Rust Rare Coin: An Analysis of Utah’s Latest Massive Ponzi Scheme

Imagine waking up one day and discovering that all of your retirement savings were gone; all the money you had been working to save had evaporated in a poof.

That’s what happened to over 200 people on November 15th.  They had invested in a “Silver Pool” investment promoted by Gaylen Rust who claimed he had inside information about the silver market and told investors he was consistently making returns of 25 to 40% per year.  He claimed that investor money would be used to purchase and store silver bars, and that he had never lost money in his trading.

Photo by Chris Detrick | The Salt Lake Tribune

People bought into this Silver Pool investment and recommended it to their family and friends.  And after watching their investment increase (on paper) many “doubled down” and put all of their retirement money with him.

After all, Rust was an active, respected member of the Church of Jesus Christ of Latter Day Saints and a generous promoter of music education in the schools.  What could go wrong?

Well, as it turns out plenty.

On November 13, 2018 the Commodities Futures Trading Commission (CFTC) and the Utah Division of Securities jointly filed a lawsuit against Gaylen Rust and his company Rust Rare Coin, Inc.  The SEC filed a similar lawsuit a few days later.  The filing of simultaneous, obviously coordinated lawsuits by three different securities regulators is quite rare in this state, and is indicative of the size and seriousness of the case.

The state and federal regulators have alleged that Gaylen Rust has been “engaged in a massive scheme to defraud” and has been running a Ponzi scheme since 2008.  He raised over $200 million from investors in the last 5 years alone, and now it’s gone.

If true, this will be one of the largest Ponzi schemes in Utah history.

I have been getting calls from investors, regulators and former Rust employees over the last few weeks and almost all of them are stunned by this news.  Gaylen Rust and his father Alvin have maintained a good reputation in the rare coin and precious metals industry in Utah for many years.  Alvin Rust was an avid coin collector and started Rust Rare Coin in 1966 as a way to combine his hobby with his livelihood.  Rust Rare Coin was known as a reputable place to purchase gold and silver coins, even after Alvin got caught up in some ill-fated deals with Mark Hoffman years ago.

According to the allegations in the CFTC Complaint, Rust and his company began promoting a “Silver Pool” in 2008 as a way for people to invest in the silver market, which Rust probably seemed to understand quite well:

“[Rust] told investors and prospective investors that they would sell silver held in the pool as market prices rose and buy silver for the pool as market prices fell; thereby increasing the amount of silver held in the Silver Pool, as well as the value of each investor’s share in that pool.  [Rust] told investors and prospective investors in the Silver Pool that by trading silver in this manner, they generated extraordinarily high returns, averaging twenty to twenty-five percent per year and sometimes as high as forty percent per year or more.”

Consistent returns of 25% to 40% per year??  A simple Google search would have shown that trading commodities is extremely risky.  How did he achieve such consistent profitability? The simple answer is that he didn’t.   Potential investors should have been skeptical of those consistently high returns, but most trusted him and did not attempt to verify the claims Gaylen Rust was making.  My opinion is that if any investment claims to achieve returns of 15% or more per year you should be extremely careful.

Shockingly, Rust didn’t provide investors with any paperwork setting forth the terms of the investment, he didn’t formally disclose his financials, and he didn’t provide any risk disclosures.  All of those should have been huge red flags to any investor.

Once he had their money, Rust sent out “account statements” via email showing impressive (but unfortunately fake) returns on their investments. Rust purportedly claimed that he had as much as $80 million dollars of silver bars stored at Brink’s depositories in Salt Lake City and Los Angeles, and that this reserves would permit investors to liquidate their investments at any time.

How much silver is that?  One source told me that $80 million in silver would fill five semi-trucks.  That’s a lot of silver, but unfortunately Brinks depositories aren’t big enough to hold that much silver. Not good.

According to the CFTC complaint, Rust did not use investor money to purchase silver or silver contracts for the Silver Pool as he had represented.  Instead, investor’s retirement money went to make payments to other investors, to fund other affiliated Rust Companies, and to pay personal expenses for the Rust family.

