A Saga of Steve Down Frauds Drawing Towards a Conclusion

With the unraveling of what appears to be a near $200 million dollar fraud at last count - which would make it one of the largest in Utah State history - Steve Down and his fellow fraudsters John Neubauer and Susan Knight’s worlds would seem to be on the edge of complete collapse. The various schemes come with the risk of hefty prison terms if convicted, especially given that Steve Down is already a twice-cited con by the SEC. As the bankruptcies and fraud schemes have come to light, the structure has become complicated, so I have summarized the status of his various bankrupt companies and other effectively (if not yet formally) bankrupt companies below.

The Falls Event Center (TFEC) - The Falls is currently in Chapter 11 bankruptcy and has already lost one operating center (Elk Grove), as well as many of its non-developed sites (St. Paul, Oklahoma and various bare land sites) for which upon sale it received much less than Steve Down touted in value to investors. Many of the other owned operating centers are also for sale with no current takers. While Down touted that he was great at buying real estate, the bankruptcy process has shown that he chronically overpaid and overbuilt (he spent over $12 million building Elk Grove and TFEC received less then $7 million). According to documents recently filed in bankruptcy courts it would appear that TFEC’s flagship leased center, The Falls at Trolley Square, along with Gilbert and Littleton, are being placed in a slow shutdown mode. Final closure of these centers has been mandated by September of 2019. None of the Falls’ centers are cash flow positive and are only buoyed by cash from Evergreen Water Park, which barely supports itself in the Winter, and by the sale of assets to pay operating costs. Even with this support, TFEC is losing more than $500,000 a month. The situation would be much worse if TFEC actually had to pay all their bills outside bankruptcy including mortgages, past property taxes and bills which have been put on hold since they filed bankruptcy last summer.

The next big hearing date is March 18th, when the Court will hear Trustee Thompson’s request to consolidate most of the assets into one big bankruptcy. In my own opinion, the request to consolidate will likely be granted. Once granted, the Trustee has indicated in court filings that they are trying to slowly liquidate assets in order to attempt an orderly shutdown by September of this year and/or may even convert to Chapter 7 - full liquidation of the company. TFEC appears to be trying to slowly shut down to avoid having to deal with a reckoning on event deposits, which were never held separately in reserve. As the deposits were already spent under Steve Down’s fraud-riddled management, a quick shutdown could increase liabilities, not to mention instigating a major public affairs nightmare from customers who, to put it bluntly, would have been robbed.

One piece of big news due any day is a detailed report that the Trustee commissioned from the Claro Group, LLC to analyze if TFEC is a going concern. This report may also detail some of the fraud committed by the former Down management (such as the outright theft of company assets by the Downs in the sum of $1.5 million to pay their personal income taxes). In addition, at some point, I expect there will be a detailed FBI indictment of Down and his fellow fraudsters once the bankruptcy courts have analyzed all the details. We have heard from multiple sources that there are enough charges to put Steve Down away for life, should they so choose, and that it is one of the most complicated frauds the FBI has ever reviewed in the State of Utah. Bottom line, the entire investment by investors of over $120 million has been not just lost but pilfered, and the losses will likely be much higher due to leverage and fraudulent management decisions. While the centers will likely be wound down over the next 6 months, the sheer complexity of the case means it could remain in the courts for many years.

You have to be a fool to risk a deposit or set a date at any of the Falls’ centers, because deposits are owned by creditors and there is a real likelihood that they will not be open when reserved event dates roll around.

Even Stevens (ES): As in TFEC, Steve Down told investors they were making instant, near-miraculous returns of 25% on new stores which was a complete lie (in TFEC’s case he told investors they would see 35% returns). Factoring in overhead ES has never made money and the fraudsters, which include Michael McHenry who received the QSR “Restaurateur of the Year in Utah” for 2018, all knew it was a fraud. The stores, as of last spring when McHenry received the award, were losing $800,000 a month and only survived by funneling in cash from an investor Ponzi scheme and other shady methods. Also in May, ES received a factoring loan signed personally by Steve Down on the Evergreen Water Park revenue, without which ES would have closed. I would note that Steve promised the Evergreen’s cash flow to no less than three separate entities simultaneously over the last few years of TFEC’s control of the business. Investors have lost over $35 million in the ES venture alone. As of today, ES is functionally bankrupt with over $6 million in current debt it cannot pay and mounting losses of over $300,000 a month. They owe taxes and even suffered a “till tip” (government seizure for unpaid taxes) at the now closed Texas store. So far they have closed seven stores and are still suffering crippling losses.

