http://www.twincities.com/ci_15700820?IADID=Search-www.twincities.com-www.twincities.com&nclick_check=1 Federal prosecutors say Lakeville man bilked banks of $80 million Financier faces 30 years if found guilty of Ponzi scheme By Frederick Melo firstname.lastname@example.org Updated: 08/06/2010 11:44:06 PM CDT A Lakeville man with ties to Arizona trucking and sports magnate Jerry Moyes was charged Friday with bilking banks out of nearly $80 million through an elaborate pyramid scheme. Federal prosecutors in Minneapolis charged Corey Noel Johnston, 40, with one count of bank fraud and one count of filing a false income tax return. They said the alleged fraud occurred from 2005 to March 2009. Johnston allegedly arranged multimillion-dollar commercial and personal loans through his company, First United Funding, and then sold the loans to banks so they could receive the repayment directly. The charges state Johnston oversold them, so multiple banks assumed they'd be receiving 100 percent of each loan repayment. The scheme resulted in an estimated loss of $79.5 million for 17 lenders, according to charges. A Dakota County judge placed First United Funding under receivership in October. The court documents make no direct mention of Johnston's connection to his longtime financial client, Moyes, owner of Phoenix-based Swift Transportation and former owner of the Phoenix Coyotes hockey team, among other sports investments. The charges do, however, elaborate upon two allegedly fraudulent loans, both of them associated with Moyes' financial enterprises. One of them is an $8 million loan that prosecutors have labeled the "JM Land Development II" loan. In the charging documents and a separate media release, prosecutors detail how Johnston allegedly turned that $8 million loan into more than $38 million in revenue through financial sleight of hand. They also describe a $7 million "White Out Way" loan. (White Out Way is the former name of the street outside the Coyotes' arena). Johnston's attorney, Thomas Kelly, said Friday that Johnston pocketed a small fraction of the $80 million himself, and instead used the overpayments to help Moyes pay off his companies' growing debts. The Coyotes declared bankruptcy and were sold to the National Hockey League in 2009. "It's indisputable that Jerry Moyes, and related entities, were the beneficiary of a large amount of these overparticipations," Kelly said. Along with the Coyotes, Moyes had been a part-owner of the Arizona Diamondbacks baseball team and the NBA's Phoenix Suns. In 2005, he paid the U.S. Securities and Exchange Commission $1.25 million to settle accusations of insider trading in a case related to his trucking firm. He did not admit wrongdoing. Neither Moyes nor his attorney could be reached for comment Friday. Moyes has not been charged with a crime. The charges against Johnston state that Western National Bank officials bought the White Out Way loan from Johnston for $7 million in January 2008, under the expectation that the bank would receive full repayment. Johnston, however, also sold the same loan to several other banks, according to charges. As a result, the National Bank in Bettendorf, Iowa, also expected to receive $7 million in repayment. Phoenix-based Sonoran Bank thought it would receive $1.1 million. The Minnwest Bank in Luverne, Minn., expected $5 million. Community First Bank expected $1.5 million. Bank Forward expected $2 million. In all, Johnston pocketed $23.65 million from six banks for his $7 million loan, according to charges. Johnston allegedly received even bigger sums for the JM Land II loan, which drew $38.65 million from eight banks who thought they were buying participation in an $8 million loan. Some of the bank funds went to loan payments, allowing Johnston to continue the scheme, according to the charges. The rest of the money went to his own use. Kelly maintains money also went to Moyes. The relationship between Moyes and Johnston's company is alleged in a federal lawsuit filed against Johnston by the Republic Bank of Chicago in February. The bank claimed Johnston lent Moyes more than $7 million in two loans, using Moyes' properties in Fort Worth and Lancaster, Texas, as collateral, and then persuaded bank officials to buy into the loans. The loans were never repaid. Johnston, however, allegedly did well for himself. The lawsuit states that "liquid assets of (First United Funding) have been transferred to Johnston personally and that they have been used to fund Johnston's personal expenses including payments for corporate jets ... family vacations in Mexico (and) funding other business owned or controlled by Johnston." Federal prosecutors say that in April 2007, Johnston falsely reported a 2005 taxable income of $383,000, concealing $1.37 million he'd used to improve his Lakeville house, the charges state. They say he underpaid his taxes that year by at least $509,000. If convicted of bank fraud, Johnston faces a maximum of 30 years in prison. Federal prosecutors, though, have not convened a grand jury to pursue an indictment, which can indicate a plea deal is in the works. Whether that is the case here, "I can't tell you the answer to that with certainty," said Kelly, his attorney. "We have been cooperating with the government and the receiver. (Johnston) has turned over, or is in the process of turning over, virtually all of his assets. We do contest the amount of the loss," Kelly said. The charges were filed by the U.S. attorney for Minnesota, B. Todd Jones, and Assistant U.S. Attorney Robert M. Lewis. Johnston's case has spawned more than one lawsuit. Community First Bank sued him and First United Funding in October, and Choice Financial Group of North Dakota sued him and First United Funding on July 29. Both lawsuits were filed in Dakota County. Frederick Melo can be reached at 651-228-2172.