Rust never even had a commodities trading account at HSBC Bank, and was never licensed as a broker or commodities trader.

It was all a big scam.

The Prospects for Recovery

One of the first questions I invariably get from victims in a case such as this is: “What are the chances of recovering of my retirement losses?”

Unfortunately, they are not great in this case, as in most Ponzi scheme cases.  It is exceedingly rare to recover all of your losses from a Ponzi scheme.

The CFTC case (which is the main case) has been assigned to United States District Judge Tena Campbell who is a highly respected jurist here in Utah.  Based on the CFTC’s motion Judge Campbell has selected Jonathan Hafen to serve as the receiver in this case and he will work under the direction of the Court along with several lawyers in his firm, including Joe Covey who will be lead litigation counsel.

Because I am not involved in that aspect of the case and only have access to the public filings I cannot predict how much money will ultimately be recovered. Mr. Hafen has stated in open court that there are no significant assets to recover, which is not a good sign.

Mr. Hafen’s job will be to gather assets from any sources he can, and then to distribute those assets in an equitable manner to the victims.  You can learn more about how an SEC receivership works here.  The latest filings and information about the case can be found on the Receiver’s website: https://rustrarecoinreceiver.com/.

Unfortunately, one of his primary tasks will be to file clawback lawsuits against investors who got their money out before the whole scheme collapsed.  So if you are one of the lucky investors who got out you should expect a demand letter from the receiver within a year. It’s a good idea to hire an attorney to handle that clawback case; preferably one who understands the process.

Complex receiverships such as this are extremely expensive and can stay open for years, depending on how long to takes to pull together and then distribute all of the assets. The Vescor case involving Val Southwick took ten years to complete, which led understandable criticism of the receivership process.

The only winners in this process are the lawyers.

How To Avoid Getting Scammed

This is a tragic story that is repeated over and over in our state, and most of these scams take advantage (intentionally or not) of the relationships of trust that members of the LDS Church have with one another.  This is commonly called “affinity fraud.”  Our state has a long history of financial scams and Ponzi schemes, many of which have been perpetrated by members of the LDS church on members of their ward or stake.  It’s heartbreaking to say, but Utah has one of the highest rates of fraud per capita of any state in the country.

I specialize in helping people recover losses from investment fraud, but by the time people call me the money is usually long gone – and so is the person who took the money.  So here are a few tips to avoid getting sucked into an investment scam:

  1. Slow down. Take your time, do your research, ask lots of questions, search the internet, review their financials, visit the company, kick the tires before you buy.  Be very wary of aggressive sales pitches and deadlines.  Ask the hard questions before you hand over your money, not after.
  2. Do your homework. Run a simple Google search on the company and its managers, or the individual.  If it involves a company, ask for a private placement memorandum and company financials.  Contact federal and state securities regulators see if actions have previously been taken against the company or individuals involved.  The local office of the SEC can be reached at 801-524-5796, or you can call the Utah Division of Securities at (801) 530-6600.
  3. Hire an attorney. Attorneys can be expensive, but it is much cheaper to hire an attorney to document the transaction properly on the front end than to sue the bad guys when it all blows up.  A good lawyer can help you perform due diligence on the company and individuals, and can determine whether the investment is properly structured as a private offering and complies with state and federal statutes.
  4. Get it in writing. I am amazed how often people will give hundreds of thousands of dollars to someone on nothing more than a handshake.  The terms of your deal should always be put in writing, and those terms should be reviewed by the competent attorney you hired.
  5. Beware of guarantees. If anyone tells you that your investment is “guaranteed” that should be a red flag.  All investments carry risk, and personal guarantees (especially oral ones) are rarely a means to get your money back.
  6. Beware of secret trading strategies, offshore investments, commodity or currency (FOREX) trading, futures, options and minerals. Avoid investing with anyone who claims to have a secretive investing algorithm or touts unusual success.  These types of investments nearly always involve extremely high risk, despite what you may be told.
  7. Work through licensed stock brokers or investment advisors. Even when investing in a private (unregistered) opportunity ask whether the promoter is licensed to sell securities, which is required under most circumstances.  Run their name through FINRA’s Broker Check
  8. Don’t invest with friends and neighbors. It may seem like doing business with someone you know and trust would be safer, but that is simply not true.  All investing involves risk, and just because you trust the individual soliciting the investment does not mean that the investment itself is good.  Trust but verify; and if things go badly do not hesitate to aggressively protect your interests.
  9. Keep church out of it. If someone pitching you an investment casually mentions that they used to be the bishop or in some other church position, watch out!  Church activity or high callings are not relevant to investment decisions, and if anyone mentions their church position as part of an investment pitch warning bells should be going off.
  10. If it sounds too good to be true it probably is. If you are thinking about putting money into an alternative, unregistered, or unregulated investment that promises abnormally high returns, watch out.

