More Trouble for John Zane Jeppesen of Garland, Utah

I have previously  written about Mr. Jeppeson, now his is more trouble.  This is from the Ogden Herald Journal this week:

The Utah Division of Securities of the Department of Commerce have filed court documents against John Zane Jeppesen, of Garland, bringing forth more accusations and details into Jeppesen’s nearly 20 year behavior of securities fraud and outlining a series of investments that have totaled nearly $9 million while naming family members of Jeppesen’s as recipients of those investment funds.

The Utah Division of Securities recently filed three different reports against Jeppesen: a Stipulation and Consent Order, an Order of Adjudication and a Findings of Fact, Conclusions of Law and Recommended Order, all highlighting Jeppesen’s pattern of securities fraud from six different investors starting in 2010 while adding two other incidents that left many Box Elder County residents out of millions of dollars.

According to these documents, the Division determined that Jeppesen, with Jeppesen Land and Properties, are subject to a $300,000 fine. In the stipulation and consent order, it states that JLP is a business entity that was incorporated in Feb. 2011, and is currently an active entity registered with the Utah Division of Corporations with LaDene M. Jeppesen, 92, (Jeppesen’s mother), listed as the registered agent and manager. Jeppesen Land and Properties has never been registered with the Division as an issuer of securities and found no records showing securities registration, exemption from registration or notice filing in any manner for JLP, according to these documents.

Breaking down the timeline of Jeppesen’s fraudulent investment behavior, the Division outlined three separate time frames that go back as far as 1999.

According to these documents, in 1999 Jeppesen acknowledged in an Idaho order that he was not licensed to sell securities under Idaho code but violated that code by selling securities that were unregistered. He also violated Idaho code by making untrue statements of material facts, and omitted facts to investors by failing to disclose to them that the promissory notes he was selling were not registered as securities and that he did not have a license to sell securities.

Jeppesen took this pattern of unlawful activity to Utah and in 2005 entered into a similar order with Utah and the Division for similar charges. In this series of events, court documents state, “Jeppesen deceived 134 Utah investors and raised approximate $8 million. For his unlawful services, Jeppesen received a total of $986,563 in compensation.” Many of those Utah investors were Box Elder County residents.

In a 2007 Utah order, Jeppesen was told he “would not engage in the sale of unregistered securities in the state of Utah” and that he would become a licensed broker dealer, investment adviser of agent before the Division before engaging in any securities transactions. Jeppesen was also told he was prohibited from making any untrue statements or omitting facts and that he would tell potential investors the existence of his current stipulation.

In 2010, Jeppesen violated the securities laws in a third round of securities violations. In this round of violations, according to court documents, Jeppesen worked with six investors in both Utah and Idaho.

Investors 1 and 2 are residents of Idaho with family and business ties to Utah. They met Jeppesen through a family member that previously invested with him in a different venture. Jeppesen collected $100,000 from these investors (over the course of a year), returned approximately $25,770, promising a 12 percent return on property located in Utah County.

According to the Stipulation and Consent Order, Jeppesen “used these funds in a manner inconsistent with what he told Investor 1 and Investor 2,” and instead used $5,225 towards banks and credit cards, $18,720 for payments to earlier investors, $530 to LaDene Jeppesen and $2,500 to his wife, Robyn Jeppesen. According to this document, Jeppesen told these investors “there was no way to lose money on this deal.”

Investors 3 and 4, a married couple from Salt Lake County, also met Jeppesen through a family member that invested with him previously. This couple invested five different times with Jeppesen for a total of $135,000 and are still owed the full amount in principal alone.

The document states that Jeppesen did not provide these investors with a promissory note or trust deed at the time of investment and when asked, Jeppesen claimed, “he forgot to record the trust deed and create a note.” These investors were told that they would be paid back within one year.

In this case, Jeppesen told investors, “There was no need for a promissory note or trust deed because it is a short-term investment and they have to move fast.” Instead, the Division stated, Jeppesen used these funds in a manner inconsistent with what he told these investors with payments to earlier investors of $24,130, a payment of $4,357 to banks and credit cards and over $4,000 to various businesses.

The Division also states that Jeppesen used those funds paying Robyn Jeppesen $11,532, Shannon Fitzgerald (wife of Michael Fitzgerald) $10,336, $5,000 to Lone Peak Real Estate and $2,200 in payments to earlier investors.

Investor 5 is a resident of Davis County and was told by Jeppesen that “he could not wait for a bank loan” and that his investment would be a trust deed. Jeppesen also told Investor 5 that “he was working with Mike Fitzgerald, his business partner on several land deals” and that Fitzgerald was “a genius with land deals.” Investor 5 was told that Jeppesen and Fitzgerald wouldn’t need 45 days to return his funds because they had property in Beverly Hills, California that was under contract that would sell within 30 days.

Investor 5 was also told that he could foreclose on the property if Jeppesen or Fitzgerald didn’t return his funds in 45 days. This investor wired $100,000 to JLP in Feb. 2012. One month later Jeppesen told Investor 5 that he would not be able to return the funds within the promised 45 days because “of an issue with the closing on the Beverly Hills property.”

Jeppesen offered Investor 5 an extra 1 percent interest on top of the guaranteed 20 percent if Investor 5 agreed to keep his funds with Jeppesen and not foreclose on the property but the investor declined the offer.

