Meridian's Frederick Berg charged with wire fraud, money laundering
Federal prosecutors charged Frederick D. Berg with 10 counts of wire fraud and money laundering Thursday, alleging he conducted a long-running Ponzi scheme that raised more than $350 million for purported mortgage investments but actually funneled millions of dollars to himself.
Seattle Times staff reporter
Frederick Darren Berg, the founder of the failed Meridian Mortgage investment funds, has been charged with money laundering and nine counts of wire fraud in U.S. District Court for operating a scheme in which prosecutors say he spent millions of investors' dollars on himself.
Berg is charged in an "information" unsealed Thursday. Defendants charged in that manner must formally waive their right to a grand jury, and it usually indicates a plea is in the works.
Prosecutors allege Berg defrauded investors out of nearly $100 million between 2001 and 2010.
The charges allege Berg lied to investors about the Seattle funds' health, all the while financing a luxurious lifestyle that included yachts, private jets and a Mercer Island mansion.
Berg operated a number of investment funds under the Meridian funds umbrella; most have been forced into bankruptcy by investors after they quit getting payments.
Berg has also filed for personal bankruptcy. Separate trustees are investigating his finances in the two cases.
Berg, in a brief phone interview, would not comment on the charges or the possibility of a plea bargain. "We continue to cooperate with virtually everyone, the trustees, the FBI. Our goal here is to minimize the wasting of money and resources and time," he said.
A call to his attorney, Federal Public Defender Thomas Hillier, was not immediately returned Thursday.
Assistant U.S. Attorney Norm Barbosa alleges Berg "falsely represented that Meridian Mortgage Investment Funds would use investor money solely to purchase seller-financed real-estate contracts, fund short-term loans, purchase real estate and pay management and servicing fees."
The reality, according to the charges, is Berg "misappropriated millions of dollars of investors' money for his other business interests including the creation and operation of a luxury bus company, the purchase of several multimillion dollar yachts and private jets, the purchase and remodeling of a multimillion-dollar waterfront mansion on Mercer Island, the purchase and lease of luxury automobiles and other personal expenses."
The funds, which drew nearly $350 million in investments, were a Ponzi scheme, with the money from new investors going to pay interest and redemptions owed to existing investors, according to the charges.
To cover up the deceit, prosecutors say, Berg fabricated records and loan documents. In turn, he'd use those same false records as proof to draw new investors and auditors.
To fool independent auditors hired to look at the Meridian Funds in 2007, the charges say, he opened dozens of private mailboxes, which he then listed as the addresses of fictitious borrowers. Prosecutors say that when the auditors sent loan confirmation letters to the borrowers, Berg had the letters forwarded to him so he could complete the documents and send them back.
At one point, prosecutors say, Berg went so far as to fabricate e-mail messages between himself and a fictitious buyer of notes held in another fund, CS Hold Noteco. The "buyer" was identified as "John Arlett," an alias Berg has used before, the charges say.
Deputy Business Editor Rami Grunbaum contributed to this report.
Mike Carter: 206-464-3706 or email@example.com