Guest Post: An Inside Story of Utah Fraud

Posted on November 18, 2013 by

Editor’s Note: This is a guest post by a person whose father was convicted of securities fraud in Utah.  All identifying information has been removed to protect the author’s identity.  The opinions in this post belong solely to the author.

 

It’s no secret that securities fraud is a mounting problem in Utah, where the faith and trust of LDS congregations is second to none. Possibly a picturesque place to raise a family, but it’s also a bright, shining beacon for any good con man looking to take advantage and make a few (million) easy bucks. I should know, my father was one.

As a child, I had little to no idea what my father’s line of work was. We were always told he was “a consultant.” What matters might he consult on? We had no idea. “Something with computers” was the usual answer, since the internet boom was in its infancy and not many people would have the know-how to question it. (That’s a tell-tale sign of a con: vague descriptions, few specifics, and an air of “Oh you wouldn’t know about it…”)

We moved around a lot; more than 12 times by the time I graduated high school. We moved across the country from one side to the other and into innocuous suburban neighborhoods, where there was little skepticism to go around. From the outside, we were the Cleavers; but from the inside, it was constant stress, anger, frustration, deceit…fear. A gorgeous home, but no food on the table. A brand new car, but no new school clothes. I remember him always having large amounts of money on gift cards or store credit cards (one year, we did all our back to school shopping at Eddie Bauer….not a lot of choices for teenage girls there…). There was money, but it was always filtered through somewhere, so it wasn’t really “available” for things we actually needed. He’d get paid in cars, fancy furniture, online gift cards to strange sites…a lot of intangible payments.

As a young child, I rarely noticed those things. It wasn’t until I was older that my skepticism grew. When I was 14, we suddenly had to pack up and leave North Carolina — the longest place we had ever called “home.” I didn’t know why at the time, but later found out that my father had outstanding warrants for his arrest around the time we left. It was sudden and upsetting, but my mom was a constant support to all of us, and we would follow her wherever she believed was best. So off we went to Bountiful, Utah, of all places.

It was a drastic culture shock, but being raised in the LDS church helped us assimilate easily. It wasn’t long before Dad had plenty of friends and high callings in the local church. He was often called as a Gospel Doctrine teacher or bishopric counselor, but after a few years, his calling seemed to bounce between financial clerk at the ward and stake levels. This put him in direct contact to hundreds of members’ personal financial records, anytime he wanted.

It deeply troubled me that men who are supposed to have divine inspiration from God couldn’t see through my father’s deceit, but that was all part of his plan — he comes off as a trustworthy, knowledgeable, strangely funny guy. It’s an odd sort of “charm” that some people are drawn to. More and more, this “charm” led him to those in the congregation that would be easy targets. He could tell tall tales in classes or meetings and weed out the skeptics from those who were in awe of the stories. There’s a certain gullibility that comes along with people of shared faiths, and he knew how to exploit it. I honestly believe he used this tactic throughout our whole lives as a means to determine people’s weaknesses. I don’t have better explanations for his many, many lies.

There have been dozens of “schemes” my father was involved with over the years. He always had one business popping up after another — none of his “companies” lasted longer than 3-5 years, though. He seemed to latch on to whatever he deemed “the next BIG thing” in technology or business — whatever the latest “trend” was — and claim he was an expert. He would have a vast array of associates from all over the country — and sometimes, from all over the world. All of those people would just confirm to any interested party the credibility of his claims. They claimed to know each other personally, and for years, but interestingly, I never met any of them…not a single one.

Family conflicts over the years weighed on my mom and dad. She finally started putting her foot down and wanted to know more about his business dealings. Up until that point, she had been generally happy to bury herself in her own selfless work at a national children’s charity, which meant everywhere we went, she could easily transfer and was always able to focus her efforts there and let my father “do his own thing.” When we moved to Utah, there was no branch to transfer to, so she stayed at home for a while and took care of her 6 children. I think, too, as she got older, she got wiser to some of the “curiosities” of his line of work and, although I don’t know if there was any specific event that tipped her off, she finally demanded that he settle down and start to change some things.

All of my brothers and sisters were happy to see the changes he was making, believing that he was trying to truly be a better person. I wasn’t convinced, but I was happily away at college by this time and looking forward to finally breaking free of the chaos that had controlled my life. I distanced myself from family matters as much as I could and tried to enjoy my new found freedom.

But trouble was brewing at home. There was a new “business venture” he wanted to start. It was great because it allowed him to work from home and stay close to family — like they all wanted — and it was “foolproof” (if there’s one thing my dad taught me, it is to run away as fast as you can in the other direction if anyone says a business venture is “foolproof”). He had taken a weekend seminar on stock trading and had been experimenting with penny stocks to test his theories. He claimed he “couldn’t lose” and had a brilliant new plan. He started with early investors — close friends and long-time supporters of our family. Shortly after, he was starting to return to his old ways — stress, anger, fear, chaos. Our family felt it, but for some reason, shrugged it off and just left him to his office.