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

Another Former LDS Stake President Indicted for Affinity Fraud

On Wednesday September 6, 2018 the US Department of Justice announced the indictment of Robert G. Mouritsen of Kaysville, Utah on three counts of wire fraud and three counts of money laundering.

The DOJ alleged that Mouritsen used a “position of prominence” to induce friends and fellow church members to give him money to further a fraud scheme he called “The Project” which targeted his fellow church members and was ongoing at the time the Indictment was filed.  Luckily he only managed to raise $1.5 million before the feds shut him down.

The “position of prominence” the DOJ is referring to is the fact that Mouritsen was a stake president of the Kaysville Utah Crestwood Stake of the Mormon Church from 1989 to 1997.   He also wrote a book called “Mantle: Windy Day in August, at Nauvoo, When the Mantle of the Prophet Joseph Smith Fell on Brigham Young Hardcover” (available on Amazon!).

Kaysville, Utah is predominantly LDS community 20 miles north of Salt Lake City.  He allegedly began the scheme just a few years after he was released as the stake president.

Mouritsen told prospective investors that The Project “involved a series of complicated international transactions” that “involved governments in Asia and Europe and required the help of attorneys and bankers.”  He also purportedly told investors that this investment opportunity had to be kept “strictly confidential” so he could not disclose many of the details.  Right.

And of course he promised that the investment would produce very high returns.  Secrecy, unusually high returns and urgency are all significant red flags that should have caused investors to forego this investment opportunity, but unfortunately some folks fell for it.  If it sounds too good to be true, it probably is.

Predictably, Mouritsen neglected to tell investors that The Project had failed to produce any returns in over a decade and that he used a significant portion of investor money for his own personal use and benefit.

Affinity Fraud in Utah

Affinity fraud is particularly prevalent among members of the LDS Church.  The primary reason for this, in my opinion, is because church members tend to have a high level of trust in fellow church members, and that invites unscrupulous people to take advantage of that trust.

The thought process is that since Brother So-and-so is/was a bishop, stake president, elders quorum president, etc., he was called by revelation and therefore is a worthy priesthood holder in the eyes of God.  Sure, the investment sounds too good to be true, but since he was a great church leader it must be legit!  In Utah affinity fraud schemes are nearly always targeted at people who are in same ward or stake – a place where his current or former church service is well-known.

I have written about affinity fraud schemes targeting members of the Mormon Church for years, including here, here, here, here and here (among others).

This is a big problem in our community and I have repeatedly called on leaders of the LDS Church to be more proactive in warning church members that they need to carefully evaluate investment opportunities on their merits, regardless of who is pitching them.

How To Avoid Affinity Fraud

Investing always involves some degree of risk, but investors can mitigate these risks by carefully investigating investment opportunities. The Securities and Exchange Commission recommends the following steps to avoid getting caught up in an affinity fraud scheme:

