An Annandale man has been charged with 61 felony counts of securities fraud, resulting in total victim losses of $3.5 million, according to the Kansas Securities Commissioner.
David G. Lundberg, 67, was arrested in Annandale by Annandale police officers on Monday, Feb. 16, and booked into the Wright County Jail.
On Wednesday, Feb. 25, he was picked up by an agency from Kansas for transportation back to that state, and he was booked into the Sedgewick County Jail that evening on $100,000 bond.
When contacted by the Advocate, Lundberg said he was innocent.
"I believe I have done nothing wrong," he said. "This has been a nightmare not only for me, but for my entire family. Upon recommendation from my attorney, I will have nothing else to say until I am cleared."
Lundberg and a business partner, Michael Elzufon, became prominently known as "The Minnesota Guys" after they began acquiring around 14 downtown Wichita office buildings in 2004, mostly using money from investors, according to the Wichita Eagle.
Their plan, that newspaper explained, was to buy buildings at low prices, reinvest using borrowed money or sale proceeds, attract new tenants at greater rates and then refinance at higher values to generate capital for additional investing and profit.
Around 2007 they owned or managed nearly 1 million square feet of downtown office space, the Eagle said, roughly a quarter of the city’s downtown total. However, they ran into challenges as the economy failed in 2008 and they could not continue to refinance the buildings at higher rates.
They eventually lost all of those properties as a result of foreclosures and lawsuits.
In a news release last week, Kansas Securities Commissioner Josh Ney said the business partners, who operated under the name Real Development, had been charged under the Kansas Uniform Securities Act for allegedly committing securities fraud and selling unregistered securities.
A criminal complaint against the men argues that at least one Kansas resident and an additional 59 residents from other states were defrauded when the business partners offered and sold unregistered securities in their various businesses, which they claimed was for the rehabilitation of various downtown Wichita offices.
The news release from the securities commissioner acknowledged that "the violations listed in the complaint are allegations. Elzufon and Lundberg should be presumed innocent until proven guilty."
However, the charges represent the most serious trouble yet for Lundberg and Elzufon, who have faced additional legal issues in the past several years.
The Eagle reported that the Kansas Securities Commission filed complaints against Lundberg and Elzufon in 2012 and late 2013, claiming that the loans the developers sought were unregistered promissory notes, a violation of state law. In addition, the complaint alleged that funds received from an investor were to be used to repay the city of Wichita, but were actually used to pay back prior investors and for "unrelated business expenses."
Those complaints were not of a criminal nature, and though the pair faced financial penalties there was no possibility of their going to jail. At the time, Elzufon disputed the complaint.
"We didn’t sell promissory notes," he told the Eagle. "We took a loan out, and a promissory note is used everywhere. I never understood (that you were supposed to call) the securities commission for a note between two willing and able parties."
It was unclear how those previous cases were resolved.
More information about the charges against Lundberg and Elzufon is expected after the two make their first court appearances. As of Friday, Feb. 27, those court dates had not yet been set.