Quickly, the money was gone. Every penny. But he also had a brand new pickup truck and a new Lexus for my mom. He claimed he had taken a loan for new office supplies — and had a shiny new iMac, the biggest desktop model they make, with all the bells and whistles.

He came clean about the “loss” to our family, but told us not to tell anyone, he was going to “fix it”. By then, he had been in various financial callings within the church at the ward and stake levels for almost a decade. I don’t know why a man with no financial expertise would have those callings, but he was always at the church buildings “working.”

He started inviting members to our home to discuss “investing” in his new foolproof plan that promised a whopping 20% return! Incredible, considering a decent rate of long-term return is about 8%. It was an unbelievable opportunity! (Literally, almost no one believed it, but there are always a precious few who are attracted to his charisma and strange charm).

One such man was so taken by it that he decided to empty his multiple IRA accounts and give them ALL over to my dad. He questioned my dad about the business and his experience, but never required proof of any of the claims. Had he looked deeper, he would have seen that a) the securities trading company my dad started had only been around a few months (not 18 years, like he claimed) and b) my dad wasn’t even licensed by the SEC (Securities and Exchange Commission). He seemed like a perfect target. A handful of people invested, but over the course of just 2 days, this man handed over nearly 1 million dollars in cash and liquid assets to be traded on the open market. It was too good to be true for my father. Little did he know, this man would be his undoing.

I’m not certain about the story from here, so all I have to go off of are court documents and records. It appears that in less than a week, all but $100,000 was lost from the man’s investment account, due to my father’s “trades.” Most is accounted for stock trade records, but a little over $300,000 was missing, with no trace except a withdrawal, sent to my father’s account. That amount, oddly enough, is much of what he lost from the initial investors. It seems that he planned to pay them dividends from the new accounts coming in and he would pay that back with subsequent investors, and on down the line… It’s what is popularly called a “pyramid scheme” and something that most of the country was wary of after Bernie Madoff’s billion-dollar scam had been saturating the headlines at the time. The trouble with those schemes is: how do you know you’re in one before its too late?

In this case, there were plenty of red flags; very few contracts and signed legal documents, no accreditation or SEC license, brand new company with no history or experience, etc… but no one realized what was going on until the investor decided to have a professional accountant look over the financials. I don’t know if he had seen evidence of the losses or if he had grown leery of the whole operation, but taking the information to a professional was what finally cast a light on what was really going on. The accountant was able to pinpoint where the majority of the money had been lost in trades, and was the first to confirm that the $300K was missing. The victim now had a solid case against my father.

Soon afterward, on a Sunday morning, I got a call from my dad. He seemed nonchalant on the phone, telling me the cops had come to arrest him on some crazy story that “some guy at church” had told them. He told the whole family not to worry and “it will just go away soon.” He said the only reason he even called us to tell us is because it will be in the paper and he didn’t want us to find out from our friends and have them spread lies about him. He told us his lawyer looked over everything and insisted there wasn’t even a case and that this would all be dismissed. However, we weren’t to contact his lawyer for any information (even my mother) – Dad would keep us all informed as he saw fit.

Of course, that was reason enough for me to do the opposite, so for months I called the court clerk once a week for updates on the case. The date of his indictment came and went with no word from my father, but PLENTY from the court clerk. He was indicted and a trial date was set. The trial date approached and still there was no word from my family.

Knowing at this point that things were being kept from my brothers and sisters and my mom, I decided to tell them what I had found, including the details of the money that was missing and the REAL accusations against my father. I was met with mixed reactions – 2 of my brothers believed what I had sent, but seemed indifferent. They had largely removed themselves from my father’s life and didn’t want to get sucked back in. But my sisters and mom felt differently. They attacked me for daring to question our family’s “priesthood holder” and not trusting his counsel. We had, probably, the first “real” conversations about my father that I can remember – and I started to understand why we avoid it. It tore us apart like nothing else ever has, so I rescinded my comments and continued to follow the trial on my own, in secret.

For months, the trial date was pushed back further and further with new motions and evidence being filed. I kept up on it as best I could, but with no one to talk to and knowing the tumult it caused, I gave up on it after 6 months or so with no trial yet.

I had all but forgotten about it, when I got a call from my father 2 years later. Again, he was nonchalant about it, almost like it was just any other Thursday. Except it wasn’t. This particular Thursday he would be reporting to serve a jail sentence for a total of about 4 months (minuscule in terms of the crime, I believe, but maybe that’s tainted with my own feelings about how it affected our family). He briefly recounted the trial that had happened over the last 3 days and eventually said the word: guilty – not that he believed he was, but that the jury had “somehow” found him so, as if it were some great crime against HIM and not the other way around.