  • Check out everything – no matter how trustworthy the person seems who brings the investment opportunity to your attention. Never make an investment based solely on the recommendation of a member of an organization or religious or ethnic group to which you belong. Investigate the investment thoroughly and check the truth of every statement you are told about the investment. Be aware that the person telling you about the investment may have been fooled into believing that the investment is legitimate when it is not.
  • Do not fall for investments that promise spectacular profits or “guaranteed” returns. If an investment seems too good to be true, then it probably is. Similarly, be extremely leery of any investment that is said to have no risks; very few investments are risk-free. The greater the potential return from an investment, the greater your risk of losing money. Promises of fast and high profits, with little or no risk, are classic warning signs of fraud.
  • Be skeptical of any investment opportunity that is not in writing. Fraudsters often avoid putting things in writing, but legitimate investments are usually in writing. Avoid an investment if you are told they do “not have the time to reduce to writing” the particulars about the investment. You should also be suspicious if you are told to keep the investment opportunity confidential.
  • Don’t be pressured or rushed into buying an investment before you have a chance to think about – or investigate – the “opportunity.” Just because someone you know made money, or claims to have made money, doesn’t mean you will, too. Be especially skeptical of investments that are pitched as “once-in-a-lifetime” opportunities, particularly when the promoter bases the recommendation on “inside” or confidential information.
  • Fraudsters are increasingly using the Internet to target particular groups through e-mail spams. If you receive an unsolicited e-mail from someone you don’t know, containing a “can’t miss” investment, your best move is to pass up the “opportunity” and forward the spam to the SEC at enforcement@sec.gov.

If you are a victim of this scam or know more details about Mr. Mouritsen please feel free to share your story in the comments below.  Anonymous comments are welcomed.

Copyright © 2018 by Mark Pugsley.  All rights reserved.

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.

UPDATE: Former Salt Lake City Councilman and LDS Stake President Eric Jergensen Convicted in New York

UPDATE: For those of you who are watching this case, I have been informed that Mr. Jergensen’s sentencing has been postponed.  The sentencing was rescheduled to March 2, 2018 at 1:30 p.m. in the federal courthouse in Syracuse, NY.  I assume the judge will be the same one who conducted the trial; U.S. District Court Judge Brenda K. Sannes.  If you or someone you know was defrauded by Mr. Jergensen you may want to submit a letter to the Judge to tell her about your experience in advance of the sentencing hearing.


Last week former Salt Lake City councilman and former LDS Stake President Eric Jergensen was convicted of conspiring to defraud an aerospace company of $2.5 million.  A New York jury returned the guilty verdict after a seven-day trial in U.S. District Court in Syracuse, NY. Jergensen and another man, Debashis Ghosh of Chicago Illinois, face a maximum punishment of 20 years in prison and a $250,000 fine.  They may also be ordered to pay restitution to their victims.

The two men were convicted of conspiring to defraud the Laurentian Aerospace Corporation of $2.5 million.  Acting United States Attorney Grant C. Jaquith stated: “Jergensen and Ghosh stole $2.5 million from a group of people who founded Laurentian with the hope of building a new business in the North Country.  Jergensen and Ghosh quickly gained their victims’ trust, and just as quickly abused it by taking their money and then lying to them about what had occurred.  They strung their victims along for years with false promises that their money would be returned.  Yesterday’s verdict brought them to justice, brought justice to their victims, and demonstrates our commitment to investigating and prosecuting financial crime.”

Jergensen and Ghosh were officers of Verdant Capital Group, LLC.   Laurentian retained Verdant to raise funds for the construction of an airplane maintenance facility to be built in Plattsburgh, New York.  Jergensen and Ghosh asked Laurentian to invest $2.5 million as seed money for the project, and promised to retein the money in a Wells Fargo account.  Soon after Laurentian wired $2.5 million into the Wells Fargo account  Jergensen and Ghosh began transferring the money out of the account without Laurentian’s authorization.

For several years after the money had been used, the men assured Laurentian and its investors that their money was safe and secure.  Jergensen even forged a memorandum of understanding showing that the money was still in the bank.  The government also showed at trial that the defendants  misappropriated an additional $2.4 million in funds that other businesses had entrusted to them.

I didn’t see any evidence that any of the victims were members of Jergensen’s stake so this story doesn’t appear to have an affinity fraud angle. Feel free to share your story in the comments below if that is incorrect.

