Bond scam defendant pleads guilty

A third defendant has pleaded guilty in federal court in a scheme to develop a corporate center in Everett with money from a tiny sewer district on Whidbey Island.

J. David Smith, 53, of Edmonds pleaded guilty Wednesday in U.S. District Court to conspiracy to commit securities fraud and wire fraud. He faces a maximum of five years in prison, restitution and a $250,000 fine.

Two others pleaded guilty earlier, Leslie Killingsworth, 68, an engineer who worked for Holmes Harbor Sewer District, and John White, 52, a Lynnwood mortgage broker.

Between 1998 and 2001, Smith worked exclusively for Mukilteo developer Terry Martin in support of his development projects, court documents say. One was to build the Silver Sound Corporate Center, a 547,000-square-foot commercial office park near Paine Field in Everett.

Smith helped Martin acquire a $20 million tax-exempt municipal bond from the Holmes Harbor Sewer District on Whidbey Island to fund part of the project, documents say.

In his plea agreement, Smith admitted that many representations he and others made in connection with the bond sale were false. In addition, he admitted that claims that the office space had been pre-leased, representations about the property value and assertions that $63 million in private financing had been committed all were false, documents say.

Smith also conceded that his statements that permits were in place to begin construction were false, and that a $1.2 million reimbursement payment to Martin at closing was fraudulent. He also conceded there were efforts to fraudulently obtain another $900,000 reimbursement soon after the bonds were issued, documents say.

Other defendants remain in the case, including Martin. Smith’s sentencing is likely to be postponed until after Martin’s trial in October, the U.S. Attorney’s Office said.

The FBI and the IRS Criminal Investigation Division investigated the case.

The bonds were sold for a private development a county away from Holmes Harbor, a sewer district of about 250 households.

Shareholders, who alleged they were bilked out of their investments, and the federal government have filed lawsuits in the case. The private lawsuit has been given class-action status on behalf of some 200 investors.

The commissioners of the sewer district issued the municipal bonds in 2000 despite advice that the plan was not legal.

An Island County Superior Court judge ruled last year that the $20 million bond sale was illegal, only partly because it was intended to aid a private development outside the sewer district’s boundaries.

The judge also ruled that the sale was illegal because the district didn’t plan for the business park, establish a revenue source to pay off the bonds or get prior approval from Everett and Snohomish County, where the business park was planned.

Reporter Jim Haley: 425-339-3447 or haley@heraldnet.com.

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