Anyway, after a long, arduous, drawn-out court battle, our family finally has an and to this story. Although the family has been torn between those who believe my dad’s story and those of us who don’t, at least it’s over. Nearly 5 years after crime occurred, my father was sentenced to jail time and restitution. He’ll pay back the amount missing from the account, as well as fines from the State and the SEC. He’ll have a second-degree felony for fraud and theft on his record and, likely, won’t be able to pull this off again. He was excommunicated from the LDS church (for now) and hopefully will never hold a calling as a ward clerk again with access to the ward members’ financial information.

In the end, my mother’s life savings and retirement were emptied, and her friends (the first “investors”) were all lost. My young brother and his new bride lost their nest egg. My family is divided and probably will be for the rest of our lives. But we didn’t lose $1 million. We didn’t lose our home (this time). The other family did.

If you’re reading this and anything about this story resonates, I hope you learned something that will prevent any regrets. The best advice I can give is, if you’re looking to invest, go with a reputable company: one that has years — decades or longer — of history and proven track records. Don’t make deals at church — it is rarely what it seems.

Here are a few things readers can take away from my experience:

  • ALWAYS do your due diligence! Ask for the name of the company and research it. Don’t just research it via its own webpage (those are easy to whip up and NOT a trustworthy source), see if you can find articles of incorporation online or licensing or anything filed for the business — those are public record. Look for an ESTABLISHED company, one that is licensed.
  • Perform a background check on the individual(s): This can be anything from a simple Google search, to an official background check through an independent company like Intelius or LexisNexis. A Google search of my father’s full name (and a few details like city/state or “records”) would have turned up that he had filed for bankruptcy twice in the last decade and had outstanding warrants in 2 states.
  • Ask uncomfortable questions. For the professional, these questions are not likely to phase them — in fact, its generally info that a professional will offer up voluntarily. Things like, where they went to school, where they’ve worked in the past in the securities industry, their investment strategy and philosophy (i.e. aggressive vs. moderate trading, mutual funds, cd’s, etc…)
  • Possible red flags: Does the person claim a lot of financial success, yet live simply/meagerly? At the time of the transaction with this last investor, my father lived in a very modest 3 bedroom home with my mom in a typical neighborhood. Nothing special. They may say they choose to live within their means, or something of that nature, but use your critical thinking and judgement to assess any strange behaviors like this. On the flip side, be wary of one who flaunts their success — the one who brags about cars, expensive watches, anything “showy” that they try to use to prove their value. Those things are easy to counterfeit and successful businessmen who have a lot of experience may own those things, but rarely brag about them or put them in others’ faces.
  • The BIGGEST and most important thing I want to stress is that feelings are NOT facts. You may feel like you know this person. You see them several times a week, you go to church with them. You know the names of their wife and children. They seem friendly and often “want to help.” Some may even try the tactic of “go talk to your spouse and pray about it and see how you feel,” but they use that to cloud judgement, knowing that they’ve already piqued interest and that this will usually “seal the deal” if there’s some kind of “good feeling.”
  • Lastly, ALWAYS, always, always get it in writing! Everything. Everytime. Not just emails (although those are useful for proving conversations took place) but SIGNATURES. Anytime you make a deal, make certain you get signatures and that you BOTH get a copy of said document. This was my father’s misstep. He met his match in his last investor. For one reason or another, there were never signed documents agreeing to the amounts of investment or the payment for services. There weren’t even emails backing up my father’s claims. There were plenty of emails backing up the investor, however, and when my father had no proof, it was the beginning of the end.

3 Responses to “Guest Post: An Inside Story of Utah Fraud”

  1. Wow! Change the word “father” with “Joseph Smith” and you just wrote an extremely convincing description of the making of an ex-mormon. Even your take aways are SPOT ON! “Feelings are not facts”… How many times I’ve said that same thing. “Ask uncomfortable questions”… Amen.

    Your story is a sad one. I hope things get better in time.

  2. Tom, way to turn a heartfelt blog about blinding trusting others with your money into an anti-LDS rant. Kudos!

    Anyhow, I served as a finance clerk for many years and can tell you that I never ever handled cash without a member of the bishopric present, which is the church’s protocol. That goes for both counting the money as well as the trip to the bank to deposit it. The only thing I could know about any member is how much they give to charity, not how much they have in their retirement accounts. We have no access to their social security numbers, bank statements, etc. Lastly, every six months, I would have my work audited by member of the stake high council to ensure all of the numbers added up.

    The fraud outlined here was done outside of church, and it’s terribly unfortunate that the author’s father’s ethics were compromised in the name of ‘business’, which is all to common in Utah and anywhere else someone thinks they have a shot at ‘guaranteed’ abnoally high returns.

  3. Kent, I appreciate your comment and certainly the vast majority of ward financial clerks are honest. But I think the point here is that in his position as the ward clerk the author’s father gained knowledge of who in the ward had significant financial resources (assuming the numbers he saw were 10% of their income) and therefore was a good target for his schemes. No amount of supervision by the bishopric would have diminished his ability to obtain that information.

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