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.”

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.

Utah Federal, State, and Local Government Officials Join Forces to Educate Investors on How to Avoid Fraud

Public Seminars to be Held in Salt Lake City and Utah County

SALT LAKE CITY  April 5, 2017 – In a new, collaborative effort, Utah federal, state and local government officials established the Financial Fraud Institute and will hold two separate multi-agency seminars designed to educate Utah investors and consumers on how to recognize and avoid financial and consumer fraud, announced U.S. Securities and Exchange Commission Regional Director Richard R. Best and U.S. Attorney for the District of Utah John W. Huber.  The free seminars are open to the public and will be held in Salt Lake City on April 26 and in Utah County on May 10.

Officials from the U.S. Securities and Exchange Commission, U.S. Attorney’s Office, Utah Attorney General’s Office, Financial Industry Regulatory Authority (FINRA), Utah Division of Securities, U.S. Commodity Futures Trading Commission, Utah Division of Consumer Protection, FBI, IRS and Salt Lake/Utah County Attorneys offices will participate in the seminars. Utah Attorney General Sean Reyes will be the keynote speaker at the April seminar and Chief Magistrate Judge Paul M. Warner of the U.S. District Court for the District of Utah will be the keynote speaker at the May seminar. These are the first in a series of seminars to be held by representatives of the Financial Fraud Institute.

The seminars will provide information on:  key questions to ask before making investment decisions; where to find free and unbiased information; how to spot financial scams; and how to report suspected fraud.


WHO:      National and local experts from federal and state law enforcement and financial regulatory agencies

WHAT:    Financial Fraud Institute Seminars to educate investors and consumers on how to recognize and avoid fraud.

Salt Lake City

WHEN:                      April 26 in Salt Lake City

                                    5:00 p.m. – 8:30 p.m. See full agenda

WHERE:                   University of Utah, S.J. Quinney College of Law Auditorium

                                    383 S. University St., Salt Lake City, UT 84112

Free parking at the University of Utah Stadium

Utah County

WHEN:                      May 10 in Utah County

                                    5:00 p.m. – 8:30 p.m. See full agenda

WHERE:                   Utah Valley University, Classroom Building Rooms 101B and 101C

                                    800 W. University Parkway, Orem, UT 84058

Those interested in attending the seminars must register at: Salt Lake City and Utah County, or call 801-579-6191. For more information, visit www.utfraud.com.

The seminars are open to the press.  Press interested in attending the events should contact Melodie Rydalch of the Utah U.S. Attorney’s Office on 801-243-6475 or melodie.rydalch@usdoj.gov.

ACCESS THE STOP FRAUD UTAH WEBSITE HERE

Follow us on Twitter at #StopFraudUtah.

 

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.

The Deseret News’ Three Part Series on Affinity Fraud in Utah

hotspotsMy friend Dennis Romboy is a great reporter over at the Deseret News who put together a very detailed two-part story on affinity fraud that was published over the weekend.

Part One of the series was called “Utah’s fraud ‘epidemic’: Victims share anger, embarrassment, hurt” and provided the details of how a number of Utahn’s have been victimized by individuals in their community.  Here are some interesting takeaways from the article:

  • FBI supervisory special agent Mike Pickett, who heads the white-collar unit in the Salt Lake field office, estimates the annual dollar amount of fraud in Utah now exceeds $2 billion.
  • Utah Attorney General said affinity fraud is “rampant” in Utah. He has also used the word “epidemic” to describe what’s happening in the state, and that is despite aggressive efforts to prosecute criminals and educate an unsuspecting public.
  • So far in 2016, federal criminal fraud cases have totaled $59.3 million in losses, according to the U.S. Attorney’s Office.
  • Utah is in the top five in terms of investigations, indictments, prosecutions and sentences for investment fraud.

A number of the individuals featured in this story are victims of the Thomas Andrews scam that was detailed in my prior post called “A Shocking Story of A Small Town Fraud.”  I applaud these individuals for their bravery in publicly talking about what happened to them in the hope that some people will read the story and avoid making the same mistakes.

Part Two of the series was about how to protect yourself from being defrauded.  The article lists a number of ways to protect yourself, including the following “Red flag warnings of fraud”:

  • If it sounds too good to be true, it is.
  • Guaranteed returns aren’t. Every investment carries some risk.
  • Beauty isn’t everything. Don’t be fooled by slick websites.
  • Pressure to send money RIGHT NOW.

The article quotes me a number of times, including “Pugsley has succinct advice for anyone who receives an offer that mentions religion. ‘If someone brings up the church in the context of an investment pitch, then that’s the end of the discussion and you leave the room because people try to conflate the two,’ Pugsley said. ‘There should be no connection between the church and investments. Period.'”

