Another Sad Story of Affinity Fraud Within the LDS Community in Utah

Editor’s Note: I often write about the dangers of trusting people in your LDS ward or religious community who are pitching investments, but real stories are sometimes more effective. Below is a CLASSIC example of how members of the LDS Church are targeted for fraud.

This story was published in the Deseret News on Sep 16, 2020 by reporter  Dennis Romboy.


St. George man gets prison term for stealing from fellow Latter-day Saints in financial scam

SALT LAKE CITY — A St. George man who took advantage of a couple in his Latter-day Saint congregation in a financial scam is headed to federal prison.

Gregory Moats Sampson, 46, will spend two years behind bars after pleading guilty to wire fraud and money laundering.

U.S. District Judge David Nuffer enhanced the sentence because the scheme put substantial financial hardship on the couple. The judge also ordered Sampson to pay $250,000 in restitution and to serve three years probation after his prison sentence.

Sampson met the couple, identified in court documents as J.S. and K.S., in 2012 when he was their real estate agent. They had $250,000 to invest after selling a home in Australia. Sampson told them he had invested funds for others in the past and could help them, according to court documents.

J.S. and K.S. were not sophisticated investors and believed they could trust Sampson based on the relationship they had with them, prosecutors said. He told them they could earn $1 million in eight to 10 years and that they would receive stock in a company. He also told them that because they were friends, he would not charge them for their investment.

Instead of investing the money, Sampson spent it all within a month of receiving it, including $98,000 to pay off a personal loan, $82,000 to a company his brother owned, and $20,000 to a company that had nothing to do with the investment, according to court documents.

When the couple asked for a portfolio of their investment, Sampson did not provide one but regularly told them it was performing well.

The couple eventually confronted Sampson and demanded documentation or their money back.

According to court records, he told them: “And you know who gets screwed in the deal? You do … and it’s not to say that I’m trying to protect my own (expletive) because I’m not going anywhere, I promise you. If I need to disappear, I would have already been gone. I’ve got enough money that I can disappear if I need to. …”

Chris Parker, executive director of the Utah Department of Commerce, said affinity fraud continues to be a problem in Utah.

“Scammers will use any social connection available to gain your trust and take your money,” he said.

While federal fraud cases typically focus on losses in the million of dollars, scammers in smaller cases also face stiff penalties, said U.S. Attorney John Huber.

“There is no sweet spot in fraud loss where schemers can fly under the radar and get away with it,” he said. “Once again, we remind Utah investors to beware of the risks associated with big promises from purported friends and neighbors.”

Top Ten Ways to Avoid Losing Money in a Financial Scam – Tip #1

Investment fraud is a big issue here in Utah, largely due to our close-knit social and religious communities, which can be prime targets for “affinity fraud.”  “Affinity fraud” is a scam that is perpetrated by someone you trust. Scammers use relationships to build trust and legitimacy for their “pitch.” Those relationships can be with family members, neighbors, friends or — especially in Utah — members of your church community.   It is important to be aware of the potential for scams and aware of how to protect yourself against them. For example, rushing into an investment because you “trust” your neighbor or friend can lead you to set aside the type of scrutiny you would apply if a stranger was asking for your hard-earned money. 

That can be a dangerous mistake.  

There are concrete ways to mitigate the risk that you may face in this type of situation. To raise awareness and help people avoid the often life-altering financial losses associated with affinity fraud, I’ve created a list of the ten most important ways to avoid investing in a financial scam. The following tip is the first installment in this series:

Tip #1 — SLOW DOWN

Spotting scammers can be difficult, as they are often someone you know and trust. Do not send out personal information in response to an unexpected request, whether online or in person. 

Do not fall for claims of urgency in an investment opportunity. Slow down.  If its a legitimate opportunity it will be there tomorrow, and next week. Research the company online, ask lots of questions, search the for lawsuits and enforcement cases, review the legal and financial history of the individuals involved and, if possible, visit the company office. Ask the difficult questions before committing to anything.

In particular watch out for aggressive sales pitches and “deadlines” to invest. Many victims of fraud report that they were told the investment opportunity was a limited-time opportunity and that they needed to move quickly before someone else takes it. Scammers will often try to push you to invest before you have an opportunity to do your research. This should be a red flag.

