SEATTLE – A Mukilteo real estate developer who scammed a small sewer district into selling $20 million in municipal bonds for a bogus industrial park was sentenced to nearly six years in prison on Friday in U.S. District Court.
Terry R. Martin, 57, committed what Judge Robert Lasnik called an “abomination” in flimflamming the tiny Holmes Harbor Sewer District on Whidbey Island into selling the bonds.
Three other defendants in the case also were sentenced Friday.
Attorneys J. David Smith, 53, of Edmonds and Edward L. Tezak, 45, of Snohomish each were sentenced to 18 months in prison.
Lynnwood mortgage broker John White, 52, got 10 months behind bars.
A fifth defendant, former Holmes Harbor Sewer District engineer Leslie Killingsworth, 68, of Coupeville is scheduled for sentencing by another judge in August after pleading guilty to wire fraud.
The scheme snared the 270-customer sewer district in Freeland, whose commissioners – since replaced – in 1999 agreed to sell $20 million in municipal bonds to fund Martin’s proposed Silver Sound Corporate Center near Paine Field in Everett.
There was no development, and more than 300 investors from at least a dozen states were swindled. In addition, the sewer district was warned in advance that the sale was illegal because the municipal bonds would be used for a project outside the boundaries of the district.
Besides the criminal liability, Martin and some bond brokers face a class-action civil lawsuit in which the plaintiffs hope to recoup up to $32 million, including the original bond sale, attorney fees, interest and punitive damages, said David Hoff, a Seattle attorney.
Among the defendants are broker-dealers Prudential Securities Inc. and Wedbush Morgan Securities Inc., and U.S. Trust Co., the trustee.
The lawsuit, filed in Island County Superior Court, alleges that the companies didn’t check out the bond sale to protect investors. A trial is scheduled for October.
Getting the criminal cases out of the way was good news for the investors, said Janissa Strabuk, another lawyer in the lawsuit.
“It will allow us to determine who is ultimately responsible,” Strabuk said. “These people were supposed to check this out, and they didn’t do it.”
Martin pleaded guilty to conspiracy, nine counts of securities fraud and 10 counts each of wire fraud and money laundering. White and Smith pleaded guilty to conspiracy to commit securities fraud, and Tezak admitted wire fraud and money laundering.
The scheme centered on plans by Martin to build a 500,000-square-foot commercial office park. Martin convinced the elected sewer district commissioners to issue the $20 million in tax-exempt bonds to fund part of the development.
In his plea agreement, Martin admitted he and others made numerous misrepresentations when promoting the bond sale. His claims that the office space had been leased in advance to Microsoft also were false, the government said.
In addition, he told the commissioners that $63 million in private financing had been committed when it had not, and he lied when he said permits had been secured to begin construction, the government said.
Martin and the other defendants took more than $2.5 million from the bond funds for their personal use, according to court documents.
The case was investigated by the Seattle office of the FBI and the Internal Revenue Service.
Reporter Jim Haley: 425-339-3447 or haley@heraldnet.com.
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