UPDATE: Robert Holloway Convicted of Wire Fraud and Tax Evasion

UPDATE: After several years of litigation the Robert Holloway case finally went to a jury yesterday after a week long trial in before U.S. District Court Judge Robert Shelby.  As reported by the Salt Lake Tribune, the jury found him guilty on on five charges, including four counts of wire fraud and one count of filing a false tax return.  Judge Shelby set Holloway’s sentencing hearing for Oct. 20 and ordered Holloway jailed until that hearing.   Houston attorney Robert Andres, who funneled millions of dollars to Holloway’s company U.S. Ventures, plead guilty last year to five charges.  Andres testified against Holloway at the trial.


Last week the Deseret News reported that Robert Holloway was arrested in San Diego for his alleged role in a $25 million investment fraud scheme.  He was charged with four counts of wire fraud and one count of making and subscribing a false income tax return, according to an indictment unsealed Thursday in the District of Utah. This is not a new case, US Ventures was sued by the CFTC and was placed into receivership in January of this year.  The receiver appointed by the Federal Court is Wayne Klein, and his receivership website can be found here.  The only new development here was Mr. Holloway’s arrest, and it’s unclear to me why it took so long. According to the Deseret News article, Holloway falsely claimed that US Ventures used proprietary trading software that was consistently profitable; that it had more than $32 million under management and generated returns of 0.8 percent per trading day; and that it would retain a 30 percent share of investors’ profits as a management fee. The indictment states that Holloway raised more than $25 million from investors and generated and distributed reports to investors containing false daily returns on their investments.   The Salt Lake Tribune also wrote a story on this arrest. Holloway is scheduled to appear in court in Salt Lake City on December 16.

UPDATE: Criminal Charges Against Rick Koerber Dismissed

UPDATE:  Five years after the initial indictment charging Rick Koerber with one of the biggest financial frauds in Utah history, last week United States District Court Judge  Clark Waddoups ruled that he will dismiss the case because federal prosecutors failed to follow speedy trial requirements.  This is a blow to the U.S. Attorneys Office’s efforts to prosecute Mr. Koerber, not to mention all of the hundreds of victims who were hoping to recover some of their lost funds through a possible plea deal or conviction that would likely include a requirement that Mr. Koerber provide some restitution to the victims of his Ponzi Scheme.

According to the Salt Lake Tribune, Judge Waddoups has not yet decided whether the charges can be refiled.

 


 

The U.S. Attorneys has office filed a new indictment against Rick Koerber, who is alleged to have run a Ponzi scheme that took in more than $100 million from Utah investors.  Last week a federal grand jury returned a new 20-count indictment alleging that Koerber engaged in widespread investment and tax fraud.

According to an article in the Salt Lake Tribune last week, this new indictment follows a federal judge’s decision in July to throw out a key piece of evidence in Koerber’s case.  “Assistant U.S. Attorney Stewart Walz previously said the ruling by U.S. District Judge Clark Waddoups affected a “significant” part of an existing 22-count indictment alleging fraud, money laundering and tax evasion by Koerber in his operation of FranklinSquires Cos. and related real-estate investment businesses.”  This ruling meant that prosecutors had to file a new indictment containing small changes to a section of the indictment describing the alleged scheme and artifice to defraud. Continue reading “UPDATE: Criminal Charges Against Rick Koerber Dismissed”

The SEC’s New Investor Bulletin on Affinity Fraud

Last week the SEC’s Office of Investor Education and Advocacy issued a new Investor Alert to help educate investors about affinity fraud, a type of investment scam that preys upon members of identifiable groups, such as religious or ethnic communities or the elderly.  Below is the full text of the alert:

What is Affinity Fraud?

Affinity fraud almost always involves either a fake investment or an investment where the fraudster lies about important details (such as the risk of loss, the track record of the investment, or the background of the promoter of the scheme). Many affinity frauds are Ponzi or pyramid schemes, where money given to the promoter by new investors is paid to earlier investors to create the illusion that the so-called investment is successful. This tricks new investors into investing in the scheme, and lulls existing investors into believing their investments are safe. In reality, even if there really is an actual investment, the investment typically makes little or no profit. The fraudster simply takes new investors’ money for the fraudster’s own personal use, often using some of it to pay off existing investors who may be growing suspicious. Eventually, when the supply of investor money dries up and current investors demand to be paid, the scheme collapses and investors discover that most or all of their money is gone.