The ES stores are run by Brooks Pickering and Spencer Viernes. Pickering was hand selected by Down to run TFEC in bankruptcy and to turn ES around. Pickering himself was forced out of TFEC by the U.S. Bankruptcy courts due to conflicts and what the U.S. Trustee called “criminal fraud”. Pickering has failed to turn around the business in any meaningful sense, but gave encouraging words to induce investors to put more money in to keep ES alive. Pickering has been successful at getting investors to put more money in, and appears to be exploiting what is called a "sunk cost fallacy". Investors fear losing all their money if they do not put more in, so they invest more despite worsening prospects. Sometimes your first loss is your best loss. What is amazing is how unaware some of the investors seem to be, as they continue to praise Down while flushing more money down the toilet. Instances have been brought to my attention where investors have gotten upset at anyone who disparages him (or points out inconvenient truths).

Interestingly, several newspapers have published articles about ES still fraudulently advertising to customers that if they buy a sandwich ES will give one to nonprofits, while in actuality ES has not done so for over seven months.

Many of the people pointing this out are former employees of ES who designed the "give to eat" program that Steve Down takes credit for (“cause capital”). Some of these employees were recruited by Down’s children, who ES reportedly lavished investor money on in the form of non-productive things like trips, a club house, fancy titles (co-founder), and awards to people with no business experience. One of these “co-founders”, Sara Day, received an award in May of 2018 also while ES was bleeding money and technically bankrupt - a Sego award that is intended for women running successful businesses.

At this point, ES cannot pay its bills including rent or food to make sandwiches even with new investor money. Brooks has told investors he has found the “needle in the haystack” buyer that wants to buy ES and leave investors with a 2% stake (a loss of over $34 million). However, it may take 3-4 weeks to close a deal, so he has stated that ES needs current investors and their friends to put in another $1.5 million as a bridge loan. To facilitate this proposal, Brooks has sent out a ballot for an investor vote to both give Brooks full control to negotiate and have authorization to put ES in bankruptcy (Chapter 11 or full liquidation Chapter 7). Brooks also wants investors to agree not to sue the insiders according to a recent ballot. Why any investor would put more money in and at the same time know that ES could go bankrupt at any time is bizarre. There is a near-zero chance of any sort of return (even of principal) on such an “investment” - in essence it would be a gift.

Bizarrely, con man Steve Down, who’s wife Colleen controls 27% of the shares due to initial free founder shares, objected loudly on the last ES shareholder webinar on 3/4/18 regarding the ballot proposal by Brooks. Down, who appears to have no clue how to run a business much less read a profit/loss statement, has reportedly stated he did not understand why ES cannot just continue to lose money and not pay its bills (Steve is not the brightest bulb in the room). Steve Down and his lieutenant Susan Knight have gone so far as to call other ES investors urging that investors appoint Steve Down as proxy, to fire Brooks and save the company. In reality, Steve may just push ES to close, with employees left holding the bag.

On Thursday, March 6th, ES failed to pay their Arizona employees and are closing their remaining three stores in Arizona. In addition, the Sugarhouse location in Salt Lake City received a eviction notice for past due rent on Friday March 9th. More stores and employees will not be paid if they cannot obtain more investment funds. Thanks Fraudulent Steve.

To date, the SEC and the various states appear to have made no moves to shut down this obvious fraud or to protect the investing public.

Financially Fit Holdings (FFH) - FFH was a single purpose real estate holding company to buy an old bank building in Ogden, Utah to house Financially Fit (FF) employees and build an online bank (why you need a massive tall empty shell building for an online bank should have been a clue that it was another scam). True to form, Steve also lied to investors on this investment, failed to make mortgage and utility payments, and as the result FFH was put into Chapter 7 full liquidation in August of 2018 by his representative, John Neubauer. The building has since been sold by the courts. The investors will be lucky to come out with $0.15 on the dollar of their original investment (almost another $1.1 million lost by Steve Down, Susan Knight, and John Neubauer).

It also appears that Steve Down signed a false lease agreement with TFEC for empty space in either an attempt to increase the value of the building, or justify money transferred from TFEC investors to FFH. Down, with the assistance of John Neubauer, is attempting to not pay back money borrowed by FFH from TFEC investors. TFEC, under trusteeship, is demanding their money back from the sale of the building. As I know first hand John Newbauer and Steve Down have no problem committing perjury, and so far no one has held them accountable for their perjury. Hopefully the Bankruptcy Courts will recognize the flagrant abuse and enforce perjury laws, which laws classify perjury as a felony with up to five years in prison and fines.

Though all in cash now, the Bankruptcy Courts did assign an independent trustee to FFH, and are not likely to return money quickly given the implications of misconduct. This could easily take the rest of the year or more to sort out. In the meantime, the trustees, attorneys, accountants, and fraud investigators will continue to charge the courts for services and whittle away what is left.

