Another Scam Comes to Light: Future Income Payments or FIP

Editor’s Note: I have been contacted by a number of individuals who invested in Future Income Payments or FIP through Utah-based Live Abundant, which is referenced in the article below.  This article appeared in the Wall Street Journal today and has a pretty good summary of the FIP situation.  Spoiler alert: it’s not good.

Private Pension Product, Sold by Felon, Wipes Investors Out

Investors accuse Future Income Payments of taking them for more than $100 million

By Jean Eaglesham of the Wall Street Journal – July 23, 2018 5:30 a.m. ET

Mr. Kohn’s company, Future Income Payments, appears shut, according to court filings. His investors are likely to be wiped out, according to lawyers representing them, who plan to sue scores of firms that sold Future Income products as soon as this week. At least 25 states have taken enforcement actions or are investigating the company, it said in April.

The blow-up shines a light on the boom in opaque private markets, to which investors have flocked in the hope of doing better than they can in traditional stock and bond markets.

Private-market products, including the ones offered by Future Income, are frequently sold by financial advisers. Sales targets are often retirees looking to beat the anemic returns on bonds and other savings products.

Future Income essentially sold investors other people’s pensions. Mr. Kohn’s firm would find workers entitled to pension payments and temporarily buy the rights to those payments—effectively lending the beneficiaries money against their future pension income in what is called a “pension advance.” Then, Future Income would sell the rights to investors for a lump sum. An investor might put up $100,000 in exchange for an income of 7% for five years, for example.

But Future Income’s apparent collapse has left investors stranded. The company is no longer collecting the pension money that funds its own payments to investors, according to court documents. Mr. Kohn couldn’t be reached for comment. It isn’t clear if he has a lawyer.

JC and Mary Barb at home in Hemet, Calif. Mr. Barb says that money they invested ‘was to be a big help to us in our retirement and now it’s not there, it’s gone.’
JC and Mary Barb of Hemet, Calif., say their financial adviser Kevin Kraemer persuaded them to invest some $78,000 with Future Income last year. “He came to us and said, ‘Hey we can make some more money on your money,’ [and] sold us this new deal,” said Mrs. Barb, a 66-year-old retired postal worker. Her husband, a 63-year-old retired teacher, said the money “was to be a big help to us in our retirement and now it’s not there, it’s gone.” Mr. Kraemer declined to comment.

Unlike publicly traded investments, there are few rules on how pension advances can be sold or by whom. “They illustrate the problems with the financial services industry selling opaque, high-commission private investments,” says Joe Peiffer, a New Orleans-based plaintiffs’ lawyer representing some purchasers of Future Income’s products. “We have clients who were advised to cash in their pensions and refinance their homes to buy these things.”

In a letter sent to investors in April, Mr. Kohn said his company was suffering from “intense regulatory pressure and legal expense,” and investors had been told there were “no guarantees [they] would receive all payments.” Future Income didn’t respond to emails, and its phones appear to be down. Christopher Jones, a lawyer representing the company over a civil investigation by the Consumer Financial Protection Bureau, didn’t respond to requests for comment. The CFPB declined to comment.

Future Income called itself “America’s largest pension cash-flow originator,” boasting of a “global footprint of over 200 employees.” Its mailing address is a mailbox at a United Parcel Service Inc. store in a strip mall outside Las Vegas. The same address has been used by Mr. Kohn for dozens of other companies, most of them now defunct, state records show.

Mr. Kohn formed Future Income in 2011, company records show. In 2016, he set up a separate company, FIP LLC, controlled via a Philippines-based corporation of which he is the sole owner, according to a complaint filed last year by Minnesota regulators. He pleaded guilty to trafficking in counterfeit goods in 2006 and served 15 months in federal prison.

State regulators took action against Future Income as early as 2014 over the terms on which it was buying pension benefits, saying the firm was lending illegally. Some states said the company was breaching state laws limiting the interest that can be charged on loans. A disabled Gulf War veteran who borrowed $2,700 was required to send $450 a month from his benefits for five years—a total of $27,000, or an annual percentage rate of 200%, according to one example cited in the Minnesota lawsuit. Mr. Kohn in his April letter said the company was in the process of agreeing, or had agreed to, settlements with the states that limited the amounts it could collect.