Finally, retain a lawyer with expertise in financial investments at the outset to help you evaluate the proposed investment.

The bottom line: If an offer sounds too good to be true, it likely is. Don’t fall prey to high-pressure sales tactics or people demanding money immediately. When it comes to financial investments it is critical to slow down and take the time to do your due diligence! 

RQN Resources

This is the first tip in a ten-part series helping people protect themselves against scams and fraud. Ray Quinney and Nebeker has a team of experts that are well versed in this area of law. For more information and resources, contact Mark W. Pugsley at mpugsley@rqn.com.

Copyright © 2020 by Mark W. Pugsley.  All rights reserved.

Why Is Utah Home To So Many Ponzi Schemes?

EDITORS NOTE: this is a repost of a story that aired on our local NPR affiliate, KUER on December 30, 2019. Doug Hronek is a client of mine who agreed to speak publicly about this experience. We have filed lawsuit against Live Abundant and its agents on behalf of Doug and a number of other victims who lost millions due to bad advice they received from Live Abundant.

By SONJA HUTSON DEC 30, 2019

Doug Hronek first heard about Live Abundant while listening to the radio in his car. He said he ended up investing nearly $500,000 in a Ponzi scheme through Live Abundant.

Doug Hronek was driving home to Heber City through Provo Canyon about five years ago when he tuned his car radio to a conversation about unique investment opportunities. 

“I just started listening to it and thought, ‘Well, gosh I’m getting ready to retire — I need to figure out what to do with my retirement funds so I’ve got enough money to get through to end of life,’” Hronek, 62, said.

Hronek and his wife soon went to a seminar at a hotel in Provo, put on by that radio guest Doug Andrew and his financial planning firm Live Abundant. 

At that seminar in Provo, Hronek and his wife were presented with what he says were impressive brochures and a video sharing Andrew’s story and investment strategies. 

“The experience of losing a house in foreclosure was a defining moment for me as a financial strategist,” Andrew said in the video.

“Because it was his story, it came across as very sincere,” Hronek said. 

Ultimately persuaded to invest in a real estate company called Woodbridge, Hronek took out a mortgage on his house, which he and his wife had already paid off, and ended up investing about $500,000.

Two and a half years later, Woodbridge filed for bankruptcy and the Hroneks saw their investment disappear. 

“You get a pit in your stomach,” Hronek said. “Attorneys started looking at my documents and saying you don’t have anything here that’s going to provide you any way to recapture that money.”

The Securities and Exchange Commission has filed charges against Live Abundant related to the Woodbridge scheme, alleging they acted as unregistered brokers for unregistered securities. Live Abundant, which has denied those allegations in court papers, did not respond to a request for comment. 

Meanwhile, Hronek is not alone. Utah has the highest rate of Ponzi schemes per capita in the United States, more than twice the rate of Florida, the next highest state, according to an analysis by a Salt Lake City investment fraud attorney. The analysis also showed that Utah investors have lost around $1.5 billion to Ponzi schemes over the past 10 years. 

To help victims of Ponzi schemes, Utah Congressman Ben McAdams has introduced a bipartisan bill that would give more power to federal investigators seeking to recoup their financial losses. 

“In Utah we are quick to trust, we are quick to see the best in others and to extend a hand of friendship,” McAdams said. “It is that attribute that I love about living in Utah. It’s that very attribute that they are preying upon.”

Trust Is A Double Edged-Sword

The Church of Jesus Christ of Latter-day Saints fosters a trusting culture in its members, who make up almost two thirds of the state’s population, according to Dixie State Sociology Professor Bob Oxley. That has a lot to do with the importance placed on supporting others in the community and with the system of tithing. 

“So that’s all built into that value system whereby I’m contributing a certain percentage of my income to the Church which they’ll make their determination to distribute that to other people that are less fortunate than I am,” Oxley said. “And also with the understanding that if I need in the future, I can always depend on the church to be there for me.”

Trust can hurt investors financially by leaving you vulnerable to Ponzi schemes and other forms of investment fraud. But, that same attribute can lead to success in business. 

Shaun Hansen, a business professor at Weber State University, said trust is one of the driving factors of economic growth. 

“When you deem the person trustworthy, you’re willing to take risks with that person,” Hansen said. “In other words, engage in business with them.”

