Securities fraud case lingers after seven years while alleged victims wait for resolution

Donald M. Johnson

Donald M. Johnson

Promises of rescue from financial challenges through a company in California. An offer to participate in a land deal in Tennessee. A plan to invest in houses locally for a 10% return.

They met in church, through a local gym, through a now-shuttered real estate business.

Hundreds of thousands of dollars – retirement funds, settlements from lawsuits – disappeared without the promised returns, as regular interest payments slowed and then stopped completely.

And Facebook posts about a Caribbean cruise that included a two-day course on the “Amazing Power to Separate People from their Money Every Single Time.”

This is the alleged legacy of Donald M. Johnson, whose lengthy list of charges in Porter Superior Court was first filed more than seven years ago. Over the years, they have been added to and amended, as has his list of alleged victims.

In all, Johnson 56, of the 200 block of North Mineral Springs Road, Porter, is charged with 17 felonies in a case that has been delayed time and again.

Jeff Knutilla of Liberty Township says he invested $300,000 with Donald M. Johnson to buy properties at sheriff’s sales in Lake and Porter counties. AMY LAVALLEY/photo

Jeff Knutilla of Liberty Township says he invested $300,000 with Donald M. Johnson to buy properties at sheriff’s sales in Lake and Porter counties. AMY LAVALLEY/photo

The charges, all Class C felonies, involve seven alleged victims who between them lost more than $800,000, according to court documents. The majority of the charges were filed in March 2014, with another alleged victim and three more counts added in April 2015.

The charges include six counts of securities registration violations; six counts of broker-dealer registration violations; two counts of securities fraud; and a single count each of offer or sale of an unregistered security, transacting business by an unregistered broker-dealer and fraudulent or deceitful acts with the offer, sale or purchase of a security.

A recent development offers a glimmer of hope for Johnson, if not those who accuse him of swindling them out of their savings. While a 2016 motion with the Indiana Appellate Court requesting that a majority of the charges against Johnson be dismissed was denied, the appellate court agreed last month to consider a more recent filing.

After a three-year delay from when the second appellate court request was filed, the court agreed to consider whether some or all of the charges against Johnson should be dismissed for two reasons, according to court filings: He wasn’t selling securities, and many of the charges were filed beyond the statute of limitations.

“Mr. Johnson is facing 17 C felony convictions and up to eight years of incarceration for each class C felony charge in this case,” the filing states. “Dismissal of some or all of the charges could lead to a swift disposition of the case without exposing Mr. Johnson to the risk of incarceration, as an ordinary post-conviction appeal would.”

Robert Hammerle, one of Johnson’s Indianapolis defense attorneys, declined to make Johnson available for an interview for this story. The most recent filing with the appellate court, Hammerle said, is on different terms than the previous one and is one he firmly believes in.

Noting how long the case has been going on, Hammerle said those involved are trying to reach a solution that will please everybody, adding he’s not trying to justify or excuse anything and admitted that anything he said on behalf of his client could appear insulting to Johnson’s alleged victims.

“Anything I do on behalf of my client I want to do with respect for those who believe they’ve been bilked with respect to the hell on earth my client has been through the past seven years,” Hammerle said, adding, “people have been led to believe that Johnson bilked them and the economy collapsed at the time of this investment.”

‘It was before he lost his license and stuff’

Jeffrey Knutilla first met Johnson around 2000, when he bought a house from him in Porter Cove.

“It was before he lost his license and stuff,” Knutilla, 67 and now living in a Liberty Township mobile home park, said, referring to the revocation of Johnson’s real estate broker license by the Indiana Real Estate Commission.

Johnson, according to articles in the Chesterton Tribune’s archives, negotiated a settlement including a three-year suspension of his real estate license after being the subject of a 33-count administrative complaint from the Indiana Attorney General’s Office alleging numerous improprieties, filed in November 2010.