To round it all up the Editorial Board of the newspaper published an opinion on the need to “trust but verify” that I thought was worth reproducing here:

In our opinion: Utah must ‘be trusting but verify’ regarding affinity fraud

The bucolic land of eastern Ohio is home to sizable pockets of the Amish community. Known for their collective ethos, these tight-knit religious cooperatives thrive on high levels of trust and social cohesion. Yet, the same trust that produces a remarkable culture of burden sharing can be exploited to perpetrate fraud.

In 2012, Monroe L. Beachy, a trusted name within the Amish community, was sent to prison for orchestrating a scheme that defrauded some 2,700 investors, many of them friends and neighbors.

Of course, the Amish are hardly the only religious group that’s vulnerable. As the Deseret News reported in a two-part series this week on affinity fraud: “Bernie Maddoff’s $20 billion fraud targeted wealthy Jewish people in Florida and Israel. Allen Stanford went after Southern Baptists before his $7 billion empire fell.” And, according to the Economist, the state with the most affinity fraud per capita is thought to be Utah, where members of The Church of Jesus Christ of Latter-day Saints comprise some 60 percent of the population.

The common theme is communities with high levels of trust are particularly vulnerable to fraud. The solution then is a heightened scrutiny when mixing financial and religious relationship. Although there is unquestionably a role to play for government in preventing and punishing fraud, individual consumers must also take responsibility for how they spend their money.

As Utah Governor Gary Herbert told the Economist: “be trusting but verify.”

There are a variety of things consumers can do to fortify against potential affinity fraud. As noted, for starters individuals can exercise healthy dubiety, especially when an opportunity sounds too good to be true (spoiler: it probably is). Yet, this is easier said than done. The most effective schemes, for example, do not make extravagant claims. Bernie Maddoff was so successful because his “returns” were relatively modest, making his fraud more convincing.

As with Maddoff’s victims, in Utah there are many highly educated and discerning individuals who have been taken in. Thus, it’s important to look beyond the facade of an investment company to determine its validity, and be doubly cautious about mixing church and financial relationships. There is no substitute for doing your homework instead of relying on the word of someone you trust in other settings. Keeping these principles in mind can protect consumers from deceitful investment opportunities claimed by people they know.

There have always been those who seek gain at the cost of others. Yet, in a hyper-competitive economy with strong cultural status expectations, a heightened temptation may exist to cut corners and profit at the expense of others. In such an environment, it’s incumbent on individuals of sound mind — as well as governments and community leaders — to guard against fraud.

After all, without willing investors, affinity fraud is impossible.

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

 

 

Does Disclosure of a Ponzi Scheme in the PPM make it legal? No.

Dee_Randall-1Dee Randall ran one of Utah’s largest Ponzi schemes, raising more than $72 million from approximately 700 investors nationwide.

On June 18, 2014 Utah Attorney General Sean D. Reyes’ office filed a criminal information and affidavit of probable cause against Randall for multiple counts of securities fraud and other related charges.  Randall, a resident of Kaysville, Utah, was charged with 21 second degree counts of felony securities fraud, one third-degree felony securities fraud count, and one second degree count of pattern of unlawful activity.

At the initial hearing on his criminal case victims testified that Randall, who was the owner of Horizon Mortgage & Investment, sold what he called “Horizon Notes” which were supposed to pay annual returns of 9 to 17 percent.  Investors were told that their funds would be used to finance car loans and real estate, but in reality Randall used investor funds for other things, such as payments to his other entities and payments to earlier investors – a classic Ponzi scheme. If you are in the market for a new home then you need, NorthPoint Mortgage.

What is unique about this case is Randall argued in court that although it may have been a Ponzi it was nevertheless legal because he disclosed it to his investors in the Private Placement Memoranda (or PPM).  Specifically, he disclosed that he was going to use new investor money to make payments to earlier investors, apparently hoping such a disclosure would get around securities laws.  So if you tell someone you’re going to defraud them is it still fraud?

Keith Woodwell, head of the Utah Division of Securities, says there’s no such thing as a “legal fraud” since Utah law also says it is illegal to operate a business in way that defrauds investors. “Using money from new investors to pay older investors, with no way to generate profits to pay people back, is a fraud regardless of whether you disclose it or not.”  This novel argument was also rejected by the bankruptcy judge.

My question is this: did anyone ever actually read the Horizon PPM?  PPM’s are required for a non-registered offerings of securities and are definitely worth reading before you invest.  In this case potential investors who read the PPM would have discovered that their money was going to be used to pay off other investors and (hopefully) would have declined to participate in this investment opportunity.  But the unfortunate reality is that  hardly anyone ever reads PPM, they are long and usually difficult to understand.