“Future Income Payments’ illegal loans were outrageously expensive,” said Lisa Madigan, the Illinois attorney general, who filed a suit against the firm on the same grounds this year.

The string of regulatory actions didn’t stop advisory firms and others selling the commission-rich products, many as part of a retirement-savings strategy. A Future Income marketing presentation urged retirees to “give your savings the opportunity to grow,” with “competitive fixed rates,” according to a copy reviewed by The Wall Street Journal.

The sellers included Live Abundant, a firm based in Salt Lake City that promises on its website to “empower you to live a more abundant life by replacing your old, outdated retirement philosophy.” It has sold products from both Future Income Payments and Woodbridge Group of Cos. LLC, another private-market investment that collapsed, according to lawyers representing investors who said they intend to sue Live Abundant.

Loren Washburn, an attorney for Live Abundant, said the firm plans to review what it “could have done better” in vetting the deals. “This outcome where we’re having to explore options to collect [the money due to investors] is obviously not optimal.”

The sellers also included independent advisers registered with the Securities and Exchange Commission, such as Gus Marwieh of Austin, Texas. Mr. Marwieh “used his strong religious beliefs to engender trust from investors,” said Mr. Peiffer, who is representing some of them. Mr. Marwieh confirmed he sold Future Income products but declined to comment further.

An SEC spokesman declined to comment.

Investors are now scrambling to try to recover money. Mr. Peiffer said he is “highly confident that the losses suffered by investors are well over $100 million.”

Faw Casson & Co., an escrow company in Dover, Del., that held funds on behalf of investors, sued Future Income Payments in May. Faw Casson, whose lawyer declined to comment, said in a court filing it has received calls from several investors including a “retired secret service agent [who] said that if we do not return his phone call, he is coming to the office and trust me that is not what we want.”

Link to original article in the WSJ

The Problem With Private Placements

One of the biggest problems I am seeing these days is private placements (also called alternatives or non-registered investments) that are sold to accredited investors through a private placement memorandum or PPM.  Because these investments are not registered with the SEC the information that you can get about them is far more limited, and can even be fraudulent.

According to this article in the Wall Street Journal yesterday, sales of private placements are surging, as part of a broader rise in private capital markets.  Private placements can be great opportunities, but they nearly always carry significant risk and in some cases they can be Ponzi schemes.  Caveat emptor.

Aside from the risk, one of the biggest concerns regulators have is how the products are sold.  FINRA has warned in the past about “fraud and sales practice abuses” by firms and brokers in the market.  In some cases this may be due to the fact that these smaller, less known firms tend to hire troubled brokers for their track record in aggressively selling high-commission deals, sometimes using questionable tactics.  Most of these firms are small to midsize brokerages, with fewer than 500 brokers, and are spread throughout the country.

According to the WSJ, more than 1,200 brokerage firms sold around $710 billion of private placements last year, and sales for the first five months of this year will be even higher.  To make matters worse, securities firms with an unusually high number of “bad brokers” are selling tens of billions of dollars a year of private stakes in companies. The WSJ reviewed records of who was pushing these investments and identified over a hundred firms where 10% to 60% of the in-house brokers had three or more investor complaints, regulatory actions, criminal charges or other red flags on their records.  This is not normal (always run your broker or advisor’s name through Brokercheck).

The bottom line is that investors are far more likely to be exposed to losses or fraud in private investments. If your broker or advisor recommends a private placement or “alternative” investment make sure he/she has a good track record and has done extensive due diligence.

If you get a cold call from a firm you’ve never heard of trying to convince you to invest in one of these, just say NO.