Utah Effort to Help Fraud Victims

McAdams’ bill, which passed the House overwhelmingly last month, would extend the statute of limitations for federal regulators to recover victims’ money from five to 14 years.

But critics say the bill would drag out already lengthy investigations by removing an incentive to move quickly. But McAdams argues it often takes a long time for Ponzi schemes to collapse, and the current statute of limitations leaves out a lot of early investors in these companies.

To date, Hronek has gotten back about $20,000 of his nearly $500,000, he said. But he doesn’t expect any more beyond that. The experience has left him less trusting, yet he still thinks trust can be valuable. 

“If I had something to say about it and do it over, I would say trust, but verify,” Hronek said.

Discussion of Investment Fraud in Utah on KSL’s Sunday Edition with Doug Wright

Editor’s note: I was interviewed on KSL’s Sunday Edition with Doug Wright last week. The discussion about Ponzi Schemes and affinity fraud in Utah happens at 8:18. I appreciate KSL Television’s willingness to engage in a frank discussion about why affinity fraud is a particularly vexing problem here in Utah, and to help get the word out on how to prevent these scams.

My Interview with ‘Trib Talk’ on Why Utah is Home to So Many Ponzi Schemes

‘Trib Talk’: Why is Utah home to so many Ponzi schemes?

(Steve Griffin | Tribune file photo)

Editor’s Note: This is an interview I did yesterday for the “Trib Talk” podcast from the The Salt Lake Tribune .

The sentencing of convicted fraudster Rick Koerber was delayed — again — this week, adding another chapter to a 10-year legal saga for one of Utah’s most notable Ponzi schemes.

But while the Koerber case is unique for its circuitous route to justice, Koerber’s underlying crimes and use of religion to target victims, are relatively common in The Beehive State, according to national statistics and the experience of local attorneys.

On this week’s episode of “Trib Talk” Tribune legal affairs reporter Jessica Miller and Salt Lake City attorney Mark Pugsley join Benjamin Wood to discuss Utah’s high rate of Ponzi schemes and why the state’s residents are particularly vulnerable to affinity fraud.

Click here to listen now. Listeners can also subscribe to “Trib Talk” on SoundCloudiTunes and Apple Podcasts, Google PlayStitcherSpotify and other major podcast platforms.

“Trib Talk” is produced by Sara Weber with additional editing by Dan Harrie. Comments and feedback can be sent to tribtalk@sltrib.com, or to @bjaminwood or @tribtalk on Twitter.

Finally It’s Confirmed: Utah Has More Ponzi Schemes Per Capita Than Any State in the Country. By Far.

I frequently speak to groups about investment fraud and one of the questions I often get asked is whether it’s true that Utah has the highest rate of Ponzi schemes and affinity fraud in the country.

In the past I haven’t been able to say for sure.  There aren’t any good studies that have reached that conclusion, and so I have to just rely on anecdotal evidence. 

Well, now we have proof.  Jordan Maglich, who runs the website PonziTracker.com, just released an epic ten-year survey of Ponzi schemes in the United States.  He found that there were over 800 Ponzi schemes reported publicly from 2008-2018 and that they collectively caused a jaw-dropping $60 billion in financial destruction.  I believe this is the first database compiling publicly-reported Ponzi schemes and sentences during the “Madoff Era.”

And the survey contains very bad news for Utahns.  Utah had the sixth-highest number of Ponzi schemes despite ranking 31st in population.  So when I ran a per-capita analysis of the numbers Jordan reported it turns out that Utah has the highest rate of Ponzi schemes per capita in the country by far, at 1.35 Ponzi schemes per 100,000 people.  And the next highest state (Florida) is nearly two thirds lower at .51 per 100,000 people.  (Chart)

If you take out the massive Madoff Ponzi scheme in New York ($17 billion), Utah also has the highest loss per capita of $502 per person – which is more than double the next highest state! 

Overall, Utah investors lost over $1.5 billion to these schemes in the last ten years.  And that number does not include other affinity frauds and other investment scams which undoubtedly account for another $500 million in losses to Utah residents over the last ten years (at least). 