After months of legal maneuvering, this week Randall finally pleaded guilty to four counts of securities fraud and one count of pattern of unlawful activity, each punishable by up to 15 years in prison. Sentencing is set for Feb. 6, 2017.

If you are a victim of the Dee Randall/Horizon Financial scam feel free to share your story in the comments below.   The bankruptcy trustee is Gill Miller of Rocky Mountain Advisory, and his website can be found here.

UPDATE: Shane Baldwin Pled Guilty and was Sentenced to Up To 60 Years in Prison

Baldwin

On April 1, 2016 Shane Baldwin pleaded guilty to four counts of securities fraud, one count of theft and one count of pattern of unlawful activity. All of his crimes are second-degree felonies, each of which are punishable by one to 15 years in prison.  As part of a plea agreement, other charges against Baldwin were dropped.

The Salt lake Tribune wrote this up here, and the official announcement of the plea from the Utah Attorney General’s office is here.


When you practice law in the area of investment fraud you tend to get a lot of calls about some cases and individuals — especially once the payments stop coming in.  I can honestly say that I have received more calls regarding Layton, Utah resident Dwight Shane Baldwin over the past six or seven years than any other individual.  I previously wrote about Baldwin in a post titled “Silverleaf Fraud Filing” in March of 2010, when the initial civil charges were filed.  He later entered into a Stipulation and Consent order in June of 2010 with the Utah Division of Securities. Well, these cases move slowly but I am pleased to report that three sets of criminal charges have now been filed against Baldwin.

As reported by Tom Harvey at the Salt Lake Tribune, last month prosecutors filed criminal charges for the third time in less than a month.  The latest allegations are that he cheated investors out of more than $14 million.  Baldwin faces fourteen second-degree felonies, including Securities Fraud, Communications Fraud, Theft, Unlawful Dealing with Property by a Fiduciary, and engaging in a Pattern of Unlawful Activity..

The Affidavit of Probable Cause filed by the Utah Attorney General’s Office alleges that Baldwin, as founder and manager of Silverleaf Financial, told investors that he would use their money to purchase distressed debt that was purportedly secured by real property. As usual, investors were promised abnormally large returns in exchange for their investment — always a red flag.

However, as is often the case, an investigation by the Utah Division of Securities and the Federal Bureau of Investigations revealed Baldwin engaged in numerous deceptions while trying to obtain investor funds, including misrepresenting expected investment returns. He is alleged to have told one investor he was investing $2 million in an asset purchase but never actually invested the money. In another transaction he told multiple investors he had a buyer ready to purchase an asset and none of the investors were repaid any of their initial investment. It is also alleged that Baldwin used $1 million of investor money on personal expenses.

In a news release, Utah Attorney General Sean Reyes stated that “people should verify the legitimacy of a deal or offering, before ever trusting anyone, even close friends and family, with money to invest.”

I couldn’t agree more.


UPDATE:  As reported this week in the Ogden Standard Examiner, on May 26th Third District Court Judge James Blanch sentenced Shane Baldwin to six terms of 1 to 15 years at the Utah State Prison, four to be served consecutively.  This means he could be in prison for 4 to 60 years. In return for dismissal of eight other charges, Baldwin had pleaded guilty to four counts of securities fraud, one count of theft and one count of engaging in a pattern of unlawful activity. The latter two sentences are to be served concurrently with the others.

Judge Blanch also sentenced Baldwin to additional jail time for attacking a Salt Lake County jailer on Nov. 4, 2015.  A probable cause affidavit said Baldwin became angry and shoved, punched, scratched and tried to gouge the eye of a jailer.

Copyright © 2016 by Mark W. Pugsley

Another Case Where Investors Should Have Googled Her Name

This is a story that appeared in the Salt Lake Tribune yesterday.  As I have said before, many of these fraudsters are serial offenders.  They get out of prison and quickly get back into the business of soliciting investments from innocent investors.  So please do your homework before giving anyone your hard earned money.  In this case, a quick Google search would have led you to this article in the Deseret News, and now the Utah White Collar Crime Registry contains this listing.  Google is your friend.


Utah woman sentenced gets prison for a second round of defrauding investors

First Published May 24 2016 10:48PM

A Logan woman will spend two to 30 years in prison after she misled investors and defrauded them of more than $1.7 million.  Lori Ann Anderson, 54, pleaded guilty to two counts of securities fraud and one count of pattern of unlawful activity, all second-degree felonies, on January 23, according to a news release from the Utah attorney general’s office. She was sentenced Tuesday.

“Anderson’s crime is especially egregious, as she has been previously convicted of fraud and she continued to prey on neighbors and friends,” said Eric Barnhart, FBI Salt Lake City special agent in charge, in the release.

Anderson spent time in prison in 1992 after defrauding insurance-policy holders of $140,000, the news release says.

