two-way audio, hit them with a loud siren and spotlight, and call 911 if needed.

It's proactive security, and that's real security.

I trust SimpliSafe because there are no long-term contracts, no hidden fees, and a 60-day money-back guarantee.

They've been named best home security systems by U.S.

News and World Report for five years in a row, and I can see why.

Get 50% off your new SimplySafe system at simplysafe.com slash swindled.

That's 50% off your new SimplySafe system by visiting simplysafe.com slash swindled.

There's no safe like SimplySafe.

The show is sponsored by BetterHelp.

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Seattle's Entrepreneur of the Year in 2008 enjoyed the fruits of his labor.

He bought a $5 million waterfront mansion on Mercer Island and spent another $5 million renovating it with his live-in boyfriend.

Derenberg also owned a $2 million condo in downtown Seattle, a million dollar house in La Quinta, California, and a $1.4 million condo in San Francisco.

He bought a yacht, he bought two airplanes, not to mention all the sports cars, massive art collection, and extensive travel.

Darren would also throw elaborate parties, both for himself and his employees.

For example, at a convention in 2008, Berg paid singer-songwriter John Mayer more than $400,000 to perform.

Darren Berg was having fun.

I'm actually having fun in this economy.

The reason I'm having fun in this economy is because there's nothing funner than being right.

There is nothing more fun than being right.

That's Darren at an investor presentation a few months later in March 2009.

Even though the real estate market was currently imploding, Meridian Mortgage was raising additional money.

The investment firm announced that it had created five new funds, but investors were properly spooked.

Not only had the housing market collapsed, but Bernie Madoff had just been arrested for defrauding his clients out of at least $18 billion.

Derenberg did his best to ease their fears, assuring them that he was not like the others.

What happens is everyone in this business seems to be,

that's in this business is having trouble, seemed to be very good at raising money and very bad at running a mortgage company.

The truth is, Derenberg was desperate.

He was having trouble covering all the recent client withdrawals.

It was like a run on the bank, and the bank of Derenberg and Meridian Mortgage was not very liquid.

But before things would improve, they were about to get exceptionally worse.

A local wealth advisory firm, Cornerstone Advisors, had invested in Meridian Mortgage on behalf of its clients, and in early 2010, Cornerstone asked to withdraw the entire $27.5 million that Meridian claimed it had accumulated on paper.

When Meridian couldn't provide the funds, Cornerstone sued.

Over the next few months, Meridian Mortgage collapsed.

Derenberg filed for personal and corporate bankruptcy.

All of his possessions were seized.

He decided to get ahead of what was coming.

He wanted to take responsibility.

Derenberg met with federal prosecutors and the FBI and admitted that he had been operating a massive Ponzi scheme.

For 10 years, Berg claimed his business, Meridian Group, was investing in private mortgages, but it was actually an elaborate Ponzi scheme.

Search warrants turned up 700 boxes of evidence against Berg.

Forensic accountants diligently followed the money in his accounts to unravel the scheme.

Frederick Darren Berg was charged with nine counts of wire fraud and one count of money laundering.

He was not arrested, at least not immediately.

This is way, way worse than your typical Ponzi scheme, Assistant U.S.

Attorney Norman Barboza told the court.

Few investment schemes have this level of sophistication.

There were millions of documents.

93 different bank accounts, fake bank loans, fake appraisal reports, fake titles, and few real assets backing up the value of Meridian's funds.

Meridian held about $11 million worth of mortgages.

That's about one-tenth of what investors thought they owned.

Darren Berg maintained the facade for years by misleading auditors, employees, and co-executives.

Darren managed all the funds by himself.

He went so far as to create imaginary investors and rent P.O.

boxes for each of them, at least 20, so he himself could answer any auditor queries of the fund's investors.

In total, more than 500 people had invested more than $140 million worth of Meridian mortgage.

On paper, they had doubled their money for an expected payout of $280 million.

Shockingly, of that $140 million,

$123 million appeared to be lost.

Derenberg spent most of it on himself and his companies.

Besides the properties, the yacht, the airplanes, and cars and such, which accounted for about $30 million, Berg infused his home building company with with at least $10 million and another $75 million went to his bus company.

At least a couple of million remained unaccounted for.

Darren Berg swindled more than 500 victims out of $140 million.

And these people were very responsible.

They were putting money away.

They were trying to

prepare for the future.

And the bottom line is a lot of people lost a lot of money.

Darren Berg pleaded not guilty and he kept himself busy while awaiting trial.