His settlement with the IREC included $15,000 in consumer restitution but when he failed to pay the first $5,000 installment, the IREC revoked his license permanently.

The house deal, Knutilla said, was before all that happened. And so was his next contact with Johnson, a few years later, when Knutilla hurt his back, landed on disability and was having difficulty making mortgage payments on the Porter Cove house.

“Don comes in and said he’s doing some kind of a deal with some company. He can get the payments taken care of. He said he was dealing with some company in California that would deal with this issue. He said to stop paying my mortgage and I had to give him so much money,” Knutilla said.

Knutilla found out later from Johnson that there were numerous people he was doing something similar for. “It was when he had an office in town right there at Third and Broadway,” he said.

Things didn’t go as planned.

“He ended up not being able to do what he said he could do, and we ended up being in arrears big time and I was on disability,” Knutilla said, adding when the bank that held his mortgage called, Johnson said to have them call him instead and he would take care of it.

“At that point I had always heard he was one of the top real estate brokers in Lake and Porter counties. I had bought a house from him and had no issues. There was no reason not to trust him at this point,” Knutilla said, adding Johnson blamed the company in California for what happened.

Knutilla later received an $800,000 settlement from hurting his back and was going through a divorce. He agreed to pay off the Porter Cove house for $300,000 and give his ex-wife the title. He spent another $200,000 on a condo in Florida.

Johnson heard about the settlement money,

Knutilla said, and reached out to him about an investment opportunity. Johnson was buying houses and flipping them and wanted to know how much Knutilla could give him.

Johnson would by properties at local sheriff’s sales and Knutilla would give him money up front. For the first several years of the investment, “he would pay me 10% interest. He would make monthly payments to me and at the end of five years or seven years or whatever it was, I could ask for all of my money back or I could invest and do the same thing.”

According to charging documents, filed on March 14, 2014, Knutilla signed a promissory note for $300,000 on Sept. 11, 2009, with an offer of 10% interest and the pledge that the principal would be fully repaid after seven years.

“Mr. Knutilla said that $2,500 monthly interest payments were made by Mr. Johnson until August 2011, when they became less-than-full amounts before stopping completely, and that Mr. Johnson refused to make any more payments or return the $300,000 principal,” the documents state.

Ten years later, Knutilla is still waiting. He is one of six people in the original charging documents alleging Johnson sold securities that weren’t licensed and that he wasn’t licensed to sell them anyway.

The investigation

Knutilla filed a complaint with the Indiana Secretary of State’s Securities Division on Jan. 21, 2012, and followed up with a report to the Chesterton Police Department nine days later, according to court documents.

“We gathered through our investigation that Johnson was soliciting and selling unregistered securities in Porter County, Indiana. Johnson solicited monies from individuals by guaranteeing a certain high-interest return on their money; usually in real-estate development,” documents state.

Investors typically rolled over IRA accounts to Equity Trust Company and then the money would go to Johnson’s company, Private Lending, LLC.

“Many investors were unaware that their money was missing because Equity Trust would continue to send statements showing the money was in their accounts and bill them for custodial fees,” documents state. “In some cases, investors received interest payments as promised for a period of time. When interest payments stopped and investors requested their investments back, Johnson told them it was unavailable.”

The time frame for the charges spans from July 2007 through January 2014.

Johnson, according to charging documents, admitted during an interview with investigators “that he was never registered to sell securities and did not register his company to sell securities, nor did he register the securities he sold.”

He told authorities he was a self-employed martial arts instructor – he still has a studio in downtown Chesterton – and that he solicited money from people to fund a real estate project he was working on in Tennessee.

A review of bank records for Johnson’s business, Private Lending, LLC, showed investor funds coming into the account from Equity Trust, “an independent IRA custodian which is often used by securities fraudsters and very familiar to this investigator,” according to court records.

The money transferred to Johnson was then used to pay what appeared to be “a few interest payments to other investors, was transferred to other bank accounts, was taken out in cash, and was used to pay personal bills of Johnson,” documents state.

