The former CEO of Epic Air pleaded guilty last month to a single count of wire fraud, bringing closer to conclusion a case that began almost nine years ago with bankruptcy petitions by Epic’s related companies.
Epic had been bilking customers, who paid $1.4 million or more for kit aircraft assembled in Bend, to pay for other projects, complete other customers’ unfinished aircraft and provide a “lavish lifestyle” for CEO Fred Schrameck, also known as Rick Schrameck, according to information filed in the U.S. District Court of Oregon.
Epic Air was among a spate of Central Oregon fraud cases that came to light as the real estate market collapsed and the economy tanked. These cases offer a glimpse of what could lie ahead next time the economy cools. “At some point, it always comes home,” said Kevin Padrick, who served as trustee in the 2008 bankruptcy of Summit 1031, where company officers used client money that was supposed to be parked in safe bank accounts for real estate investments.
“There’s always a precipitating factor,” Padrick said. “It’s usually some kind of a downturn in the business or the economy.”
Most of Central Oregon’s big fraud cases were resolved by the time the local economy began heating up again. Some of the lead perpetrators have been released from prison, or they’re nearing the end of their terms. Ron Miller, who along with his wife, Danae, lost hundreds of thousands of dollars to Summit 1031, said the episode taught him that a heady economy can have a dark side.
“It was a horrible time, and I don’t think it’s too far off again,” Miller said as he watched people walk by his tent at the downtown Bend Farmers Market. “I’m leery of it when it gets going this fast.”
One of Miller’s businesses, Vaquero Valley Ranch and Cattle Company, sells beef directly to consumers. Miller had planned to focus solely on raising cattle, but that was before Summit 1031 took Miller and his wife’s money, which they were going to spend on more land, he said. So he continues to earn a living training horses as well.
White-collar crime follows the business cycle, said Martin Hansen, a Bend attorney and former prosecutor who represented victims of Tami Sawyer, who ran a real estate investing scheme with the assistance of her husband, Kevin Sawyer, a former Bend Police captain.
“Right now the cases you’re seeing in an upturn economy like we have is bookkeeper embezzlement,” Hansen said. “I’m certain in the next downturn we’re going to find out new Ponzi schemes that are uncovered.”
In a classic Ponzi scheme, new investors are recruited to pay off existing investors, and the scheme can be perpetrated as long as the investor pool keeps growing.
Most Central Oregon frauds of a decade ago involved real estate, though not all were Ponzi schemes. Desert Sun Development orchestrated mortgage and construction-loan fraud that required participation by loan officers, mortgage brokers and bank employees. The company obtained about $19 million in loans for construction in Bend and Redmond that was never completed, and a total of 13 people were indicted, according to The Bulletin’s archives.
Summit 1031 had multiple offices in Western states, and it was seen as a reputable handler of property exchanges for real estate investors. Under section 1031 of the U.S. tax code, investors can defer paying capital gains tax on the sale of one property if they buy another within a certain time frame, a transaction called a 1031 exchange.
Everyone in Central Oregon used Summit 1031, Miller said, so that’s where he and his wife turned after they sold a farm property. “My wife went in to do the exchange. There was a note on the door: ‘Experiencing liquidity problem,’” he said.
Summit was soon in bankruptcy, where Padrick said he recovered about 90 percent of the $13 million owed to creditors. That was an unprecedented recovery rate, Padrick said. “I can tell you I brought claims against banks, insurance companies. Wherever people were involved in assisting the fraud, I brought claims against those entities.”
Miller said he and his wife did get some of their money back, but it was nowhere near 90 percent, and they had to pay taxes on it.
Real estate is such a large industry in Central Oregon, it will probably generate a new round of bogus investments, Hansen said. Real estate is familiar to most people, and the investments aren’t regulated, which makes it a common vehicle for scams, Padrick said. At the same time, any investing trend where people think they’re missing an opportunity to make a big profit, such as cryptocurrency, is ripe for abuse, he said.
Regardless of the flavor, almost every fraud requires a victim who wants to believe in the outcome, which is usually a rate of return that’s above the norm, Hansen said. People like the Sawyers have a knack for finding starry-eyed investors, he said.
What makes con artists successful is believing their own promises, Padrick said. “People think most of these guys go home at night and scheme about how they’re going to steal your money,” he said. “That is not at all how the perpetrators see themselves. They would see themselves as law-abiding citizens. That actually gives them a lot of power to delude others.
“In almost every single case, the perpetrators have convinced themselves that it’s not fraud. They, in fact, will make good on whatever promise they use to induce the receipt of the money. Even if the perpetrators are using that money on their own lifestyle, they still believe they will be successful and no one will lose that money.”
It’s actually rare for fraud cases to amount to criminal prosecution, Hansen said. And the journey from civil court to criminal court can be long. Although Schrameck’s companies filed for bankruptcy protection in 2009, federal prosecutors didn’t indict him until 2014. He’s due to be sentenced at U.S. District Court in Eugene in August. U.S. Attorney Billy Williams’ office intends to pursue a sentence that reflects the $15 million in losses caused by his actions, according to a plea agreement.
In 2013, Tami Sawyer was sentenced to nine years, and Kevin Sawyer to 27 months in prison.
After witnessing lawyers take fees from the civil proceedings against Summit 1031, Miller said, he was more disappointed by the perpetrators’ sentencing, which finally arrived in 2013. Summit’s co-founder, Mark Neuman, was sentenced to 6 1⁄2 years, and according to the Bureau of Prisons, he’s due to be released Nov. 13. Timothy Larkin was released this year, and Lane Lyons was released in 2017. Co-founder Brian Stevens, who testified against his partners, was released in 2013.
“That was the ultimate slap in the face is they did that little time,” Miller said.