There have been, however, stories in the local press about his financial difficulties that anyone who was considering doing business could have found through a simple Google search.  In 2009 the Salt Lake Tribune reported on several embarrassing headlines and suggested that these troubles were the reason he decided not to seek a third term on the city council.  At the time he had two bench warrants issued against him in 3rd District Court involving his business. He told the paper he had resolved a $98,000 debt his company owed to an Ogden businessman and was working to repay a $120,000 loan from local businessman Kem Gardner, former president of The Boyer Co.

Jergensen served on the Salt Lake City Council from 2001 through 2009, representing Capitol Hill and the Avenues. He also served as head of Salt Lake City’s redevelopment agency.

Copyright © 2017 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.”

A New Podcast Interview

For those who are interested in the intersection between the LDS Faith and the epidemic of affinity fraud and Ponzi schemes in Utah and the LDS community worldwide,  take a listen to this podcast in which I was interviewed by the brilliant scholar Gina Colvin who manages the A Thoughtful Faith Podcast.  This was a fascinating and wide ranging interview that was quite enjoyable for me!

A warning to those with extra sensitivity on issues relating to the LDS Church:  This discussion is not particularly faith affirming or promoting and includes some criticism of the church and its policies.


267: The Church of Jesus Christ of Latter-day Saints and Affinity Fraud: Mark Pugsley

Mark Pugsley is a lawyer in Salt Lake City Utah who specializes in recovering money lost by investors due to bad advice or misconduct.  He has represented victims of investment fraud and unsuitable investment recommendations in civil litigation, whistleblower cases, and receivership (claw back) cases for over twenty years.

Mark reports that Affinity Fraud is a big problem in the Church of Jesus Christ of Latter-day Saints community and he’s repeatedly called on leaders of the LDS Church to be more proactive in warning church members that they need to carefully evaluate investment opportunities on their merits, regardless of who is pitching them.

Mark hosts the Utah Securities Fraud website which can be found and contains all of the latest on investment fraud cases in Utah.

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.

Confessed Fraudster Thomas Andrews Has Been Sentenced to 97 Months in Prison

As a follow-up to my prior story about a shocking small town fraud scheme that occurred in Nephi, Utah.  Yesterday the confessed perpetrator of that scheme, Tom Andrews, was sentenced to 97 months in prison.  This is the maximum sentence Judge Sam could have imposed. Hopefully others who might consider starting up a scheme like this will think twice when they see this significant prison sentence. This story about the sentencing appeared in the Deseret News today:

Judge comes down hard on former Nephi man in affinity fraud case

SALT LAKE CITY — A Sanpete County dairy owner told a federal judge Thursday that he’d be happy to have the man who stole his retirement money do some time on his farm.

Bob Bown said Tom Andrews needs to do some physical labor, get his hands dirty, rake manure out of stalls. “One of the best things that could happen to him is to do some hard work,” Bown said.

U.S. District Judge David Sam agreed thprison_mainat it would be “wonderful” if Andrews could “get some calluses to earn a buck,” but federal rules prevented him from imposing such a penalty.

The judge, however, sentenced Andrews to 97 months in prison — the maximum under sentencing guidelines — after the former Nephi man admitted to securities fraud and mail fraud. Sam, who rejected an earlier plea deal as too lenient, said he would have ordered a longer prison term if he could. Sam also ordered him to pay $8.3 million in restitution.

Sam then made the rare move for a white-collar case of placing Andrews, 40, in custody on the spot. A couple dozen of the victims applauded as U.S. marshals escorted Andrews from the courtroom in handcuffs.

“It just makes me sad,” Sam said, noting how Andrews wiped out people’s retirement savings. “It’s kind of like taking the widow’s mite.”

Andrews, who ran a Nephi tax return preparation service, admitted to encouraging nearly two dozen people to roll over their retirement accounts into fake companies he created called Jackson Trust and Lincoln Financial Group. He mailed them doctored financial statements from California to make the companies appear legitimate.

Andrews used at least $5.5 million for his living expenses and personal benefit, including luxury cars, homes and vacations. Investigators say all the money is gone. Victims — many of them longtime friends whom Andrews considered family — don’t expect to ever recoup their losses.

