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Bank files federal fraud case against developer

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Developer John Kline destroyed financial records and concealed assets before and after filing for bankruptcy in March, according to an adversary proceeding filed last Friday in U.S. Bankruptcy Court in Des Moines.

West Des Moines-based First Bank made the allegations in an effort to prevent Kline from discharging debts under Chapter 7 of the U.S. Bankruptcy Code.

The case has revealed the existence of a federal bank fraud investigation and has generated efforts by the U.S. trustee’s office to prevent Kline from having his debts discharged.

Kline has not revealed his debts or assets, citing his constitutional right against self-incrimination.

In addition, Kline’s wife, Michelle, has attempted to shield her interest in some of the couple’s assets from potential creditors. Among her claims is a 50 percent interest in a $10 million insurance policy on the Klines’ Urbandale home, which was destroyed by fire in February. That fire remains under investigation.

First Bank takes note of items that were recovered, or missing, in the aftermath of the fire. Investigators recovered a fireproof safe containing $10,000; a granite table was missing in the aftermath of the fire, after having been featured in a video about the million-dollar home.

First Bank alleges in the federal lawsuit that Kline deceived it into making a $4.5 million construction loan in 2004, spent the money or allowed others to spend the money for personal expenses and, later, concealed assets, destroyed or transferred assets, or had others do so for him.

The bank won a $4 million judgment last year against Kline, development partner Randy Walters, their development company Meadow Cove LC, as well as individual development companies that they controlled individually.

In that case, Kline and Walters maintained that they should not be liable for the loan because they signed loan papers as individuals and not as owners of the companies they controlled individually or as partners.

Polk County District Judge Scott Rosenberg rejected that defense.

In the federal bankruptcy case, a fraud ruling would prevent Kline from escaping his liability for the judgment in the Polk County case.

Also last year, a Dallas County judge ruled that Kline had defrauded another bank by using loan proceeds to pay for a private jet service, political contributions and the purchase of works of art.

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