Copyright 2018 by Mark Pugsley.  All rights reserved,

The Woodbridge Group of Companies – Another Ponzi Targeting Utahns

The Woodbridge Group of Companies was run by a flashy promoter in Los Angeles named Robert Shapiro.  Woodbridge marketed promissory notes (which were in reality unregistered securities) to an estimated 7,000 retail investors throughout the United States, including Utah.  Investors were told their funds would provide a safe, secured return from short-term real-estate loans.

In reality, investor money was used to fund real-estate purchases made by shell companies run by Shapiro himself, including high-priced luxury homes in Los Angeles according to the SEC lawsuit filed in December of 2017.  The SEC alleged that investors received monthly interest checks that were actually funded by money from newer investors, which is a classic Ponzi scheme.

This story about the case appeared in the Wall Street Journal today, and is a follow-up to the WSJ’s fascinating article about the case from February:

 

Woodbridge Bankruptcy Spotlights CEO’s Luxury Spending

The money for his lavish lifestyle came from the pockets of thousands of people, from an 89-year-old widow in a memory care facility in Tennessee to ABC news anchor George Stephanopoulos, according to the Securities and Exchange Commission, which has accused Mr. Shapiro of running a Ponzi scheme.

“Like many others, I was a victim of Woodbridge and now must deal with the consequences of its bankruptcy,” Mr. Stephanopoulos told The Wall Street Journal. Woodbridge filed for chapter 11 bankruptcy protection on Dec. 4, a few days after Mr. Shapiro stepped down from the chief executive spot and, according to court papers, spent $16,000 of company money at Macy’s.

He expected to stay on as a $2 million-a-year consultant, but the arrangement didn’t last long: Woodbridge cut ties to him after the SEC sued him and the company for fraud on Dec. 20.

 Mr. Shapiro denies running Woodbridge as a Ponzi scheme and is fighting the SEC case in federal court in Florida. However, his former company has said it would admit to running a Ponzi scheme, and is providing details with new bankruptcy court filings that sketch a picture of a troubled company with tangled finances.

Woodbridge promised investors safe returns on short-term notes, which were to be secured by valuable real estate in some of the priciest markets in the country, from the Holmby Hills area of Los Angeles to Aspen, Colo.

An SEC fraud case filed in federal court in Florida alleges the real estate was bait to draw investors into Woodbridge’s $1.2 billion Ponzi scheme. Cash that came in from new investors was recycled to pay older investors, according to the civil fraud complaint and bankruptcy court testimony from an SEC expert.

The SEC lawsuit was the culmination of a year-long federal investigation into Woodbridge, which sold unregistered securities, often through unlicensed agents. Securities authorities in Arizona, California, Iowa, New Jersey, Oregon, South Carolina and Colorado were also looking into Woodbridge, court papers say.

Now in the hands of legal and real estate professionals, Woodbridge continues to operate under the watchful eyes of the SEC and a bankruptcy judge. The first order of business: start selling Woodbridge’s portfolio of more than 130 properties which are estimated to be worth more than $650 million and start paying off investors.

Estimates are that investors could get from 45% to 76% of what they are owed, if things go according to plan in Woodbridge’s bankruptcy proceeding. That recovery estimate doesn’t include what Woodbridge might be able to recover from lawsuits against its ex-chief executive and brokers that sold the notes, court papers say.

Mr. Shapiro invoked his Fifth Amendment right not to testify against himself during the SEC probe, and in the face of questions from creditors. His lawyer didn’t respond to a request to discuss Woodbridge’s spending.

In addition to paying Mr. Shapiro’s credit card bills, country club dues and other expenses, Woodbridge transferred $3.8 million to his wife, Jeri, in the year before the company’s bankruptcy filing, most of it through a media-buying company she owned, court records show. Others in the Shapiro circle—a nephew, an uncle, a brother-in-law, a stepson—profited as well, according to court records.

Investors such as Mr. Stephanopoulos could also come under scrutiny for possible clawback lawsuits. Mr. Stephanopoulos received $2.5 million in investor payments from Woodbridge in the 90-day period before the bankruptcy, court papers say. By that time, the SEC had gone public with its probe of Woodbridge. Court papers didn’t say how much Mr. Stephanopoulos invested.