To this date, Investor 5 is still owed $100,000 in principal alone and that the investment monies were used by Jeppesen in a manner inconsistent with what the investor was told.

Instead, the funds were used to make payments to earlier investors in the amount of $53,556, $16,571 to a credit card, $11,113 to Robyn Jeppesen, $6,500 to Shannon Fitzgerald, $5,425 to Carole Jeppesen (Jeppesen’s sister in law), $2,625 transferred to other bank accounts, $1,665 to Best Buy, $1,500 transferred to himself, $530 transferred to LaDene Jeppesen and other transactions all totaling $100,000.

According to documents, Jeppesen used Investor 6’s funds in a manner inconsistent with what Jeppesen told him including, $79,045 in payments to earlier investors, $49,881 in credit card payments, $22,475 to Robyn Jeppesen, $19,841 to Shannon Fitzgerald, $12,711 in transfers to other bank accounts, $21,465 to Utah County Treasurer, $5,447 for remodeling, $2,650 to LaDene Jeppesen, $4,969 in unknown expenses and various other transactions totaling $220,000.

During Jeppesen’s May 24, 2018, hearing, he presented two arguments. “First, Jeppesen asserted that he thought that he had not violated the securities laws this third time because he had obtained a business license for his new enterprise and because he had secured the investment of the investors by security interests in real property. Secondly, he asserted that his investors would not be harmed because the value of the properties involved in the investment exceeded the total amount owed to the investors, documents state.

Although the first argument is unrelated to the fine imposed on Jeppesen, the Division states that he did not consult with a knowledgeable securities attorney to assure that the investments weren’t in violation of securities laws. Instead, Jeppesen said he “relied on the advice of two non-attorneys, one of whom was a Mr. Fitzgerald who had been Jeppesen’s accomplice in the $8 million securities fraud transaction that was the subject of the 2007 Utah Order,” documents state.

“Jeppesen’s testimony that he was now complying with securities laws, or thought that he was complying with securities laws, is inherently and clearly not to be believed,” court documents state. The Division added that there was no documented credible evidence produced at that hearing that said investors had security interest in real property.

Countering Jeppesen’s claim that his investors weren’t harmed in a substantial way, “First and foremost, is the fact that the parties acknowledge and agree that the investors in the present third round of securities fraud are currently owed $488,830 in principal alone. These investors are currently harmed in a substantial way,” the document states.

Jeppesen also stated during that hearing that “the properties that could be sold to make payment to the investors were not presently owned by him or the Respondent entity, but by the Jeppesen family members,” it added. He added that one of the properties had already been sold but the sales proceeds from the transaction were “tied up in escrow” and subject to multiple claims.

“No credible evidence was given that even one dollar of the present or prospective sales proceeds from these properties would ever pass into the hands of the harmed investors,” the document stated.

The Division added that Jeppesen provided no cooperation to their investigation and that “the Respondents have transferred to Jeppesen family members the real properties that were meant to respond to, or secure, the investments of the victims of the Respondents.”

On April 4, 2016, Jeppesen was charged in Utah’s Third District Court in Salt Lake City with 11 counts of securities fraud, two counts of theft and one count of pattern of unlawful activity, all second-degree felonies. On July 7, 2017, Jeppesen entered into a plea deal with the state and plead guilty to one count of pattern of unlawful activity and the remaining charges were dismissed.

On Dec. 8, 2017, Jeppesen was sentenced to one to 15 years in the Utah State Prison but the term was suspended. Instead, he was sentenced to 30 days in jail, which he served. Jeppesen was also ordered by the judge to pay restitution to the investors in the previously mentioned cases in the amount of $488,830. If he fails to make the payments to investors he may be sentenced to addition time in jail and/or prison.

A Pyramid of Lies

Editor’s Note: This is a fascinating story that appeared on the FBI’s website this week about a $43 Million Ponzi Scheme in Sparta, Tennessee.  Tractor salesman Jeff Gentry preyed on the implicit trust of friends, family, and neighbors in this small Tennessee town.  

Nobody would have suspected that the affable Tennessee tractor salesman who was raised among them, tended their lawns in high school, and prayed beside them at Sunday services was scamming them by the millions. Indeed, that’s probably what made the man’s investment scheme so successful, investigators say.

Jeffery Gentry, 40, pleaded guilty in federal court last August to charges related to his $43 million scheme that bilked investors—including friends, family, neighbors, and fellow parishioners—out of more than $10 million. Gentry, who owned and operated Gentry Brothers Tractor Supply and Gentry Auto in the Middle Tennessee town of Sparta, was sentenced on May 14 in U.S. District Court in Nashville to three years in prison. He was also ordered to pay $10.4 million in restitution to his victims.

Gentry’s scam was a textbook Ponzi scheme that promised investors high guaranteed rates of return on investments. He told investors the funds would finance the purchase of mowers and farm equipment to satisfy lucrative state contracts. In return, investors could expect monthly proceeds as high as 10 percent, thanks in part to rebates from equipment manufacturers for cash purchases, according to investigators. But it was all a lie, sustained in large part by investors’ faith that a lifelong neighbor and friend would never purposely do them wrong.

