Greater Des Moines developer John C. Kline today pleaded guilty to two counts of bank fraud in federal court, rather than face a trial later this month and the possibility that his former partner, Randal Walters, would testify against him.

Kline, 53, admitted that he intentionally used money loaned by two banks for two housing developments to prop up other aspects of his business and that he misled the banks about that. 

Kline and prosecutors appeared in the court of Chief Judge James Gritzner to outline an agreement in which he admitted two counts of bank fraud in exchange for prosecutors’ dismissal of seven counts of wire fraud. Prosecutors recommended a prison sentence of 30 months, under the agreement. According to federal sentencing guidelines, the recommended prison time would be 41 to 51 months, along with a maximum fine of $1 million, restitution, and the possibility of up to five years of supervised release after a prison term.

Kline and Walters were indicted in November 2011 on nine counts of bank and wire fraud in connection with loans to development companies they operated. The indictment accused the men of using $6.7 million in construction loans to buy a condominium in Florida and pay delinquent property taxes in Johnston.

Kline was scheduled to go on trial Jan. 22. Walters pleaded guilty to one count of bank fraud in September, and under the terms of an agreement, avoided prison time. The judge in that case ordered that details of the agreement would be confidential and Walters and his attorney would not say whether he had agreed to testify against Kline.

Walters is scheduled to be sentenced Feb. 6 and Kline on April 12. Gritzner will determine their sentences, he said.

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 told the court that the sentencing recommendation was based on prosecutor’s beliefs that the money was used to prop up other aspects of the business and not for extravagent or luxury personal purchases.

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