 In many Ponzi schemes, the chief recovery for investor victims is suing other victims on the premise that the financial pain of the fraud should be shared equally.

“I will pursue any valid claims I have and will comply with all proper rulings of the bankruptcy court,” Mr. Stephanopoulos told the Journal.


Lessons to be Learned

Overall, I think there are a number of lessons to be learned from this very large (alleged) Ponzi scheme.

First, regardless of what you are told, Woodbridge Notes are securities under federal and state law.  All investments – including the purchase of promissory notes – must be made through a licensed stock broker or registered investment adviser.   Insurance salesmen are not able to solicit or recommend these investments unless they have the proper securities licenses.  If you want to find out if your “financial planner” or “retirement planner” has a securities license run their name through FINRA’s BrokerCheck database.

Second, there is a reason why it is very difficult to find investments that pay high monthly returns on a consistent basis; it’s just not sustainable.  Investments that pay monthly interest at above-market rates are, in my opinion, very likely to be a Ponzi scheme — or to turn into one eventually.  There just aren’t many businesses that can generate returns like that on a consistent basis.

Third, if your financial adviser recommends an investment like this make sure he or she has a big errors and omissions insurance policy, because that may be your only way to get your money back.

For more ideas on how to avoid losing money in a Ponzi Scheme, check out my Top Ten Ways to Avoid Losing Money in an Investment Scam.

I am working on a number of cases involving the Woodbridge Group of Companies, if you lost money and would like to discuss your legal options please contact me.

 

Copyright © 2018 by Mark W. Pugsley, All Rights reserved.

Did you send me a letter? Call me!

I know this is an unusual post but someone recently sent me a copy of an unsigned whistleblower letter to the SEC.  This post is for that person:

To the person who sent me an unsigned letter involving a company with the initials TEG or EA (I don’t want to identify the company here) please call me or email me immediately.  I can help you!

You have a very interesting whistleblower case, but it appears from your letter that you are still working with the company which is the subject of your report.  Understandably, you are concerned about protecting your identity and your job.  I get it.

The good news is that the SEC’s whistleblower rules provide attorneys with powerful ways to protect your identity, and from retaliation by the company – but there is a catch.

In order to submit a tip submit anonymously you must have an attorney represent you in connection with your submission.  For my whistleblower clients I typically prepare a lengthy submission with a detailed description of the illegal conduct and the statutes that have been violated, and then I transmit it to the SEC on their behalf.

In some cases my clients prefer to remain anonymous.  In those situations my client’s name does not appear on the submission and remains unknown to the SEC staff – and to the company.  The identity of the whistleblower is known only to me and will be protected from disclosure by the attorney-client privilege.

And if the company eventually figures out who you are I can help protect you from retaliation.  The law is clear: employers may not discharge, demote, suspend, harass, or in any way discriminate against you for providing information to the SEC under the whistleblower program, or assisting in any investigation. In fact, retaliation against a whistleblower will likely lead to a separate enforcement action by the SEC against a company and a civil lawsuit (filed by me).  Also, under the Sarbanes-Oxley Act, you may be entitled to file a complaint with the U.S. Department of Labor if you are retaliated against for reporting possible securities law violations.  We can help with that too.

The good news is that individuals who provide original information that leads to an SEC enforcement action with $1,000,000 in fines and penalties will likely qualify for an award.  Awards are between 10% and 30% of the money collected by the SEC – and if the fraud is significant the numbers can be huge.   The SEC’s Office of the Whistleblower recently announced that it has paid a record award of nearly $50 million to two whistleblowers, and a third whistleblower was paid more than $33 million.

There are significant benefits to whistleblowers, so you absolutely want to be in a position to apply for an award.  But you have not done enough to qualify for a whistleblower award at this point.  More needs to be done.

So please, call me!