“He kind of preyed on that aspect of it,” said Jeff Guth, chief of the Sparta Police Department in White County, a close-knit rural community of 26,000 residents where the median household income is about $36,000. “Most of these people were friends of his. A lot of them went to church with him. They wouldn’t believe that someone close to them like that would be doing that.”

Guth learned of the scheme a few days before Christmas in 2016, when the police station lobby filled up with distraught investors fearing they had been duped. Gentry’s tractor store—an informal gathering spot where many of the investment transactions occurred—had shut down without explanation, suddenly casting doubt on their guaranteed returns. At the police station, former farmers and other retirees waved handwritten statements revealing their six-figure outlays, much of it from savings and retirement accounts. Suspecting there would be still more victims, Guth called the FBI in nearby Cookeville—a satellite office of the Bureau’s Memphis Division—for support.

“He said he had some people in his office who felt they may have been the victim of a crime,” recalled FBI Special Agent Traci Lovell. “I don’t know if they used the term ‘Ponzi scheme,’ but their money had been stolen—a large amount of money.” Lovell and fellow agent Ric Fagan began interviewing more than 50 victims who had invested as far back as 2012. The picture that emerged was a typical pyramid scheme: Gentry’s initial investors may have seen promising returns early on, but without new money coming in—to pay investors their guaranteed returns and support Gentry’s increasingly lavish spending—the ruse ultimately fell apart, leaving many underwater and angry.

“That was a hard day for a lot of people, because they were finally coming to the realization that they had been duped and that they would be lucky if they got anything back at all,” Guth said.

In addition to funneling investor cash into real estate, livestock, vehicles, and farm equipment, Gentry spent $365,000 in March 2016 to launch a used car business, Gentry Auto, in Sparta. “He sold for a living,” said Special Agent Fagan. “He could talk to people. Just what every scam artist needs is the ability to convince you that giving me your money is the best thing to do.”

U.S. Marshals Service Auction Sign in Sparta, Tennessee
The FBI investigation required months of work with local task force officers in Sparta, the Internal Revenue Service, and the U.S. Marshals Service—which seized Gentry’s assets, including businesses, houses, and land financed through the scheme, as well as $300,000 in cash. An FBI forensic accountant was brought in to make sense of the accounts and handshake contracts, including handwritten notes acknowledging single investments of more than $1 million. Gentry was charged on July 5 with wire fraud and money laundering. An auction last August on the site of Gentry’s former tractor business sought to recoup some money for the victims, though it only resulted in $1.3 million for victim restitution—not nearly enough to make them whole. Guth said some bidders at the auction altruistically overbid certain items “to help their neighbors out a little bit.”

“Many of them, they are never going to see the amount that they had put into it,” Guth said. “But they will be able to benefit from some of it. And some of it may be better than nothing at all.”

The FBI agents said secrecy was a key element of Gentry’s ploy—as it is in most Ponzi schemes. Potential investors are lured into thinking they are lucky to get access to this kind of lucrative investment, and that if too many people know about it, their own windfall might be diluted. The air of secrecy also keeps victims from swapping notes, which can reveal inconsistencies and irregularities. That’s what happened in Sparta.

These tractors and mowers were among the assets seized from convicted fraudster Jeff Gentry that were auctioned by the U.S. Marshals Service at a public auction on August 26, 2017 in Sparta, Tennessee.

Tractors and mowers were among Jeff Gentry’s seized assets auctioned last summer by the U.S. Marshals Service. The resulting $1.3 million in proceeds will go toward restitution for victims of Gentry’s investment scheme.


“When the victims started comparing notes, they realized the basis of this scam was implausible,” said Lovell, referring to the sheer volume of tractors Gentry would have needed to sell to justify what he promised investors. “The victims can see in hindsight how ludicrous it was to believe that this scheme was true.”

In hindsight, there were warning signs: guaranteed high returns, secrecy, and a fundamentally flawed investment model. Investigators cautioned anyone entering into an investment opportunity to do their homework before handing over money. “If someone tells you to keep it a secret, that should be a red flag,” Fagan said. “If someone uses the words ‘guaranteed return,’ that should be a red flag. If a contract you’re looking at doesn’t make sense, ask more questions and try to understand it. Don’t make yourself an easy target.”

Guth said some victims, including retirees on fixed incomes, lost their life savings. Their trust and faith has also been tested. “People are more on guard than they were before, and they are probably having a hard time trusting anybody,” he said. “It was hard to take. But being a small, close community, I think people have kind of wrapped their arms around some of these people [who were victims]. I’m sure it’ll take a while, but we’ll get through this.”

What is a Ponzi Scheme?

Ponzi schemes promise high financial returns or dividends not available through traditional investments. Instead of investing the funds of victims, however, the con artists pay “dividends” to initial investors using the funds of subsequent investors. The schemes generally fall apart when the operators flee with the proceeds or when a sufficient number of new investors cannot be found to allow the continued payment of “dividends.”

This type of fraud is named after Charles Ponzi of Boston, Massachusetts. In the early 1900s, Ponzi launched a scheme that guaranteed investors a 50 percent return on their investment in postal coupons. Although he was able to pay his initial backers, the scheme dissolved when he was unable to pay later investors.