“I’m sure he took advantage of everyone he could take advantage of,” Knutilla said. “If there’s five or 10 or 15 (people), there’s five times more elsewhere.”

Among the other alleged victims:

*A man Johnson asked to invest in a Tennessee real estate project with the promise of 100% profit in one year if he invested his 401K retirement fund, worth $101,463.55. “Equity Trust Company gave (the man) an IRA based on the promissory note wherein Mr. Johnson would return $200,000 in (the man’s) Equity Trust Company account,” according to charging documents. “(The man) said that he had received between $35,000 and $36,000 from Mr. Johnson, and that the invested funds were 80% of his retirement funds.”

*A man who previously met Johnson when he hired Johnson to sell his Hobart home, who received a prospectus about the Tennessee project. Johnson told him the investment turnaround would be two years and the interest rate would be 15%. The man invested $100,000. The man received several statements from Equity Trust Company and “there was a $440 maintenance fee associated with his account. (The man) said that when inquiring about his investment, Johnson relayed to him that the downturn in the economy caused the Tennessee project to be placed on hold.”

In the case of a seventh alleged victim, who was added to the charges in April 2015, Johnson allegedly withdrew $158,000 from a trust account he set up for the man in January 2014 and told him it would be rolled over into an IRA account. Johnson allegedly told the man “that it was a good thing that his money was in the Equity Trust account where Equity Trust could watch the money,” according to court documents.

“According to photographs and comments posted on Facebook pages appearing to belong to Johnson Sr. and his wife, they went on a Norwegian Cruise Line Caribbean cruise from April 19, 2014 through April 26, 2014,” according to charging documents. “The Facebook postings indicate that while on the cruise Johnson Sr. took a 2-day course presented by Joel Bauer in which one of the sessions was titled ‘Amazing Power to Separate People from their Money Every Single Time.’”

An eighth alleged victim is the subject of separate charges and allegations filed in May 2014, for felony theft and forgery. In that case, Johnson is accused of forging the name of a man’s deceased wife and the man on an insurance check.

According to online court records, Porter Superior Court Judge Jeffrey Clymer, who also is overseeing Johnson’s other case, denied a motion from Johnson to dismiss those charges in late April.

Delays push case back

The case has lingered for years, through changes in attorneys, judges and prosecutors; delays blamed on the COVID-19 pandemic, which all but shut down the court system; and Johnson’s filings with the Indiana Appellate Court to seek a second opinion of sorts on rulings from judges in Porter Superior Court.

The reasons for the days are multifaceted. Myrna Maldonado, a spokeswoman for the Lake County Prosecutor’s Office, said Lake County received the case from Porter County in January 2019. That’s when Porter County Prosecutor Gary Germann took office; he represented Johnson early on in the case and recused his office.

The initial deputy prosecutor in Lake County assigned to the case went on military leave, Maldonado said, adding two new deputy prosecutors were then given the case.

“Various hearings have been held but due to COVID many cases were placed on hold,” she said in an email, adding a new judge was appointed to the case in January.

The case previously had been before Porter Superior Court Judge Roger Bradford; he retired and did not seek office again. His successor, Mike Fish, who took office in January, recused himself from the case and it was placed in Clymer’s courtroom.

The proceedings are again on hold until the appellate court makes a ruling in the case.

Knutilla, a minister for 20 years, is now selling goods at Shipshewana Flea Market and delivering frozen pizzas to local grocery stores to make ends meet.

He thought Johnson was going to compensate him as promised and he needed the money to pay bills, since he was on disability because of his back injury. “I probably waited and listened to his excuses for at least six or 12 months,” before contacting the Chesterton Police Department and being put in touch with a state investigator.

“Hopefully by the time I reach 150 I may see a dime or a nickel or something but as of right now, I don’t have much hope,” he said.

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