How would $2 billion benefit our economy?  What is the collateral impact of these scams?  Here are a few thoughts:

  • Millions in state and federal resources are consumed by the victims of fraud who no longer have means to support themselves in retirement, including paying their medical bills and other living costs.
  • The families of fraud victims often have to step in to house and support their parents or children who have been wiped out financially.
  • Banks, investment advisors and stock brokers lose significant revenue when people liquidate their IRAs and 401K to invest with some unlicensed scammer.

The list goes on… 

Why is Utah’s problem so much worse than any other state?

This is a complicated problem, and there is no clear answer.  But after helping people recover losses from investment fraud for 25 years my view is that people in Utah are simply too trusting, particularly when the person soliciting an investment is in their ward or shares their religious affiliation.

If someone pitching you an investment casually mentions that they used to be the bishop or in some other church position, watch out!  Church callings and temple worthiness are not relevant to investment decisions, so beware of those who bring these issues up in an investment pitch.

Also, it may seem like doing business with someone you know and trust would be safer, but that is simply not true.  All investing involves risk, and just because you trust the individual soliciting the investment does not mean that the investment itself is good.  Trust but verify; and if things go badly do not hesitate to aggressively protect your interests.

Finally, investment decisions should never be made based on feelings.  Just because it feels legitimate, or feels like a good idea does not make it so. 

Here are a few things you can do to avoid getting scammed:

Do your homework.  Run a simple Google search on the company and its managers, or the individual pitching the investment.  You might be surprised by what you find. 

Hire an attorney. An experienced lawyer can help you perform due diligence into the company and individuals offering a private investment.  You need to carefully evaluate the risks and determine whether the offering complies with state and federal statutes.  It is far cheaper to hire an attorney on the front end of an investment like this – when your money is gone it gets very expensive. 

Get it in writing.  I am amazed how often people will give hundreds of thousands of dollars to someone on nothing more than a handshake.  The terms of your deal should always be put in writing, and those terms should be reviewed by the competent attorney you hired. 

Read the Paperwork.  Investors in a private investment opportunity should receive a detailed lengthy disclosure document called a private placement memorandum (PPM).  Take the time to review it before you invest.  Like a prospectus, a PPM contains detailed information about all aspects of the business including the business model, financial history, risk factors, biographical information on the managers, and the terms and conditions of the private investment, among other things.  If you don’t understand these things, hire a professional who does.

Work through licensed stock brokers or investment advisors. Even private (unregistered) investments generally need to be sold by licensed stock brokers.  Every investor should look at the employment and disciplinary history of their broker or investment adviser, which is available on FINRA’s BrokerCheck website

And most importantly, if it sounds too good to be true it probably is. If you are thinking about putting money into an alternative, unregistered, or unusual investment that promises abnormally high returns (like anything higher than 10 to 15% per year), watch out.  And if someone promises you a “guaranteed” return on any investment that ought to be a red flag — investments are rarely guaranteed and investments that offer unusually high returns are more risky, not less. 

State Population Schemes Schemes per 100,000 people Total Losses Losses per capita
Utah 3,101,833 42 1.35 $1,558,325,000 $502.39
Florida 20,984,400 107 0.51 $5,893,496,000 $280.85
New York* 19,849,399 90 0.45 $21,707,050,000 $1,093.59
Illinois 12,802,023 53 0.41 $523,400,000 $40.88
Calif 39,536,653 151 0.38 $3,889,700,000 $98.38
Texas 28,304,596 76 0.27 $8,372,900,000 $295.81
*New York (without Madoff) 19,849,399 89 0.45 $4,307,050,000 $216.99

NOTE: The per capita analysis in this table is mine.  The underlying data comes from this website:  Ten Years After Madoff, Updated Ponzi Database Shows Schemes Are Thriving

Copyright © 2019 by Mark W. Pugsley. All rights reserved.

The Growing Problem With Sales of Unregistered Securities

Recently I have been busy working to recover losses for a large number of investors who lost money in unregistered investments offered by Woodbridge and Future Income Payments or FIP. In many cases these investments were recommended by insurance agents who were not licensed to sell securities, and did not perform adequate due-diligence on these companies before they made the recommendation.

FIP offered pensioners upfront, lump-sum payments in return for a portion of their monthly pension payments over a specific term, often three to five years. FIP then used these pension payments to fund a monthly income stream back to the investors who put up the money for the lump-sum payments. In July of 2018 Scott Kohn, the 64-year-old felon who started the company, closed the doors and disappeared leaving investors with more than $100 million in losses.