Financially Fit (FF) - FF is a remnant of Steve Down’s earlier fraud which he was cited by the SEC for running as a pyramid scheme in 1996 called “Wealth Hearth”. The premise of FF is that people will pay to receive financial advice from coaches who follow a program developed by Steve Down with a mixture of religion. Why anyone would pay for advice from a two-time con man whose companies are in bankruptcy and from FF that currently is losing over $226,000 a month with a negative net worth of $3.5 million, is beyond me. It would appear the market place figured this out as well, with only 13 paid subscribers after years of wasted work and direct losses of millions in direct investor investments and millions of borrowings from TFEC and ES. Just like in his other “companies”, Steve lied in the accounting, in this instance calling borrowed money “event revenue”. FF is a total loss. A Chapter 7 liquidation filing should come at any time, but knowing these fraudsters, they will likely just walk away since there is neither money nor other assets left to make the filing.

What is also interesting about FF is that Steve also invested investor money into producing a musical called “Money the Musical” about the history of the Down Family and their rise to being worth multi-millions. Again, this is all a lie as Down financed his family’s lavish lifestyle with investors’ money. This musical, in the same vein, was also partially funded with investor money, and partially with the improper sale of airplanes from the Evergreen Aviation and Space Museum in McMinnville, Oregon ($120,000 of the plane sale went to fund the musical).

As with ES, to date the SEC and no state agency appear to have made any perceptible moves to shut down this obvious fraud or to protect the investing public.

Steve’s Hotel - The “Steve’s Hotel” entity was created after TFEC bought a portion of the Evergreen Aviation and Space Museum campus in McMinnville. Del Smith, an eccentric billionaire who originally founded and funded the Museum, received design approval for a hotel on the museum campus in the original plans. Smith was able to dig a pit for a hotel foundation on the site, but financial problems prevented plans from going forward. After TFEC bought the site out of bankruptcy, Steve Down promised to go forward with the hotel. Just like all his other fraud schemes, Down disguised it as a give back to rake in new investor money. It appears that Steve Down, Susan Knight, and John Neubauer were able to bring in over $950,000 before defaulting on the agreement with TFEC to buy the land. It is unclear where the money went, as nothing was done with the open pit (now a seasonal pond) on-site, despite repeated claims by Down to investors that the foundation concrete was already being laid.

Steve’s Hotel appears to just be another fraud. The hotel-designated land was never legally partitioned, plus Steve Down agreed to several mortgages to TFEC investors being placed over the hotel site and the entire TFEC Evergreen campus that had nothing to do with the hotel. Steve Down told investors that the hotel foundation was done at the December 2017 TFEC annual meeting in Oregon, and that funding was being secured - all of which, again, was a lie. This is despite that investors only had to take a short walk from where the meeting was being held to see the empty water-filled hole with no work being done. Steve and John did apply for a loan to refinance the entire Evergreen campus and fund the hotel in late 2017, but the application was cancelled at the last minute due to possible fraud on the application, and a refusal by Down to allow the lender to visit the McMinnville campus (this one act, loan fraud, could land the fraudsters each up to 20 years in jail). John Neubauer, as per normal, continues to assure investors that they are working on a way to purchase the site from the TFEC trustee and proceed with the hotel - again a lie just to keep investors from learning the truth.

As with ES, FFH, and FF, Steve’s Hotel does not appear to have filed a offering memorandum for this pool of investor funds as required by regulations (for some reason the SEC has not yet filed a complaint).

Other fraud companies: Other fraud-implicated entities associated with this group include "Julie Smiles Coffee", "Cocktail Joe’s" and of course one of Down's most delusional "Jet Steve". Money was raised, money was stolen. No one has held the fraudsters accountable for these thefts.

Impact on McMinnville Oregon: The bottom line for my local community is the obvious impact the various Down frauds and bankruptcies will have on the Evergreen Aviation and Space Museum. Consolidation of the TFEC case under one case and the time these cases will take, combined with the Museum’s reliance on TFEC’s promised monthly payments, will likely force the Museum to close at some point. The Museum has finally admitted as much in court filings and hearings in front of the bankruptcy judge. The Museum has stated all options are on the table. The Museum has made a threat to move out of the aviation building, but this is a non-threat given that the Museum has a zero-dollar perpetual rent agreement (although a new landlord would negate the free rent agreement). If the Museum were to move out or close, the property would be immediately more valuable to any prospective landlord for other potential uses, and fetch much higher prices when the property is sold. My personal guess is that the trustee for TFEC is actually excited about the Museum moving out. The situation with the Museum is also complicated by the fact that Museum President and the Directors not only appear complicit in the scheme to defraud with Steve Down but also in the original bankruptcy (the Museum has even suggested that the original bankruptcy be reopened). As things become known the directors may be facing several lawsuits.

The other major issue to be resolved locally is the empty space for Even Stevens on Third Street (the main iconic thoroughfare), where Steve Down paid $100,000 upfront for a ten-year lease and also recorded more than $250,000 in value on the books of ES for doing nothing. As of this writing, the space is empty and still bears the branding of the coffee shop which previously occupied the space. Nothing has been heard on the $500,000 lawsuit against ES by the landlord on this site.

Lastly, we stand to finally find out what really happened to the $2.8 million from the improper sale of Evergreen’s planes, and what other bribes were paid, money stolen, and assets forever lost to the local community.