Tips for Avoiding Ponzi Schemes

  • Be careful of any investment opportunity that makes exaggerated earnings claims.
  • Exercise due diligence in selecting investments and the people with whom you invest—in other words, do your homework.
  • Consult an unbiased third party—like an unconnected broker or licensed financial adviser—before investing.

Jeffrey Mowen Has Been Released From Prison

I recently received an anonymous tip telling me that Jeffrey Lane Mowen, formerly of Lindon, Utah, has been released from prison.  I checked the Bureau of Prisons website and sure enough, he was released on January 12, 2018 and is now presumably at large in the community, so watch out Utah County!

Jeffrey Mowen

Mowen was sentenced to ten years, but it’s not unusual for white-collar prisoners to be released early to make room for violent prisoners.  Regardless, this is not someone who I would recommend doing business with.  If you would like to know more about this case and the criminal charges he pleaded guilty to you can read my prior posts about the case here.

The  press release and complaint the SEC filed against him in September of 2009 can be found here, and the Daily Herald’s article about his plea deal can be found here.

One of the more interesting things about this case is that rather than investing the victims’ money as represented, Mowen used about $6 million of investor monies to purchase over 200 antique, classic and muscle vehicles which he kept in a warehouse in Bountiful.  The collection included  cars, trucks, trailers, motorcycles and three-wheelers, most of which were auctioned off in 2010. You can see some photos of the totally random assortment of cars that they auctioned off in this article from the Deseret News.  As one observer told the paper, “It’s just a bizarre collection. There’s a lot of junk in there.”

Hopefully his taste in automobiles has improved during the time he spent in the federal penitentiary.

John Zane Jeppesen of Garland, Utah And His History of Fraud 

John Zane Jeppesen of Garland, Utah is probably not someone you want to invest your money with.

  • In 1999, Jeppesen entered into an agreement with the Idaho Securities Bureau, under which he admitted to violations of registration, licensing and anti-fraud provisions and was ordered to pay outstanding principal and interest to Idaho investors.
  • In 2003 Lehman Brothers Bank filed a $58 million dollar lawsuit against Jeppesen’s company Beverly Hills Development and others in California alleging it was involved in a massive real estate loan fraud scheme occurring over a three-year period through forgery, identity theft, misrepresentations, fraudulent loan documents, wire fraud, and the illegal laundering of funds.
  • In 2005 the Utah Division of Securities charged Jeppesen with raising approximately $8 million dollars for a company called Beverly Hills Development Corporation from 134 Utah investors though unsecured promissory notes. He settled that case, but the conduct didn’t stop.
  • In April of 2016 he was charged by state prosecutors in the Attorney General’s office with 11 criminal counts including securities fraud, theft and one count of pattern of unlawful activity for running a real estate scheme.
  • In September of 2016 the Utah Division of Securities filed another Order to Show Cause against him that included 8 causes of action including securities fraud, unlicensed selling of securities and “willful violation” of the prior 2005 Consent Order with the Division involving strikingly similar conduct.

Despite all that history of fraudulent activity, much of which he admitted, Third District Court Judge Royal Hansen sentenced Jeppesen to just 30 days in jail after he pled guilty to one count of felony pattern of unlawful activity.  Presumably when he gets out of prison he will start paying back his investors, and in fact Just Hansen stated that was his intent in keeping the sentence reasonably short. When Jeppesen’s 30 days is served, he has six months to pay back the victims or he’ll return to jail to serve 11 more months.  Hopefully that will provide the necessary incentive to get everyone repaid!

As detailed in the Tremonton Leader, Jeppesen originally faced eleven counts of securities fraud, two counts of theft and one count of patterns of unlawful activity, all second degree felonies as a result of his alleged role in a real estate investment scheme that has left six known victims out of hundreds of thousands of dollars.  The linked articles by reporter Cari Doutre in the Tremonton Leader contain a lot of great detail about his conduct, and the heartbreaking testimony from his victims at the sentencing hearing.

I will interested to see whether he will be able to get his victims repaid after he gets out of prison. If you are a victim of one of Mr. Jeppeson’s scams please share your story in the comments below.

Copyright © 2018 by Mark W. Pugsley.  All rights reserved.

FBI Article on Affinity Fraud in Utah

This is a re-post of a great article on the unique problem we have with affinity fraud here in Utah.  This article appeared on the FBI’s website yesterday.


Affinity Fraud

White-Collar Criminals Use Bonds of Trust to Prey on Investors

White-Collar Crime Offender Registry Website (Stock)

Financial fraudsters are known to be an unscrupulous lot, but it is particularly loathsome when these white-collar criminals exploit trusting members of their own church or social circle to line their pockets.

Financial crimes based on bonds of trust—known as affinity fraud—occur throughout the United States but are especially prevalent in Utah, where members of The Church of Jesus Christ of Latter-day Saints too often are victimized by savvy fraudsters who claim to be just like them.

“These are greedy individuals who will stop at nothing,” said John Huber, the U.S. Attorney for the District of Utah, a lifelong resident of the state and member of the Mormon Church. “What’s so disconcerting is that these criminals approach us at church or through associations at our work or referrals from friends. They are silver-tongued devils—wolves in sheep’s clothing who will take our money and we’ll never see it again.”