Subsequently the SEC filed charges against thirteen individuals and ten companies who recommended and sold Woodbridge, including Utah-based Aaron Andrew and Live Abundant. Live Abundant and its agents were not licensed to sell securities, and yet they recommended both FIP and Woodbridge to hundreds of people here in Utah and throughout the western United States. Our lawsuits against Live Abundant and the individuals and entities who perpetrated this scheme are ongoing.

The common link between these two fraud schemes is that investments in FIP and Woodbridge were not registered with the SEC. These are sometimes referred to as private placements or unregistered offerings.  Generally, a company may not offer or sell securities in the United States unless the offering has been registered with the SEC or an exemption from registration is available. For more information about exempt offerings I recommend you look at this article on the SEC’s website.

Below is a repost of an article from Investment News that highlights some of the challenges for individual investors from these investments, and for the firms that offer them.


Sales of Unregistered Securities are a Growing Problem That’s Harming Investors — and the Industry

By Bruce Kelly

To an investor, Castleberry Financial Services Group’s promise of up to a 12.2% annual yield on the alternative investment fund it was selling might have seemed awfully tempting. So might the assurance that your principal would be insured and bonded by well-known insurance companies CNA Financial Corp. and Chubb Group.

In promotional materials, Castleberry claimed to have invested almost $800 million in local South Florida companies and to have a portfolio of real estate holdings that was generating $2.8 million in rental income annually.

But in late February, the Securities and Exchange Commission went into court to shut the company down, claiming it was all a fraud, including the involvement of CNA and Chubb.

Before the SEC acted, though, it said that Castleberry had managed to raise $3.6 million from investors, some of which was used to pay the personal expenses of its principals. Other funds were transferred to family members or other businesses the principals controlled, according to the SEC.

By all indications, the marketplace for all types of private, unregistered securities, including private placements sold to wealthy investors and institutions, is thriving. But what’s growing alongside this legitimate, if risky, market is a seedy side of the financial advice industry. Investment funds promising above-market returns that employ networks of brokers, former brokers, insurance agents or others lurking on the fringes of the industry to sell their investments are taking advantage of unsuspecting investors.

Add in the ability to offer private securities over the internet and solicit clients via social media, and unregistered, private securities being sold to less-than-wealthy investors, many of them senior citizens, are becoming increasingly dangerous. Fraudulent securities are damaging the reputation of the legitimate financial advice industry,​ and the industry itself might serve as the best solution to safeguarding the investing public.

“I’m seeing more of it:​ the spike in the sale of nontraditional investments,” said David Chase, a former SEC staff attorney who’s now in private practice and based in South Florida.

Sales soar

The proliferation of potentially fraudulent schemes comes at a time when the sale of legitimate private securities, which are exempt from having to be registered if they meet certain SEC guidelines, has taken off. While the annual amount of public stock offerings has remained relatively steady over the past decade, the sale of new private stock offerings has soared.

The most popular of these, known as Regulation D offerings, have more than doubled, from 18,295 in 2009 to 37,785 in 2017. Those deals, along with other types of private offerings, raised a total of $3 trillion in 2017.

Brokers and advisers can sell private, unregistered shares to only the wealthiest clients; investors need a net worth of $1 million or an annual individual income of $200,000 to buy in. But the public disclosure is negligible, making the securities opaque, some sources said, and that is hazardous.

The game plan of the fraudulent unregistered securities schemes currently roiling the investment advice market is simple. An investment manager claims to have an alternative investment to the stock market that beats the return on bonds or bank deposits. The investments are heavily marketed with investment seminars, dinners, and ads on radio and in local newspapers.

James Park, securities professor at UCLA, said the internet is giving the promoters one more outlet to sell their fraudulent investments.

“It’s now possible to get investors from everywhere,” he said. “In the old days, brokers would have to call up people to convince them to invest or put on a road show. Now it’s normalized with online platforms.”

In one of the largest recent cases,​ the SEC said the owners of Woodbridge Securities raised $1.2 billion over a five-year period by claiming they were selling loans to real estate developers.Source: North American Securities Administrators Association

Promising returns of 10%, the scheme reeled in 8,400 investors, many of them senior citizens, with the help of a network made up mostly of insurance agents and former stock brokers, according to the regulator. Woodbridge’s owners kept the scam going, the SEC said, by using money from new investors to pay off old investors — a classic Ponzi scheme.

