John Kline will spend the next 2.5 years in federal prison because he and business partner Randal Walters shuffled development loans in an effort to salvage failing projects.
“I’m ashamed, I’m humbled, I wish to hell we weren’t here right now,” Kline told U.S. District Court Chief Judge James Gritzner prior to being sentenced.
Kline also must pay nearly $1.2 million in restitution to banks and will serve five years probation after his release from a minimum security prison. The exact location will be determined, but Kline said he would have no problem serving his sentence with co-defendant Walters at the federal correctional facility in Sandstone, Minn.
“I have absolutely no animosity toward Randy Walters,” Kline said. Walters had been expected to testify against his former business partner if the case went to trial.
Kline pleaded guilty Jan. 11 to two counts of bank fraud, admitting that bank loans intended for housing developments in West Des Moines and Des Moines were used instead to prop up other aspects of his business.
Both men were originally scheduled to stand trial together. However, it was speculated that in exchange for his guilty plea, which included prosecutors’ recommendation for probation rather than a prison term, Walters would instead testify against Kline.
Though prosecutors recommended probation for Walters, Gritzner sentenced him to one year and one day in prison, five years of probation after his release and $500,000 restitution.
The two men were partners in Oaks Development Co. and other entities. The indictment said that between November 2004 and January 2007, they obtained $4.5 million from First Bank and 10 other Iowa and Missouri lenders who participated in the loan for Meadow Cove condominiums in Des Moines.
They obtained $2.2 million from First National Bank Midwest and one other lender for the Heritage Hills residential development in West Des Moines.
Kline admitted to using more than $100,000 in advances for the condominium project to partially pay for an investment condominium in Florida and more than $500,000 for Heritage Hills for other business costs.
Prosecutor Bill Purdy said in court the money was used to prop up other aspects of the business and not for extravagant or luxury personal purchases. In a civil trial in Dallas County, a judge determined that Kline had previously used bank loans for a private jet service, fine art and political contributions.
The Kline story has bordered on the bizarre.
On Feb. 17, 2009, he filed for bankruptcy, but financial information was filed for his wife, Michelle, instead. The filing followed what was determined to be an arson fire that destroyed the couple’s million-dollar Urbandale home. No charges have been filed in that case and Michelle Kline said outside the courtroom where her husband was sentenced that she had no comment on the matter.
During bankruptcy proceedings, Kline refused to testify, citing his constitutional protection. His lawyer, the late Jerrold Wanek, said Kline was being investigated in connection with the fire.
A federal bankruptcy judge eventually tossed the case out of court. Walters also sought protection from creditors in bankruptcy court, but a judge tossed out that case, too.
In May 2012, a state court judge ordered Kline to spend 30 days in jail for failing to pay child support in a previous marriage.
Kline said after the sentencing that he had no plans for after his release from prison other than to “raise my kids.” He has four children.
Attorney Paul Rosenberg said in court that Kline did not attempt to profit by lying to banks, but instead was trying to keep his failing development companies afloat.
Kline did not try to “loot” the proceeds of his businesses, but was trying to keep them going. “It was a bad idea,” Rosenberg said.