“He has lived as a millionaire for years and everybody else is paying for that now,” victim Ben Rosenloff told the judge.

It was also revealed in court Thursday that Andrews failed to remit some of his clients’ federal and state tax payments, landing them in trouble with the IRS.

“I don’t understand him,” Bown said. “I thought I knew him, but I don’t.”

Prosecutor Jacob Strain said this case wasn’t like other investment fraud cases where investors hope to double their money in a get-rich-quick scheme. These were people who knew and trusted Andrews and who thought their money was safe and secure with him, he said.

Andrews read an apology to the victims, saying words can’t describe his regret and that he hopes people forgive him.

“I’ve hurt and destroyed people’s lives and I’m truly sorry for that,” he said. “I scarred them both emotionally and financially for years to come.”

Defense attorney Rebecca Skordas argued for a 70-month sentence because she said Andrews was “incredibly forthcoming when originally confronted about wrongdoing” — a statement that drew scoffs from the packed courtroom.

Andrews cooperated with federal investigators and helped them go through bank documents to determine how much money victims were owed, she said.

Mike Sperry, who said his parents lost their life savings, showed the judge a large poster with photos of Andrews, who moved to California, enjoying himself at Disneyland this fall.

“I don’t think any of the victims have been to Disneyland since this happened,” he said.

Sallie Rawlings, a Draper lawyer who along with her husband lost 30 years of retirement savings, suggested Andrews be required to write an apology letter to the 20 victims listed in the criminal charges and spend a year in prison for each of them, an idea the judge said he liked but he couldn’t do.

“This was a calculated and manipulated fraud perpetrated by a masterful thief,” Rawlings said. “Let’s send a message that this cowardly, cruel, brazen act will not be tolerated.”

UPDATE: The Shocking Story of A Small Town Fraud

UPDATE: Yesterday United States District Judge David Sam rejected a plea deal that had been worked out between Thomas Andrews (the subject of the story below) and the U.S. Attorney’s Office.  According to a story in the Deseret News, Judge Sam rejected the plea deal because he believed it was too lenient.  Andrews withdrew his guilty plea and his attorney, Rebecca Skordas, told Judge David Sam that she would continue negotiations with prosecutors.

In rejecting the plea Judge Sam said he was very concerned about the statements he had received from victims, including one that said the financial loss reduced them to eating “eggs, pancakes and beans.” The judge said he couldn’t imagine someone taking advantage of their friends and neighbors “to just diminish them to point where they can’t hardly live day to day.”  “It’s absolutely unbelievable that someone would conduct themselves in that way,” Sam said.

Prosecutors had recommended that Andrews spend 48 to 60 months in prison after he agreed to plead guilty to securities fraud and mail fraud in June.  In rejecting that deal Judge Sam noted the sentence was below the federal guidelines, which was calculated as 78 to 97 months in prison.  Andrews’ accomplice Scott Christensen also pleaded guilty and was sentenced to a year and a day in prison.

Stay tuned for more details.


I typically write about lawsuits filed by the SEC, but this time I wanted to write about a civil case that was filed by a number of the victims of a Nephi man named Thomas E. Andrews.  The information in this story comes primarily from allegations that were made in a civil complaint by my friends over at Parr Brown, who filed their case in Juab County in November of 2015 (Civil Case No. 150600025).  I will be filing a separate lawsuit involving these same facts shortly as discussed at the bottom of this post.

NephiTom Andrews grew up in Juab County, Utah, and was known to most of the victims in the case since he was a small kid.  Most of the victims in this case are residents of Nephi, Utah and knew Andrews and his family through their community and their common membership in the LDS Church.

The victims are not sophisticated in financial matters, and so they had the utmost faith and confidence in Tom and his father, Earl Andrews, who was a respected CPA in the community.  Earl prepared tax returns for  the victims and assisted them with their financial matter for many years before he was sentenced to prison in approximately 2005 for an unrelated reason.  When his father went to prison Tom took over his father’s role as tax preparer for the victims and began preparing tax returns for them, although it turns out he was never licensed by the State of Utah to do so.