Without admitting or denying the allegations, Woodbridge and its former CEO Robert Shapiro settled with the SEC for $1 billion in disgorgement and fines. Ryan O’Quinn, a lawyer for Mr. Shapiro, did not return a call seeking comment.

Beyond FINRA’s reach

One of the reasons these cons take time to detect is because the agents selling them mostly work outside the supervision of licensed broker-dealers, who are under the purview of the Financial Industry Regulatory Authority Inc. This gives the fraud ample time to flower before the SEC or a state regulator gets a complaint from an investor, investigates and shuts it down.

The largest Ponzi schemes in general are those that have tapped into a very successful and productive line of independent sales agents who typically have long-standing relationships with clients,” Mr. Chase said. “They sell the deal, and clients get defrauded.”

The SEC did a better job of shutting down what it said was a fraud in the case of Castleberry Financial Services Group after only a year in business. In February, the SEC was granted a temporary restraining order and temporary asset freeze against Castleberry and its principals.

​ Among other allegations, the SEC said the firm’s president, T. Jonathon Turner, formerly known as Jon Barri Brothers, had falsely claimed to have had extensive finance industry experience, an MBA degree and a law degree, while concealing that he had served 18 years in prison for multiple fraud, theft and forgery felonies.

Attorneys for Castleberry Financial and its executives did not return calls seeking comment.

State enforcement

In 2017, state regulators reported that enforcement actions against unregistered brokers and salespeople increased at a faster pace than actions taken against registered individuals. That means the risk from salespeople on the fringes of the financial advice industry is growing. And they are the type of people who often sell scams that are being marketed as unregistered securities.

“[The] enforcement survey reflects a large increase in enforcement actions against unregistered individuals and firms,” according to an October 2018 report from the North American Securities Administrators Association. Members of the group reported actions in 2017 against 675 unregistered individuals and firms — an increase of 24% over the prior year — and 647 registered individuals and firms — a 9% increase.

“The surge in cases against unregistered actors reversed a two-year trend in which registered individuals and firms in the securities industry, broker-dealers and investment advisers, had constituted the majority of respondents in state enforcement actions,” according to NASAA.

Perhaps the poster boy for selling phony unregistered securities is Barry Kornfeld, a leading seller of the Woodbridge Ponzi scheme.

The SEC barred Mr. Kornfeld from working as a broker in 2009. Regardless, he continued to sell private securities; he and his wife allegedly solicited investors at seminars and a “conservative retirement and income planning class” they taught at a Florida university, according to an SEC complaint.

From 2014 to 2017, he and his wife received $3.7 million in commissions after selling more than $60 million of the Woodbridge private securities, according to the commission. Mr. Kornfeld reached a settlement in January with the SEC, agreeing to be barred for a second time from the securities industry. Robert Harris, a lawyer for Mr. Kornfeld, did not return a call seeking comment.

Registered reps involved

Unregistered reps aren’t the only ones selling fraudulent securities. Registered reps working at broker-dealers also are involved.

“We’re starting to see more sophisticated means for registered reps within the broker-dealer space to get investors to invest in private securities,” Thomas Drogan, senior vice president at Finra, said in testimony last year about investor fraud before the SEC’s Investor Advisory Committee. “The challenge in that space has been reps encouraging their customers, for example, to send money from their brokerage account to their bank account. And once the money gets to the bank account, instructing the customer to then send the money to the individual reps’ outside business activity. This creates a problem. This creates a very big challenge for broker-dealers to conduct surveillance on.”

The practice, known as “selling away,” can be grounds for disciplinary action if the broker-dealer employing the broker has not approved the broker’s actions. Unregistered firms and individual topped the list of disciplinary actions by state securities regulators in 2017.

Advisers at independent broker-dealers are commonly paid 7% commissions when selling private placements, clearly on the high end of a broker’s pay scale.

“What’s driving this?” asked Adam Gana, a plaintiff’s attorney. “It’s commissions, commissions, commissions. Brokers think they can get away with selling whatever they want on the side.”