So serious is the problem of affinity fraud in Utah that in 2015 the state legislature passed a law establishing an online white-collar crime registry—similar to sex-offender registries—which publishes the names, photographs, and criminal details of individuals convicted of financial fraud crimes in the state going back a decade. Currently, there are 231 individuals listed on the registry.

In addition, a collaboration between federal, state, and local law enforcement partners has resulted in the Stop Fraud Utah campaign, which aims to educate the public about affinity fraud—what people can do to avoid it and how best to report it if they have been victimized.


In Their Words

A Utah woman who believed she had done her homework on retirement investments later discovered she was part of an elaborate scam that cost her thousands.

Transcript | Download

John Huber, U.S. Attorney for the District of Utah, describes how affinity fraud takes advantage of established “relationships of trust.”

Transcript | Download

Michael Pickett, supervisor of the white-collar crime squad in the FBI’s Salt Lake City office, describes tactics fraudsters use to prey on potential affinity fraud victims.

Transcript | Download

Richard Best, regional director of the Securities and Exchange Commission’s Salt Lake office, describes taking precautions against affinity fraud.

Transcript | Download


“Within the Mormon population, there is a well-known sense of trust,” said Special Agent Michael Pickett, a veteran white-collar crime investigator in the FBI’s Salt Lake City Division. “Unfortunately, that trust can sometimes take the place of due diligence, and that’s when individuals are more susceptible to being victimized.”

Affinity fraudsters are expert manipulators. “They are great salesmen,” Pickett explained. They will approach members of their social or religious circle with a promising investment opportunity—one that pays a high rate of return—and then use a variety of high-pressure tactics to get their victims’ money.

Pickett described some of the fraudsters’ ploys: “This is a once in a lifetime opportunity. You don’t want to be the one who passed up buying Amazon when it was first offered. You don’t want to be the one that blows that opportunity, but you have to do it now. If you wait, the opportunity is gone. And by the way, you are one of the few people I am making this offer to, so let’s just keep it between ourselves.”

“This type of fraud is significant,” Pickett said. “Within the Utah area, we are investigating more than $2 billion worth of fraud. In the last four months, we’ve opened 10 new cases.” He added that Utah consistently ranks among the top five states for the FBI’s most significant white-collar crime cases.

Too often, individuals dreaming about getting the great deal promised to them by a trusted friend or associate fail to see the red flags. “A key to this is communication,” Pickett said. “You have to do your due diligence. Talk to a neighbor or a family member. Add a little common sense to the equation, and try to separate truth from fiction.”

That’s where the Stop Fraud Utah campaign comes in. “The strategy for law enforcement is not to deal with fraud as a reaction, but to deal with it on the front end,” said Richard Best, regional director of the Salt Lake City office of the U.S. Securities and Exchange Commission (SEC), a partner in the campaign. “The best way to stop fraud is to avoid fraud, and the best way to do that is to educate the community so that when they are confronted with situations—opportunities, as fraudsters would say—they know to ask the right questions.”

Established earlier this year, the Stop Fraud Utah campaign has sponsored several fraud seminars around the state, which are free and open to the public. And because victims of affinity fraud typically call their local police departments to report these crimes, there is also an effort to train local law enforcement personnel on how to identify white-collar fraud, what evidence to collect, and the proper state and federal agencies to report it to for further investigation.

The high level of collaboration among Stop Fraud Utah campaign partners is “crucial to our success here,” Best said. “I cannot stress that enough. The SEC’s relationship with the FBI and the U.S. Attorney’s Office is one of the best I have ever seen.” Other members of the campaign include the Utah Attorney General’s Office, the Internal Revenue Service, and the state’s Consumer Protection Division.

“In Utah, we have to do something to stop fraudsters from exploiting people who trust them,” said U.S. Attorney Huber. That’s why the state’s top law enforcement official has personally attended fraud seminars to caution the public about affinity fraud. “I know Utah very well,” he said. “It troubles me to see good people who have worked very hard to set aside retirement funds and nest eggs lose that to people who seemingly have no conscience.”

Unlike a drug addict who might rob a bank out of desperation, Huber added, financial fraudsters’ crimes are ruthlessly premeditated. “These perpetrators, with a smile on their face and a twinkle in their eye, approach with a handshake and a hug, with intent and with persistence, to violate the trust of their victims and to take their life’s earnings.”

Wolves in Sheep’s Clothing

The white-collar criminals who commit affinity fraud are often charismatic salesmen capable of deceiving even sophisticated investors.

Special Agent Michael Pickett, a veteran financial fraud investigator in the FBI’s Salt Lake City Division, offers a case in point:

His team was investigating a scam artist who had fraudulently collected approximately $5 million from investors—and who would later go to jail for his crimes.

“We talked with one of his victims, an elderly lady, who knew this gentleman very well,” Pickett said. “She had been associated with him for years. Her husband, who had recently passed away, had been good friends with him as well.”

The woman had invested and lost more than $100,000 with the individual. Investigators spoke to her and made her understand that she had been the victim of a fraud. “Ultimately, she agreed to wear a wire for us and talk with the individual to get his sales pitch so we could use that in court against him,” Pickett explained. “She knew it was fraud and agreed to help us.” Wearing the wire, the victim spoke with the man who had taken her money. “She came back about two hours later,” Pickett said, “ready to invest more money with this individual.”