How Does Affinity Fraud Work?

Fraudsters who carry out affinity scams frequently are (or pretend to be) members of the group they are trying to defraud. The group could be a religious group, such as a particular denomination or church. It could be an ethnic group or an immigrant community. It could be a racial minority. It could be members of a particular workforce – even members of the military have been targets of these frauds. Fraudsters target any group they think they can convince to trust them with the group members’ hard-earned savings.

At its core, affinity fraud exploits the trust and friendship that exist in groups of people who have something in common. Fraudsters use a number of methods to get access to the group. A common way is by enlisting respected leaders from within the group to spread the word about the scheme. Those leaders may not realize the “investment” is actually a scam, and they may become unwitting victims of the fraud themselves.

Because of the tight-knit structure of many groups, it can be difficult for regulators or law enforcement officials to detect an affinity scam. Victims often fail to notify authorities or pursue legal remedies. Instead, they try to work things out within the group. This is particularly true where the fraudsters have used respected community or religious leaders to convince others to join the investment.

How to Avoid Affinity Fraud

Here are a few tips to help you avoid affinity fraud.

  • Even if you know the person making the investment offer, be sure to research the person’s background, as well as the investment itself – no matter how trustworthy the person who brings the investment opportunity to your attention seems to be. 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.
  • Never make an investment based solely on the recommendation of a member of an organization or group to which you belong. This is especially true if the recommendation is made online. An investment pitch made through an online group of which you are a member, or on a chat room or bulletin board catered to an interest you have, may be a fraud.
  • Do not fall for investments that promise spectacular profits or “guaranteed” returns. Similarly, be extremely leery of any investment that is said to have no risks. Very few investments are risk-free. Promises of quick and high profits, with little or no risk, are classic warning signs of fraud.
  • Be skeptical of any investment opportunity that you can’t get put in writing. Fraudsters often avoid putting things in writing. Avoid an investment if you are told they do “not have the time to put in writing” the particulars about the investment. You should also be suspicious if you are told to keep the investment opportunity confidential or a secret.
  • Don’t be pressured or rushed into buying an investment before you have a chance to research 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 salesperson bases the recommendation on “inside” or confidential information.

Recent Affinity Fraud Schemes

The SEC’s Division of Enforcement regularly investigates and prosecutes affinity frauds targeting a wide spectrum of groups. Here are examples of some recent cases.

SEC Charges Ponzi Scheme Promoter Targeting Primarily African-American Churchgoers

Ponzi scheme promoter sold promissory notes bearing purported annual interest rates of 12% to 20%, telling primarily African-American investors that the funds would be used to purchase and support small businesses such as a laundry, juice bar, or gas station. Promoter also sold “sweepstakes machines” that he claimed would generate investor returns of as much as 300% or more in the first year.

SEC Charges Company and its Owners with Conducting an Offering Fraud Targeting Christian Investors 

Ponzi scheme promoters raised almost $6 million from nearly 80 evangelical Christian investors through fraudulent, unregistered offerings of stock and short-term, high-yield promissory notes issued by their company, which was marketed as a voice-over-internet-protocol video services provider around the world.

SEC Shuts Down Ponzi Scheme Targeting Persian-Jewish Community in Los Angeles

SEC obtained an emergency court order to halt an ongoing $7.5 million Ponzi scheme that targeted members of the Persian-Jewish community in Los Angeles. The SEC’s complaint alleged that the promoter, himself a member of the Persian-Jewish Los Angeles community, raised funds from 11 investors and used nearly $1.6 million investor funds to buy jewelry, high-end cars, and VIP tickets to sporting events. He lured investors with promises of exorbitant returns in purported pre-IPO shares of well-known companies.

SEC Charges South Florida Man in Investment Fraud Scheme

Fraudster raised nearly $11 million claiming returns as high as 26%. He typically met and pitched prospective investors over meals at expensive restaurants in and around Fort Lauderdale. His clients typically came to him through word-of-mouth referrals among friends and relatives. A significant number of the victims of his scheme were members of the gay community in Wilton Manors, Florida.

SEC Halts Affinity Fraud Aimed at the Hispanic community

Defendants raised $817,500 from investors representing to them that their funds would be used to develop a financial services firm serving the Hispanic community. The promoter used a large part of the investors’ money to engage unsuccessfully in high risk “day-trading” of stocks, pay personal living, travel and entertainment expenses or make other, unexplained expenditures with no connection to the purported start-up business activities.