At about the same time he took over his father’s tax practice, Tom obtained his license to sell financial products and joined LPL Financial as a stock broker, and Gary York.  he then began to solicit investments from the people whose tax returns he was preparing.  Over time the victims began to rely on Tom for investment and retirement advice, as well as for their tax preparation.  They opened investment accounts with LPL through Tom Andrews and placed some or all of the their retirement funds into his hands.

But beginning in 2011 Tom Andrews began to make other plans for their money.

Andrews formed a fake trust named which he called the “Jackson Living Trust” and made himself as Trustee. Andrews then opened a bank account at Cyprus Credit Union under the name of the “Jackson” or the “The Jackson Living Trust.”  It is unclear what paperwork he presented to the credit union, but they nevertheless opened up an account for this fake trust and gave Tom the full signatory authority as the trustee.  This meant that he could cash or deposit checks that were made out to the “Jackson Trust.”

At about the same time, Tom began counseling his clients to invest in an annuity with Jackson National (which does actually exist).  He told them that this investment would pay a guaranteed rate of return between 5 percent and 8 percent annually.  Critically, he advised them to liquidate most or all of their investments held at LPL, or wherever else, and to put the money into this annuity.  This was terrible investment advice; it reduced their diversification and in some cases exposed them to early termination fees and/or tax penalties, but the victims trusted Tom and did what he advised.

Andrews provided real marketing materials from Jackson National Life and even used the company’s application forms.  The victims filled out the applications, and gave Andrews checks for their entire life savings made out to “Jackson Trust” which they believed would be invested in the Jackson National Life annuities.  But the money was never sent to Jackson National Life.

He deposited each of the checks into his fake account at the Cyprus Credit Union and then use the funds as he saw fit.  He basically stole the money.  How much money did he steal?  Over $9 million.

But the victims needed to continue to believe that their money was safe and secure in the annuity they thought they had purchased so Andrews generated fake quarterly statements for them.  He pulled a Jackson logo off the internet  and made up fake account statements that he mailed out to all of his clients. Of course the fake statements showed that their investment was safe and growing as Andrews had promised.

Discovery of the Fraud

In October of 2015, several of his clients became suspicious when they had a hard time withdrawing money from their accounts.  Several contacted Jackson National Life and learned that in fact they had no account with the firm, and the account statements they had received were fake.

Andrews apparently got wind of the problem and disappeared, but has now hired an attorney and is defending the case.  The location of the $9 million of investor money he took is unclear, but I wouldn’t be surprised if he used it to trade commodities, options, currencies or some other high-risk strategy thinking he could generate big returns and the investors would never know the difference.   Time will tell.

But if these allegations are true, there are several troubling aspects of this story.  First, unlike many of the stories I’ve written about, this one it appears to be a deliberate fraud from the outset.  Mr. Andrews set up the bank accounts and with a name that was deliberately similar to the name of a well-known annuity company.   He used marketing materials and account applications for a real investment, and his investors would not have known that their money was going into a personal bank account as opposed to a licensed, verifiable company.   Yes, he used church and family connections to gain their trust, but the investment itself appeared legitimate.

Another troubling aspect of this story is that there are a number of financial institutions who appear to have dropped the ball and did not implement oversight and compliance procedures that could have protected the interests of the victims in this case.  Banks, brokerage firms and others should be watching for red flags and alerting state and federal authorities when they see suspicious activity.  In this case that oversight never happened, and millions of dollars were lost as a result.

On February 12, 2106 FINRA barred Tom Andrews from associating with any brokerage firm in any capacity, and I suspect the SEC and/or DOJ will be filing cases against him soon.

The Juab County lawsuit  is currently pending.


Our firm has been retained by many of the victims in this case to pursue a case against Mr. Andrews’ brokerage firm, LPL Financial.  If you or someone you know was involved in this case in any way please contact me at 801-323-3380, or by email.   -Mark Pugsley

Copyright © 2016 by Mark W. Pugsley.  All rights reserved.