FBI agents were able to talk her out of investing more funds, Pickett said, “but that’s how good a salesman he was—and it was all based on that relationship of trust.”

SEC Creating Searchable Database of Bad Brokers

This is a repost of an article that appeared in ThinkAdvisor today.  Apparently the SEC agrees with one of the main goals of this website; people are increasingly googling the names of people they want to do business with, so information about people who have a documented history of unethical or fraudulent conduct needs to be easier to find.  The only reservation I have about this approach is that the database will be limited to (1) individuals,  and (2) those “who have been barred or suspended as a result of federal securities law violations.”

This leaves a number of gaps.  I think the database should include companies that have a history of fraud (which could include a number of well-known companies), and it should also include companies and individuals who have been barred or suspended by FINRA or state regulatory agencies.  But otherwise its a good first step!  -MWP

SEC Creating Searchable Database of Bad Brokers

The site ‘will be particularly valuable’ for spotting fraudsters who have been stripped of their registrations, Clayton said

 

SEC Chairman Jay Clayton. (Photo: Diego Radzinschi/NLJ)The Securities and Exchange Commission is creating a website that will contain “a searchable database of individuals” who have been barred or suspended as a result of federal securities law violations, the agency’s chairman, Jay Clayton, said Wednesday.

“This resource is intended to make the prior actions of repeat offenders and fraudsters more visible to investors,” Clayton said at the Practising Law Institute’s 49th Annual Institute on Securities Regulation conference in New York.

“Clearly, there are fraudsters in our marketplace who are seemingly unafraid of, or undeterred by, the risk of being caught. The SEC can target the underlying conduct of those fraudsters – and we do – but we also can and should arm investors with information that makes it more difficult for them to be defrauded.”

The searchable website, Clayton continued, “will be particularly valuable when bad actors have shifted from the registered space for investment advisors and broker-dealers to the unregistered space.”

Clayton stated in late September that the agency was planning to compile data on people who are not registered as advisors or brokers in order to catch more incidences of fraud.

During his Wednesday comments, Clayton said that the securities regulator reminds investors “repeatedly that they should conduct a background check before investing with a financial professional, and we are showing them how to do just that” with the upcoming website and with FINRA’s BrokerCheck.

Clayton told audience members that the SEC should continually be asking: “Are there opportunities to deter, mitigate or eliminate wrongdoing before an enforcement action becomes necessary?”

Looking back at enforcement actions brought by the agency, he continued, “a common theme emerges – where opacity exists, bad behavior tends to follow.”

The agency’s enforcement division, he said, “will continue to be active in pursuing cases where hidden or inappropriate fees are at issue, but we also are exploring whether more can be done to clarify fee disclosures made to retail investors and, thereby, deter and reduce the opportunities for misbehavior.”

As an example, he cited firms that invest clients’ money in a mutual fund share class that charges a 12b-1 fee when a lower-cost share class of the same fund is available, “or advisors may improperly choose to use fund assets to pay expenses that should be paid by the firm.”

Customers, he added, “may be deceived if brokers charge fees that are designed to cover the costs of services provided, while also marking up the prices of securities to earn a profit that is not disclosed.”

Barred Broker Hank Brock Pleads Guilty to $10 Million Tax Fraud Scheme

Henry (“Hank”) Brock of St. George, Utah pleaded guilty on Monday to tax evasion, securities fraud and wire fraud. According to the Department of Justice press release, Brock sold fraudulent tax-avoidance and investment strategies to his clients through a financial services company he ran called Mutual Benefit International Group, Ltd.  and through its subsidiaries, Brock Seminars LLC, and MB Holdings BVI, LLC.  The DOJ alleged that as president of Mutual Benefit Brock marketed a fraudulent tax scheme investment called “IRA Exit Strategy” to potential investors through seminars, phone calls, mailings, emails and online ads from 2009 through 2017.

According to the Felony Information that was filed on October 17, 2017, Brock promised investors that this IRA Exit Strategy would help them to avoid paying taxes on IRA withdrawals, which are normally subject to IRS penalties and taxes. Specifically, Brock gave his clients tax forms which falsely showed they were investors in his business, and that the company had incurred substantial losses.  These losses were then used to offset tax liabilities from their IRA withdrawals on fraudulent income tax returns that they were instructed to file with the IRS.

According to the Department of Justice, Brock fraudulently raised over $10.8 million by making false representations to investors regarding this “IRA Exit Strategy,” and by misrepresenting the financial condition of his company and other matters.  On at least one occasion the DOJ alleges Brock transferred $196,323 of a client’s investment funds and used the money for his own personal and business expenses.

Brock faces a maximum sentence of five years in prison for tax evasion, 20 years in prison for securities fraud and 20 years in prison for wire fraud. He will also be ordered to pay restitution and monetary penalties.  Sentencing is scheduled for March 5, 2018 before U.S. District Court Judge Ted Stewart.

This is not the first time that Brock has had run-ins with government regulators.  In April of 2006 he entered into a Stipulation and Consent Order with the Utah Division of Securities, which is obtainable through a government records (GRAMA) request.  As part of  that settlement Brock was barred from associating with a broker-dealer or investment adviser licensed in the State of Utah – for life.