Mark Pugsley

Direct: 801-323-3380

Email

 

FBI Article on Affinity Fraud in Utah

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


Affinity Fraud

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

White-Collar Crime Offender Registry Website (Stock)

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

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

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

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

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


In Their Words

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

Transcript | Download

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

Transcript | Download

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

Transcript | Download

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

Transcript | Download


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

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

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

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

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

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

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

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

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

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

Wolves in Sheep’s Clothing

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

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

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

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

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

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

SEC Creating Searchable Database of Bad Brokers

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

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

SEC Creating Searchable Database of Bad Brokers

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

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

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

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

STOP UTAH FRAUD

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.

 

SEC Publishes Recommendation on How Avoid Common Investment Scams in 2017

The Securities and Exchange Commission has published its annual list of tips designed to help investors with managing their money and avoiding common scams in the New Year.  Here is the list which is published by the SEC’s Office of Investor Education and Advocacy:

SEC INVESTOR BULLETIN: 10 INVESTMENT TIPS FOR 2017

12/27/2016

Whether you are a first-time investor or have been investing for years, here are 10 tips from the SEC’s Office of Investor Education and Advocacy to help you make better informed investment decisions and avoid common scams in 2017.

1. Always check the background of an investment professional—it is easy and free. You can find details of an investment professional’s background and qualifications through the search tool on the SEC’s website for individual investors, Investor.gov.  If you have any questions about checking the background of an investment professional, you can call our toll-free investor assistance line at (800) 732-0330 for help.

2. Promises of high returns with little or no risk are classic warning signs of fraud.  Every investment carries some degree of risk and the potential for greater returns often correlates with greater risk.  Ignore so-called “can’t miss” and “guaranteed risk-free” investment opportunities.  Better yet, report them to the SEC.

3. Be careful when using social media as an investment tool.  Social media and the Internet have become important tools for investors, but also present opportunities for fraudsters to lure investors into a wide range of scams.  For additional information on ways to avoid fraud through social media, please read our bulletin on Social Media and Investing.

4. It can be costly to ignore fees associated with buying, owning, and selling an investment product.  Expenses vary from product to product, and even small differences in costs can mean large differences in earnings over time.  An investment with high costs must perform better than a low-cost investment to generate the same returns.Read our bulletin on How Fees and Expenses Affect Your Investment Portfolio to learn more.

5. Be alert to affinity fraud.  Affinity frauds target members of identifiable groups, such as the elderly, religious or ethnic communities, or the military.  Even if you know the person making the investment offer, be sure to check out the investment and the person’s background—no matter how trustworthy the person seems.

6. Any offer or sale of securities must be either registered with the SEC or exempt from registration.  Otherwise, it is illegal.  Registration is important because it provides investors access to key information about the company’s management, products, services, and finances. Always check whether an offering is registered with the SEC by using the SEC’s EDGAR database or contacting the SEC’s toll-free investor assistance line at (800) 732-0330.

7. Diversification can help reduce the overall risk of an investment portfolio.  By picking the right mix of investments, you may be able to limit your losses and reduce the fluctuations of your investment returns without sacrificing too much in potential gains.  Some investors find that it is easier to achieve diversification through ownership of mutual funds or exchange-traded funds rather than through ownership of individual stocks or bonds.

8. Did you know that active trading and some other very common investing behaviors actually can undermine investment performance? According to researchers, other common investing mistakes include focusing on past performance, favoring investments from your own country, region, state, or company, and holding on to losing investments too long and selling winning investments too soon.

9. If you are investing or saving toward a goal, or just want to learn about how your money can grow under various hypothetical scenarios, take advantage of our compound interest and savings goal calculators.These calculators are great tools to help inform any decisions you make about your investing and saving.

10. Unbiased resources are available to help you make informed investing decisions. Whether checking the background of an investment professional, researching an investment, or learning about new products or scams, unbiased information can be a significant advantage for investing wisely.  A great starting point is Investor.gov.

If you have questions about your investments, your investment account or a financial professional, don’t hesitate to contact the SEC’s Office of Investor Education and Advocacy online or on our toll-free investor assistance line at (800) 732-0330.


The Office of Investor Education and Advocacy has provided this information as a service to investors.  It is neither a legal interpretation nor a statement of SEC policy.  If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law.