SEC Charges Real Estate Developer in Miami Affinity Fraud

Miami-based developer conducted an affinity fraud and Ponzi scheme involving real estate investments that raised $135 million from more than 400 investors, primarily from the South Florida Cuban exile community. Among other things, the developer paid existing investors with new investors’ funds and assigned the same real estate collateral to multiple investors.

SEC Halts Online Affinity Fraud

Fraudster raised at least $2.4 million from at least five individuals in 2008 and 2009. He offered and sold promissory notes and convinced investors to grant him trading authority over money contained in online brokerage accounts. While doing so, he misrepresented his intended use of the money, the risks of his trading, the source of the money used to pay the guaranteed fixed returns, and falsely guaranteed repayment of investors’ principal.

What Should You Do If You Suspect Affinity Fraud?

If you think you may be aware of a possible affinity fraud – or may have lost money in an affinity fraud – please contact the SEC through the SEC Complaint Centerhttp://www.sec.gov/complaint/select.shtml. You can also contact your state’s securities administrator. You can find links and addresses for your state regulator by visiting the North American Securities Administrators Association’s website.

Additional Information

For additional educational information about affinity fraud, see our publication “Stopping Affinity Fraud in Your Community” available here on Investor.gov, the SEC’s website for retail investors. For information on investing generally, including how to help avoid fraud, visit Investor.gov or the Office of Investor Education and Advocacy’s homepage on SEC. gov. You can also follow us on Twitter at @SEC_Investor_Ed. Finally, if you would like to speak directly with one of our staff about this or other investing issues, please contact us toll-free 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.

Where money meets faith, bring skepticism

This is a repost of a good article on affinity fraud by  that appeared in the Washington Post this week:

Where money meets faith, bring skepticism

Robert “Dr. Shine” Freeman, a Maryland minister, took the command “let us pray” and turned it into “let us prey.”Because that’s what he did. He preyed on his people. Prosecutors said Freeman, 56, hid assets to avoid paying hundreds of thousands of dollars in debts. He recently pleaded guilty to obstructing bankruptcy court proceedings and received a 27-month prison sentence. He was ordered to pay more than $630,000 in restitution to four church members who took out loans to buy cars and a mansion.

What Freeman did falls under “affinity fraud.” Affinity fraud is when people use a personal connection such as religion or ethnic status to gain people’s trust and their money.Nearly one in four Ponzi schemes involve affinity-group targets, according to a study by consulting firm Marquet International of major Ponzi schemes in the United States since 2002. The three most common affinity groups targeted by Ponzi schemers, accounting for 85 percent of such cases, were the elderly or retired, religious groups and ethnic groups. Continue reading “Where money meets faith, bring skepticism”

Why FINRA’s New Rules on “Suitability” Are Important for Investors

FINRA, the regulatory organization that governs broker-dealers, has now implemented a major overhaul of its suitability rules that could have a big impact on investors who feel that they were misled by their stock broker. The new rules went into effect on July 9th and require brokers to (1) perform reasonable due diligence on investment products they recommend, (2) understand those investments, and (3) have a reasonable basis to believe that a security or investment strategy is “suitable” or appropriate for the given investor.  Suitability evaluations must be undertaken with respect to every investor and his or her particular situation. Among other things, a broker must look at an investor’s age, investment experience, time horizon, liquidity needs and risk tolerance when making an investment recommendation.  In short, every investors situation is unique and investment recommendations must take that into account. Continue reading “Why FINRA’s New Rules on “Suitability” Are Important for Investors”

ADVICE ON NOT GIVING INVESTMENT ADVICE

This article is published with permission from the authors, Jason D. Rogers and Brad R. Jacobsen of the Vantus law Group.   

Many people would believe that investment advisers are only those that give opinions on which stocks, bonds or mutual funds to buy.  However, under applicable securities laws “investment adviser” is much more broadly defined than commonly thought, potentially including those who simply give general financial counseling or planning or those who recommend the purchase of a particular asset.

The question of whether or not a person is an investment adviser frequently arises in a real estate, insurance or other sales context.  Such salespeople would not generally think they are subject to the securities laws, but, depending on their activities, they may be. Continue reading “ADVICE ON NOT GIVING INVESTMENT ADVICE”

FORBES: You Should Avoid Church and Rotary In Retirement Planning

This

article appeared in Forbes Magazine

 this month:

Avoid Church and Rotary In Retirement

MITTERFIRMIANSREUT, GERMANY - JANUARY 14:  Vis...