He was also specifically prohibited from “advising individuals in any way regarding the sale, promotion or purchase of securities; and presenting seminars in order to solicit business for, or otherwise make referrals to, for any form of compensation, any broker-dealer, agent, investment adviser or investment representative licensed in Utah.”

It is unclear to me whether Brock violated the terms of his settlement with the state when he solicited investors for Mutual Benefit, but I assume the state is looking into that possibility.

Although this 2006 settlement is no longer available on the Division of Securities’ online database, the fact that Brock has been permanently barred from selling securities is disclosed on FINRA’s website brokercheck.com.  It is always a good idea to run a search on Broker Check before doing business with anyone in the financial services industry.

Mr. Brock is also somewhat infamous for a lawsuit he filed against the Utah Division of Securities in 2010 for $357.6 million.  In the lawsuit he an another man, Jay Rice, accused state regulators of targeting them without proof of wrongdoing in an over-zealous campaign to bring down securities violators. They claimed that they were put out of business and forced to declare bankruptcy as a result of the agency’s actions. “They destroyed my reputation maliciously and wholly without cause,” Mr. Brock said in an interview at the time. “ Among the claims in the lawsuit are allegations that the Securities Division bribed Mr. Rice’s clients, went through Mr. Brock’s computers without permission and sent out a press release announcing the action to bar him from the securities industry that contained false information.

U.S. District Court Judge Tena Campbell initially dismissed the case in July 2010 based on governmental immunity, but then the U.S. 10th Circuit Court of Appeals reversed and remanded just the portion of the case alleging violations of their state constitutional rights.

If you lost money or are facing IRS penalties after working with Hank Brock of Mutual Benefit International Group please share your story in the comments below.

Copyright © 2017 by Mark W. Pugsley. All Rights Reserved.

 

The Financial Fraud Institute is coming to St. George, Utah

STOP FRAUD UTAH and the Financial Fraud Institute are coming to St. George!  The event will take place on November 2nd from 4:00 to 7:00 p.m., at the Dixie Center.  The keynote speaker will be John W. Huber the United States Attorney for the District of Utah. Click on this link to access the brochure.

STOP FRAUD UTAH is a collaboration of federal, state, and local law enforcement and self-regulatory organizations working together to fight fraud in Utah by educating the community about ways to avoid being victimized. What is unique about this program is the depth of cooperation among federal, state, local law enforcement and self-regulatory organizations.  STOP FRAUD UTAH includes the following state and federal agencies:

• The SEC
• The United States Attorney’s Office
• The Commodities Futures Trading Commission
• The FBI
• The IRS
• The Financial Industry Regulatory Authority (FINRA)
• Utah Attorney General’s Office
• Utah Division of Securities
• Utah Division of Consumer Protection
• Salt Lake County Attorney’s Office
• Utah County Attorney’s Office
• Washington County Attorney’s Office

Additionally two panels made up of presenters from many of the agencies listed above will discuss financial fraud and consumer fraud. Informational booths from the various agencies, as well as the AARP, Utah Retirement Systems, Adult Protective Services, the Utah Department of Veterans & Military Affairs and the Better Business Bureau will be available to provide information to attendees.

STOP UTAH FRAUD

Arizona Resident Cory Williams Sued for $13 Million Fraud Scheme Targeting LDS Ward Members

Today I received a tip that earlier this year the Commodity Futures Trading Commission (CFTC) filed a lawsuit in Federal Court in Arizona against Cory Williams and his company Williams Advisory Group of Gilbert, Arizona. In its complaint the CFTC alleged that Mr. Williams defrauded 40 investors out of at least $13 million in connection with a commodity pool he operated in Arizona.

I am interested in this case because Mr. Williams was an active member of the LDS Church and allegedly victimized many church members in Gilbert Arizona where he lives.

The CFTC charged Williams with soliciting $13 million from family members, friends, neighbors and members of his LDS church ward to invest in his commodities trading scheme.  Williams allegedly deposited most of the investors’ money into his personal account and traded futures contracts, but his trading abilities were not as great as he had represented to his investors.  He lost more than $8.3 million in the futures market but continued to tell his investors participants that he was making a profit.

The CFTC alleges that Williams told people that he was an experienced futures trader and that his trading had been consistently profitable, but of course it was not.  Williams sent weekly text messages to his investors reporting fake trading profits as high as $30,000 per week on their investments, but in reality he consistently lost money.  Williams did not have a single profitable month between April 2014 and December 2016.

And as is often the case, Williams also used investor money to fund an extravagant lifestyle; $1.3 million of investor money was diverted to pay for dining, jewelry, vacations and charitable donations such as tithing.

According to James McDonald, Director of CFTC’s Division of Enforcement, “Cory Williams lied to his victims to convince them to invest millions of dollars in his fund. Williams promised to invest their money using his expertise, backed up by a track record of profitable investments. But in reality, Williams simply made up his profitable past, and he spent his victims’ money on himself—using some of it to fund his own dining, travel, and other personal expenses.”

In June the judge in Mr. Williams case froze all of his assets.  Mr. Williams then wrote a letter to the court requesting reconsideration of the preliminary injunction and asking for a stay because he was defending an ongoing criminal investigation.  “I do not have a lawyer for the civil case, and I do not have the money to pay for a lawyer,” Williams said in the June 12 letter to the court, “I have been advised by my criminal lawyer that anything I say in my civil case can be used against me in the criminal investigation.”

