SALT LAKE CITY — An eight-week trial began Tuesday for a long embattled Utah businessman accused of running one of the state's largest Ponzi schemes.
Prosecutors told jurors that Claud R. "Rick" Koerber's multimillion-dollar "equity mill" was a fraud, using investors' money to pay off new investors, support his lavish lifestyle and make purchases other than the promised real estate deals.
But Koerber's attorney told jurors that the businessman's model was, in fact, legitimate and successful, converting invested dollars into profitable and carefully monitored assets.
The 18-count indictment filed against Koerber in January alleges the man who called himself "The Free Capitalist" used his businesses — Founders Capital, and related businesses Franklin Squires Investments and Franklin Squires Cos. — as a $100 million Ponzi scheme from 2004 to 2008.
As the new case against Koerber, 44, was filed earlier this year, U.S. Attorney John Huber promised "a speedy public trial, without undue delay, where a jury of his peers can fairly assess the evidence against the defendant."
In his opening statement Tuesday, assistant U.S. attorney Tyler Murray told the nine-man, seven-woman jury that in the life Koerber led and the real estate investment seminars he put on, he had all the marks of a successful businessman.
But behind it all, he is accused of misusing investor funds, allegedly once telling the FBI that his business ventures "(hadn't) been pretty from the beginning," Murray said.
Koerber promised investors a 5 percent return monthly once he put their money toward real estate ventures, he said.
Instead, Murray told the jury, "Mr. Koerber spent the money on Ponzi payments, he spent it on non-real estate investments, and he spent it on himself."
During those years, Koerber put money from his businesses toward things like his own lavish lifestyle, minting coins, opening an Iceberg restaurant, establishing a school, making a low-budget horror movie titled "Evil Angel," and buying two new Ferraris in a single day, Murray said.
In the beginning, investors had no reason to suspect Koerber's methods weren't working, the assistant U.S. attorney said, as they received monthly payouts that prosecutors allege were actually other investors' funds.
"They were getting interest payments," Murray said. "They thought the equity mill was working."
According to prosecutors, Founders Capital and Franklin Squires didn't turn a profit any of the five years they were in operation, leaving Koerber using more than $50 million in investors' funds to pay earlier investors. When the payments stopped in 2007, investors lost an estimated $47 million, prosecutors said.
Koerber's attorney, Marcus Mumford, told jurors that Koerber indeed ran a profitable business, but the Ponzi scheme allegations proved "a death sentence" that no company could survive.
"Mr. Koerber ran a good and legitimate business," Mumford insisted, claiming prosecutors are only telling part of the story. "He did not lie or deceive anybody."
According to Mumford, though Koerber's businesses may not have appeared to have turned a profit every year, all the while he was "accumulating assets" worth a whopping $127 million and carefully tracking the profits on a balance sheet he maintained.
"Mr. Koerber was focussed like a hawk on the value of his underlying assets so that he could be sure that, no matter what, he had the assets to cover his liability. That's what the evidence will show," the attorney said.
Mumford quoted one of the lines Koerber used in his investment seminars — "I'm not here to take your money; I'm here to give you an education" — as he explained that all the flashy investments prosecutors are saying were fraudulent uses of his companies' money were actually part of his plan to generate profit.
For example, Koerber did, in fact, buy one of those Ferraris, while his business partner bought the other using finds drawn for the company, Mumford said. Koerber had researched the cars and believed they were being sold for less than what they were worth, the attorney said, so he bought them and then turned around and sold them for a profit a month later.
Koerber did the same thing with two Lamborghinis, Mumford said, and when he was done, the profits went back into the business.
"But let's not get distracted by fancy cars," he told the jurors, asking them instead to look at the careful financial records Koerber kept.
Mumford also promised the jury that Koerber will take the witness stand during the trial to personally explain his investments.
Koerber has maintained since he was first indicted in 2009 that he defrauded no one but ran a profitable business and was singled out by bureaucrats angered by his radio show, "The Free Capitalist."
He spoke out publicly when the case was dismissed, insisting charges never should have been filed in the first place, and blasting state regulators who first brought allegations against him.
Koerber is charged with four counts of fraud in the offer and sale of securities, 10 counts of wire fraud, two counts of money laundering, and two counts of tax evasion. His eight-week trial resumes Wednesday morning.