An aviation company in Los Angeles wanted to hire him as a consultant.

Berg asked for the court's permission to accept the role and relocate.

Permission was granted, but no job existed.

Darren Berg had fabricated the contract and forged the signature of the company's executive, which he had misspelled.

But investigators were not aware of that yet.

They were also unaware that Berg had recently sold a house in Seattle that he had never disclosed for $400,000.

He He used that money to buy a new Audi and lease a condo in LA.

He sent the remaining balance to a trust in Belize.

Authorities became wise to Berg's plan, according to the Puget Sound Business Journal, when a consultant working with a bankruptcy trustee found a receipt for the wire transfer while searching his Mercer Island home.

Derenberg was arrested in Los Angeles in late October 2010.

He had $14,000 cash stuffed in a laptop bag.

He was charged with additional counts of bankruptcy fraud and money laundering.

Berg would be remanded in custody until the start of his trial, but there would be no trial.

On August 2011, Darren Berg pleaded guilty to two counts of fraud and one count of money laundering.

Deemed a flight risk, Berg would remain behind bars until sentencing, which happened in February 2012.

Mr.

Berg, I'm not sure how you live with yourself and the extent of damage that you have done, U.S.

District Judge Richard Jones told the 49-year-old.

These were supposed to be their golden years, the judge said, referring to his victims.

Not a dark nightmare.

Derenberg apologized for, quote, the horrific mess I made.

Not only do I owe you an apology, he said during his five-minute presentation, I have for a long time felt that I owed you an explanation.

And I have for a long time objected to the idea that what actually happened is almost irrelevant and that the end result is all that matters.

I just want you to know that I didn't mean initially to do this.

The subject of an investigation by the FBI and its law enforcement partners is sentenced to 18 years in prison for the largest fraud scheme in Washington state.

Frederick Derenberg was sentenced to 18 years in prison and ordered to pay more than $140 million in restitution to his victims.

Truthfully, according to the bankruptcy trustee, his victims would only see an estimated 15 to 25 percent of that number.

To date, about $40 million has been recovered.

During the initial years of his prison stay, Darren Berg worked feverishly on his own case but failed to convince a judge to release him.

Eventually, he was transferred from SeaTac Federal Detention Center south of Seattle to a minimum security satellite camp adjacent to Atwater near San Jose, California.

That prison camp has programs that allow non-violent inmates like Darren Berg to work outside the camp in the community.

Berg participated, which presented an opportunity.

On Wednesday, December 6, 2017, around 3.30 p.m., the prisoner headcount was one man short.

This email sent out to people connected to the biggest Ponzi scheme in Seattle's history, Frederick Darren Berg has escaped from federal prison.

Darren Berg had simply walked away while working outside the facility, the third inmate to escape from Atwater in the last year.

Berg was nearly six years into his 18-year sentence.

The federal manhunt focused focused on his longtime partner, Darryl Ray Blankenship.

Blankenship was a flight attendant who had access to a private jet.

Authorities believe that Darren Berg had money stashed away, and Blankenship helped him flee.

A search of Daryl Blankenship's electronic devices and communications lent credence to that theory.

According to the Associated Press, Daryl had photos from a hotel in Brazil that showed three men sitting on a lounge chair.

You can't quite see the faces, but one of the men supposedly has a hairline identical to that of Darren Berg's.

There were also messages to Darren's mother sent from Blankenship's phone.

Hello from Rio, it read.

The U.S.

Marshals declined to confirm the AP's report.

Darrell Blankenship was never charged for assisting in the escape.

And Frederick Darren Berg is still on the run.

Keep an eye out.

So you saw what Darren Berg looks like.

He's six feet tall, 170 pounds, with brown hair and hazel eyes.

U.S.

Marshals did not request local help from authorities here in Washington to find him, but if you see him, you're asked to call police.

Swindled is written, researched, produced, and hosted by me, a concerned citizen, with original music by Trevor Howard.

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If not, we'll be back soon with a brand new season of Swindled.

Yay.

Hello, my name is Jeff from California.

Hi, my name is Bex from Saint-Gendo in France.

Hello, my name is Annie from Toronto, Canada, and I'm a climate

citizen and salary presenter.

Remember, you can't get scam called by your grandparents if you have no grandparents.

Love you, bye.

Elfie.

Thanks to Simply Safe for sponsoring the show.

Get 50% off your new SimplySafe system at simplysafe.com/slash swindled.

That's 50% off your new SimplySafe system by visiting simplysafe.com slash swindled.

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