The judge nevertheless refused to stay the civil case, and in July of this year the CFTC asked the court to enter a default judgement and order Cory Williams to pay a civil monetary penalty of more than $9.7 million along with restitution in the same amount.  Then on August 28, the CFTC filed a motion for an Order to Show Cause alleging that Williams had violated in the court’s preliminary injunction.  The court has not ruled on either motion.

________________________

So how could these Arizona investors have avoided getting scammed by Brother Williams?

As I discussed in my 2014 article “TOP TEN WAYS TO AVOID LOSING MONEY IN A FINANCIAL SCAM,” it is never a good idea to invest with someone just because they are a friend or a neighbor.  It may seem like doing business with someone you know and trust would be safer, but just because you know and trust the individual soliciting the investment does not mean that the investment itself is good.  You need to do your homework, which in this case would have included asking for trading records and checking with the state and federal regulators to ensure that Mr. Williams had the appropriate licenses.

In 2008 the LDS Church sent a letter to its congregations, urging members to be wary of fraud and warned against “those who use relationships of trust to promote risky or even fraudulent investment and business schemes.”  I’ve been urging people here in Utah to keep church out of investing for years now.  The bottom line is that if someone casually mentions that they used to be the bishop or in some other church position in the context of an investment pitch, watch out!  Church callings and temple worthiness are not relevant to investment decisions.

Copyright © 2017 by Mark W. Pugsley. All Rights Reserved.

Carlos Meza Charged With Defrauding LDS Ward Members

I wanted to share a compelling story of fraud perpetrated against several members of the LDS Church in Illinois.  It was written by Mark Brown of the Chicago Sun Times and tells the story of a man named Carlos Meza who was a bishopric member in his LDS ward in in Crystal Lake, Illinois.

This is not a Utah story per se, but it certainly has familiar themes that we see here; a prominent ward member apparently used his position in the LDS church to gain the trust of fellow church members and then victimized them.

Here is the full text of the story:

These ‘best friends’ aren’t forever

“The people who Carlos Meza allegedly swindled will all tell you how much they liked and trusted him — right up until the point they realized he was never going to return their money.

Meza, 53, of Lake in the Hills, was charged last week in a federal grand jury indictment with defrauding friends and associates out of hundreds of thousands of dollars.

The federal charges follow an unrelated fraud case brought against Meza in December in McHenry County, where he is accused of stealing thousands of dollars from a married couple by claiming to help them refinance their home mortgage and instead pocketing the money.

In both cases, the alleged victims were befriended by Meza through their membership in the Mormon church.

I first told you about Meza three years ago, shortly after he had been charged in Cook County in connection with writing a $45,000 bad check.

I met many of his accusers in court that day, and the most telling moment was when one of them told me: “He said I was his best friend.”

“No, I’m his best friend,” said another.

“No, I’m his best friend,” chimed in a third.

People forget that the con in “con man” is short for confidence.

A good con man relies on gaining the confidence of his victims, then using that trust to trick them into foolish decisions.

Federal authorities say Meza portrayed himself as a “multi-millionaire” businessman who owned multiple properties in Chicago, 100 road construction trucks and had millions of dollars in South America.

All those statements were false, but help explain how Meza was allegedly able to convince “friends” he was doing them a favor by taking their money.

“He told my husband: ‘I’m only doing this for you. Don’t tell anyone else. I don’t do this for everybody,’ ” Linda George, of Algonquin, told me Tuesday.

What Meza did for Tom George was to take $60,000 of his money with the promise of putting it into a low-risk, high-return investment. George withdrew funds from a retirement account in expectation of paying it back promptly and using the windfall to rescue a failing business venture.

Three years ago this month FBI agents met with Tom and Linda George to interview them about their dealings with Meza.

After the meeting, Tom George was so alarmed about the prospect of losing the money he died the next morning of a stress-induced heart attack, his wife said.

“The last thing he said to me was: ‘I need to talk to Carlos,’ ” she said.

Linda George said Meza “definitely used his friendship” from their relationship through the Mormon church to gain her husband’s trust.

Both families attended a Mormon church in Crystal Lake, as did Randy and Linda Stroh, the McHenry County couple who lost their home after Meza told them he had hired people to assist in refinancing their mortgage.

In announcing the charges in that case, Attorney General Lisa Madigan said Meza arranged for the Strohs to write checks to those individuals. Then Meza took the checks, forged signatures and deposited the money in his personal bank accounts, Madigan said.

Meza has pleaded innocent in that case, which is still pending.

In the federal case, Meza is accused of taking at least $95,500 from his victims that he was supposed to invest on their behalf and instead paying his personal debts and expenses.

Meza plea bargained the earlier Cook County felony charge down to a misdemeanor and was sentenced to probation.

Chicago businessman Andrew Lee, the victim in that case, admits Meza capitalized in part on greed and the lure of easy money.

“We all want to win the lottery, right?” Lee said.

It’s the old story that when something sounds too good to be true, it probably is, even if it comes from a trusted “friend.”

If you know Carlos Meza and lost money to this man feel free to share your story below.

Copyright © 2017 by Mark W. Pugsley. All Rights Reserved.