Keith Woodwell, director of the Utah Division of Securities, described the case as a “grim repeat performance, deluding unsuspecting victims into handing over their trust and money in a church environment.”

He said in the news release that affinity fraud is the “most damaging white-collar crime, where fraudsters not only steal the nest eggs of Utah victims, but destroy their trusting nature as well.”

A joint investigation with the FBI, the Utah Division of Securities and the Utah attorney general’s office found that 46 people had lost more than $1.7 million as a result of Anderson’s actions, the release says.

More than 10 victims, some in tears, addressed the court at the sentencing hearing, expressing a feeling of betrayal, according to the release.

Anderson formed a trading club named S.M.T.S., which allowed her to pool the money of friends who invested with her for day trading in Apple stock, the news release says.

She misrepresented the business’ success to her investors, telling them she made returns of about 10 percent per year and never had a losing day trading, when she actually lost $300,000 trading between 2013 and 2015, according to the news release.

Despite these losses, Anderson sent investors false account statements that purported to show gains, the release says.

A search warrant for Anderson’s home was issued in July 2015, and during the search, she admitted to lying to investors, the news release says. By the time of the search warrant, Anderson claimed she only had about $40,000 of the original $1.7 million in investor funds remaining.

Anderson’s case demonstrates how easy it is for “any of us to fall victim to fraudsters with promises of high returns,” Attorney General Sean Reyes said in the release.

Reyes said he urges Utahns to check the White Collar Crime Offender Registry, call the Securities and Exchange Commission (801-524-5796) or contact the Utah Department of Commerce (801-530-6701).

A New Utah Law Permits People to Remove Their Cases From State Agency’s Websites

Did you enter into a settlement with or get sanctioned by the Utah Division of Securities more than five years ago? Have you paid your fine and otherwise complied with the securities laws in Utah since that time?  If so, you may be eligible to have the record of your disciplinary action and final order (if one was entered) removed from the Division of Securities’ Online Database under a new law that went into effect on May 10, 2016.

HB 118 was sponsored this session by Representative Brian Greene who represents District 57 in Pleasant Grove, Utah.  I have not spoken to Rep. Greene about the bill, but I understand that it was prompted by complaints from licensed individuals who were the subject of a disciplinary action, typically an Order to Show Cause, filed by the Division of Securities long ago.  Once these cases are filed by the Division the complaint and all subsequent filings are publicly available on the Division’s Database.  Most people don’t know where to find that database, so that wouldn’t normally be much of a problem, but the contents of database are also indexed by Google and other search engines.  Therefore, individuals and companies that have been the subject of a filing by the Division are frustrated when potential clients or investors see that old disciplinary action pop up on the first page of a Google search for their name.  If they are no longer in the securities business that may not be a problem, but for licensed stock brokers and investment advisors it can be a big problem.

But now there is a solution!  If you meet the criteria in the new law you can formally ask the Division to “remove the record of administrative disciplinary action from public access on the state-controlled website.”  In order to qualify you must meet these criteria:

  1. Five years must have passed since your final order was issued (or if no final order was issued the clock starts on the date the administrative disciplinary action was commenced);
  2. You must have successfully completed all action required by the agency, such as paying the fine or completing a suspension;
  3. You cannot have violated the same statutory provisions or administrative rules that resulted in the original action; and
  4. You have to pay an application fee ($200).

That’s basically it (you can read the complete statute here).  If you send in a request showing that you meet these criteria the administrative agency has to remove the record from its database.

WARNING: This is not the same thing as expungement.  Even if you successfully remove your records from an agency’s database the disciplinary event will still need to be disclosed on your CRD, U-5, ADV or in a PPM.  It still exists, it will just be harder to find.  Also, administrative sanctions involving FINRA-licensed registered representatives and investment advisors will still be reported on your CRD which is readily available to the public through BrokerCheck.

Also, it’s worth noting that this new statute applies to all state agencies.  So actions by the Departments of Insurance or Real Estate, or any other state agency that maintains an online database, can be eligible for removal as well.

Is this a good thing?  Certainly it is a good thing for people who are compliant with the law but have been haunted by records from their administrative cases popping up when people search for their name online.  Many people really do learn their lesson and change their behavior as a result of agency action.

I just hope it doesn’t result in more victims of fraud by serial offenders who might qualify for the removal simply because they haven’t been caught in the last 5 years.  Serial fraudsters are definitely out there — just ask the victims of Scott Clark who convinced investors to give him $1.84 million while he was on supervised release for a 2012 guilty plea for conspiracy to commit bank fraud, money laundering and obstruction of justice.

It will be interesting to see whether the legislature will tweak this statute next year to give state agencies some discretion on whether to grant the request, but for now it is available to anyone who meets the criteria.

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