Robert Laura, Contributor

As shocking as this may sound, when it comes to planning and investing your retirement savings, religious and civic organizations are quickly becoming places to avoid.  In the not-so-distant past, you could rely on the fellow who lead the pledge of allegiance or said the deeply devotional group prayer, but the growing trend of Affinity Fraud suggests those closest, and most like you, should be kept the furthest from your life savings.

Unlike “hate” crimes that are committed across racial, ethnic or religious lines, Affinity Fraud targets members of identifiable groups, such as religious or civic organizations, ethnic communities, elderly people and even professional associations.  Fraudsters infiltrate a group and seek to exploit the trust and friendship among its members. Often times they get a long-standing or high ranking member(s) of the group to unwittingly endorse the scheme and the scam spreads faster than a California wildfire. Continue reading “FORBES: You Should Avoid Church and Rotary In Retirement Planning”

State of Fraud

This is a good article that appeared in the April 2010 edition of Utah Business.  It looks into why Utah has so much securities fraud and echos many of the same conclusions discussed elsewhere in this blog.

State of Fraud

Why is Utah Rife with Fraudulent Investment Schemes?

by Gaylen Webb

It’s been about four years since Val Southwick, the Bernie Madoff of Utah con artists, received his ticket to the state penitentiary for the biggest fraud scheme in Utah history. Today, Southwick sits quietly in a cell in Gunnison, serving out his nine consecutive sentences. Although he pled guilty and expressed remorse at his sentencing, he routinely declines media interviews and is mum about his fraud conviction and the tactics that supported his grand deception. Continue reading “State of Fraud”

The SEC Issues an Alert on Social Media and Investing

The SEC recently issued this Investor Alert warning all of us who use the Internet to be wary of people who contact you online to try to lure you into a scam.  This is a reprint of the alert:

Investor Alert: Social Media and Investing – Avoiding Fraud

The SEC’s Office of Investor Education and Advocacy is issuing this Investor Alert to help investors be better aware of fraudulent investment schemes that may involve social media. U.S. retail investors are increasingly turning to social media, including Facebook,YouTube,Twitter, LinkedIn and other online networks for information about investing. Whether it be for research on particular stocks, background information on a broker-dealer or investment adviser, guidance on an overall investing strategy, up-to-date news, or to simply discuss the markets with others, social media has become a key tool for U.S. investors.

While social media can provide many benefits for investors, it also presents opportunities for fraudsters. Social media, and the Internet generally, offer a number of attributes criminals may find attractive. Social media lets fraudsters contact many different people at a relatively low cost. It is also easy to create a site, account, email, direct message, or webpage that looks and feels legitimate – and that feeling of legitimacy gives criminals a better chance to convince you to send them your money. Finally, it can be difficult to track down the true account holders that use social media. That potential for anonymity can make it harder for fraudsters to be held accountable. As a result, investors need to use caution when using social media when considering an investment. Continue reading “The SEC Issues an Alert on Social Media and Investing”

The LDS Church Issues a Strong Position on Affinity Fraud

I am pleased to see that after years of urging from me and others who have seen affinity fraud perpetrated within LDS church congregations for years (especially in Utah County) the church has finally stepped up to the plate and taken a stronger position on this issue.  They did so at the annual Fraud College event that took place on February 15, 2012 at the University of Utah, and on their website.  The church was asked to speak at the first Fraud College 2010, but they declined that year, and they declined again in 2011.  This “head in the sand” response to the problem was infuriating to federal and state law enforcement officials – and to me.

Thankfully the Church leadership finally decided this year that they needed to acknowledge and confront the growing incidence of church members — often in positions of trust within the church — victimizing other church members.  The FBI has stated that Utah is a hot spot for financial fraud and estimate that $2 billion worth of fraud is “under investigation or being prosecuted in Utah courts.”

The speaker at the conference was Michael Otterson, managing director of the Church’s Public Affairs Department.  And he didn’t mess around.  He compared fraudsters to child molesters because they “exploit one of the things we value most: the trust that makes our communities what they are.”

Continue reading “The LDS Church Issues a Strong Position on Affinity Fraud”