In May of this year the Financial Industry Regulatory Authority (FINRA) announced the launch of its disciplinary actions database, a web-based searchable system that makes its disciplinary actions easily accessible to the general public. Continue reading “FINRA’s New Disciplinary Actions Database”
Michael Smith and his son Quintin Smith have each been charged with six counts of securities fraud and one count of pattern of unlawful activity, all second-degree felonies, in connection with a furniture loan company they owned called Newport Financial. According to a Salt Lake Tribune article published today they have been accused of “bilking investors of hundreds of thousands of dollars — one while serving as counselor to an LDS stake presidency — in a fraudulent furniture-financing scheme that targeted, among others, a prominent University of Utah football coach.”
The indictment alleges that the Smiths promised a return of 18 percent to gain investments of at least $1.8 million from 18 victims. Their biggest investor was Norm Chow, the offensive coordinator for the University of Utah’s football team, who invested $500,000. Continue reading “Yet Another Local Ponzi Scheme Indictment – Newport Financial”
As reported on the website Law360, A Utah federal judge on Wednesday approved a $125.6 million final judgment that settled the U.S. Securities and Exchange Commission’s case against Vescor Capital Corp. This judgment apparently relates to the company, not Val Southwick who pled guilty to nine counts of securities fraud in 2008 and was sentenced to serve nine consecutive 1 to 15-year prison terms.
But if you are an investor hoping to get you money back, don’t hold your breath. According to the article Vescor’s receiver, Robert G. Wing of Prince Yeates & Geldzahler, has stated publicly that the money may never materialize. “They did not get $125 million, they got a judgment,” he said. Mr. Wings expects to be able to recover only a small fraction of the money Vescor allegedly took from investors. In his most recent report to the court, Wing said he had recovered just over $5 million, and the legal and accounting fees continue to mount, the Receiver’s lawsuits to recover money from third parties will continue.
Bottom line: nobody wins in a Ponzi Scheme — except maybe the lawyers.
Last week the U.S. Attorney’s Office filed a 17-count indictment alleging money laundering, wire fraud and bank fraud in connection with an alleged Ponzi scheme that was run by John S. Dudley, age 56, of Sandy, Utah.
In this case Dudley pitched investors at investment club meetings in people’s homes. These were likely homes of people who are prominent in their local church or community, who then invited their friends and fellow ward members to hear a presentation. In some cases the hosts of the meeting may even have received a “finder’s fee” or other compensation if attendees invested (which is usually illegal).
The Financial Times recently published a fascinating prison interview with Bernie Madoff. Of course he spins the story, attempts to justify his actions and it wasn’t really his fault. He claims that his company was legitimately earning profits until the early 1990, and that in the 1980’s he was “making plenty of legitimate trades.”
But then in 1992, he admits it became a Ponzi scheme when he began using money from new deposits to pay some returns. As he told the reporter:
“The turning point was really about 1992 onwards. From then on, it started getting worse and worse. I spend a lot of time thinking about it – it is almost like a blank to me now. I try to piece it together; why didn’t I say, ‘I cannot do it?’ Why didn’t I return the money to those four or five clients – and the others – and say, ‘I can’t do it.’ Why?”
Since 1994 when I began handling securities cases, I have been involved in many many lawsuits and receiverships involving Ponzi schemes. I also have on occasion represented people who perpetuated these schemes. As a result, people often ask me how they get started and whether I think people set out to run a Ponzi scheme. I don’t think they do, at least not in my experience. Ponzi schemes usually start when people promise unachievable minimum returns to investors, pay returns even when the profits are not coming in, or try to shield their investors from losses. Continue reading “How Do Ponzi Schemes Get Started?”
In the last two days the SEC has filed two new cases against two more Utah-based companies and individuals who are alleged to have engaged in Ponzi Schemes. Continue reading “Two More Utah Ponzi Schemes”
Thinking of investing in a hedge fund? Here are some tips for sniffing out potential fraud.
By ROB CURRAN
In the age of Madoff, small investors are rightfully leery of hedge funds with eye-popping returns and a low profile. But how do you size up the risk of fraud?
You might take some advice from professional investigators, who dig into hedge funds on behalf of potential institutional investors, searching for irregularities and trying to tell if the managers are trustworthy.
So, what warning signs do these investigators say you should watch for? Here are some of the biggest. Continue reading “Thinking of investing in a hedge fund? Here are some tips for sniffing out potential fraud.”
Yesterday William J. Hammons, 66, was convicted of seven of nine criminal charges by a jury in St. George, Utah. Hammons was one of the largest finders or feeders of investors to Val Southwick and his company VesCor, which is now known as the largest Ponzi scheme in Utah history. He recommended the investment to members of The Church of Jesus Christ of Latter-day Saints in Las Vegas, where Hammons served as a bishop, and in St. George, Utah. The St. George investors included neighbors, church members, Hammons’ partner and his parents-in-law. What he did not tell these people was that in exchange for these referrals he received substantial “referral fees” or commissions from Val Southwick.
In his defense, one of the Fresno defense attorney, Clifford Dunn tried to convince the jury that Mr. Hammons was just an innocent bystander. According to the Salt Lake Tribune, Hammons testified “that he was unaware that VesCor was a fraud, that he didn’t seek out investors and never officially worked for the company. Instead, he cast himself as just another investor who was paid only referral fees.” Continue reading “The Dangers of Being a “Finder” – Another Conviction in the VesCor Ponzi Scheme”
In an interview on KSL’s weekly program “Sunday Edition” on January 30, contributor and former U.S. Attorney Brett Tolman spoke about two proposed bills to punish those who victimize family and friends as proposed by Sen. Ben McAdams, D-Salt Lake City. This is worth watching.
This week a British judge entered a court order freezing the global assets of a Utah-based gold mining company called Sinaloa Gold Plc. The court concluded that the mining company may have engaged in fraud when it sold shares to U.K. investors. The judge found that one of Sinaloa’s officers, Glen Lawrence Hoover, a Utah resident, failed to explain to the court how investor money was spent. Mr. Hoover is one of the defendants in the case.
Recently I have seen an increase in inquiries from individuals who are interested in investing in gold mining operations, and from some who have lost money in this investments. I assume much of this is driven by the skyrocketing price of gold, but the challenge for investors is that this is a highly specialized area that requires significant technical expertise. Investors can be misled by complex technical descriptions, faked or doctored assay tests, and spectacularly high mine valuations.