Even though these dubious private securities are creating havoc for investors and the financial advice industry, regulators may soon change the rules about how private securities transactions are supervised.

Simplify supervision?

Last year, Finra proposed rule changes that are intended to simplify how broker-dealers supervise a hybrid rep’s outside business activity and sale of private securities. The new rule focuses on the rep’s RIA firm and decreases some of the responsibility the broker-dealer has to watch over that separate line of business. It would cut costs for the firm and the broker. But some think these changes could prove dangerous.

William Galvin, secretary of the Commonwealth of Massachusetts and the most feared regulator in the securities industry, does not care for the Finra rule proposal.

“Finra claims that the proposed rule will strengthen investor protections, but it is not at all clear how investors will be protected by the removal of supervisory oversight,” Mr. Galvin wrote in a comment letter last April about the proposed rule. “The absence of proper oversight of outside business activities will increase the risk of fraud and abuse.”

Can financial advisers and the financial advice industry do anything to contain this problem?

Local investment advisers are often the best cops on the beat for detecting such frauds. Their knowledge often comes from clients who are being pitched such deals at “free” steak dinners that are provided to get them in the door for a presentation.

Advisers have the responsibility to report a suspicious private securities deal to their firm, said Mr. Chase, the former SEC attorney.

“If brokers get wind of these types of deals, they’ve got to go to the broker-dealer’s compliance department and report to the SEC or Finra,” he said. “They have the ability and obligation to report. There’s nothing wrong with putting these suspicious deals in front of regulators.”

BREAKING: Vescor Ponzi Mastermind Val Southwick Has Been Paroled

Val Southwick, who was convicted of defrauding more than $140 million from hundreds of Utah residents, was quietly paroled last month after serving just ten years, according to KSL News. He pleaded guilty to nine counts of securities fraud, each second-degree felonies, and was sentenced to serve anywhere from 9 to 135 years in Utah State Prison.

Apparently he was a model prisoner.

Mr. Southwick’s case was somewhat infamous in this state because at the time it was the largest Ponzi scheme in Utah history, and because he was so blatant in his use of his LDS faith to convince others to invest.

In its summary of the case the Utah Division of Securities alleged that Southwick “emphasized his membership and ecclesiastical roles in The Church of Jesus Christ of Latter-day Saints during solicitation of meetings with investors.”

“Southwick showed his LDS temple recommend, or mentioned its existence, to several investors, and his office contains LDS ‘memorabilia,’ all of which appeared designed to breed a sense of trust between Southwick and investors.” Investigators said Southwick touted himself as a “respectable LDS gentleman, who was more concerned about the consequences of the after-life than those in this life if he lied to investors.”

The receivership case was finally closed in 2011.

Stay tuned for more information.

FIVE QUESTIONS TO ASK BEFORE YOU INVEST

Whether you’re a first-time investor or have been investing for many years, there are some basic questions you should always ask before you commit your hard-earned money to an investment.

Question 1: Is The Seller Licensed?

Research shows that con-artists are experts at the art of persuasion, often using a variety of influence tactics tailored to the vulnerabilities of their victims. Smart investors check the background of anyone promoting an investment opportunity, even before learning about opportunity itself.

  • Researching brokers: Details on a broker’s background and qualifications are available for free on FINRA’s BrokerCheck website.
  • Researching investment advisers: The Investment Adviser Public Disclosure website provides information about investment adviser firms registered with the SEC and most state-registered investment adviser firms.
  • Researching SEC actions: The SEC Action Lookup – Individuals allows you to look up information about certain individuals who have been named as defendants in SEC federal court actions or respondents in SEC administrative proceedings.

If you are not sure who to contact or have any questions regarding checking the background of an investment professional, call the SEC’s toll-free investor assistance line at (800) 732-0330.

Question 2: Is The Investment Registered?

Any offer or sale of securities must be registered with the SEC or exempt from registration. Registration is important because it provides investors with access to key information about the company’s management, products, services, and finances.

Smart investors always check whether an investment 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.

Question 3: How Do The Risks Compare With The Potential Rewards?

The potential for greater returns comes with greater risk. Understanding this crucial trade-off between risk and reward can help you separate legitimate opportunities from unlawful schemes.

Investments with greater risk may offer higher potential returns, but they may expose you to greater investment losses. Keep in mind every investment carries some degree of risk and no legitimate investment offers the best of both worlds.

Many investment frauds are pitched as high return opportunities with little or no risk. Ignore these so-called opportunities or, better yet, report them to the SEC.

Question 4: Do You Understand The Investment?

Many successful investors follow this rule of thumb: Never invest in something you don’t understand. Be sure to always read an investment’s prospectus or disclosure statement carefully. If you can’t understand the investment and how it will help you make money, ask a trusted financial professional for help. If you are still confused, you should think twice about investing.

Question 5: Where Can You Turn For Help?

Whether checking out an investment professional, researching an investment, or learning about new products or scams, unbiased information can be a great advantage when it comes to investing wisely. Make a habit of using the information and tools on securities regulators’ websites. If you have a question or concern about an investment, please contact the SECFINRA, or your state securities regulator for help.

Editor’s note: This is a repost of an article from the SEC’s
investor education website. I have a more extensive checklist of my top ten ways to avoid getting caught in a financial scam that is still highly relevant today. If you have questions about an investment or knowledge of ongoing fraud please contact me.

More Legal Trouble for Zane Jeppeson

This is actually the third post I have written about a guy named Zane Jeppeson of Garland, Utah. My prior posts can be found here and here. Today’s update comes to us courtesy of The Leader out of Tremonton, Utah. Apparently Mr. Jeppeson is having a hard time getting his restitution paid and may go back to jail. Kudos to Judge Royal Hansen for keeping his feet to the fire.

Jeppesen granted more time to pay restitution

By Cari Doutre Leader County Editor Feb 13, 2019

Garland resident Zane Jeppesen has been given more time by a judge to pay restitution to victims in the amount of $488,830, extending his time to March 14, 2019. Jeppesen appeared before Third District Court Judge Royal Hansen on Thursday, Feb. 7, 2019, for an evidentiary hearing on one count of pattern of unlawful activity, a second degree felony.

On April 4, 2016, Jeppesen was charged with 11 counts of securities fraud, two counts of theft and one count of pattern of unlawful activity, all second-degree felonies. On July 7, 2017, Jeppesen entered into a plea deal with the state and plead guilty to one count of pattern of unlawful activity and the remaining charges were dismissed.

On Dec. 8, 2017, Jeppesen was sentenced to one to 15 years in the Utah State Prison but the term was suspended. Instead, he was sentenced to 30 days in jail, which he served. Jeppesen was also ordered by the judge to pay restitution to the investors in the previously mentioned cases in the amount of $488,830 within six months of his release, which would have been June 2018.

Jeppesen failed to make a court appearance on Sept. 28, 2018, an order to show cause. On Oct. 1, 2018, on an outstanding bench warrant issued by Third District Court in Salt Lake City. Jeppesen arrested and taken into custody in Box Elder County but was released later that day on a $25,000 cash only bail.

According to a probable cause document, from 2010 to 2014 Jeppesen raised approximately $555,000 from at least four investors and issued promissory notes to those investors. Jeppesen sold promissory notes on land in Saratoga Springs and Payson with the promise that the land was worth value and offered a promissory note and trust deed as security for the real estate development.

Court documents show that Jeppesen failed to tell these investors that he filed for bankruptcy in 2005 and was unable to pay back prior investors. The money from investors was spent on “Ponzi like payments to other investors” as well as transfers to family members, credit card payments, transfers to other bank accounts, electronic stores and bank fees.

The probable cause statement added that Jeppesen has never held a securities license and that Jeppesen’s company, Jeppesen Land and Property, has never been licensed or registered with the Utah Division of Securities.

Documents state that Jeppesen, in connection with the offer of sale of security, directly or indirectly, and made untrue statements or omitted facts in an act, practice or course of business which operated or would operate as fraud or deceit in violation of Utah state laws. The theft charges stem from Jeppesen’s allegedly obtaining or exercised unauthorized control over the property of another with a purpose to deprive them thereof.

This isn’t the first time Jeppesen has been charged with securities fraud. According to court documents Jeppesen was employed through Beverly Hills Development Corporation, a real estate development enterprise ran by Michael J. Fitzgerald of Utah County, from April 1998 to May 2004. In that time Jeppesen obtained a total of 134 Utah investors, many in Box Elder County, and raised approximately $8 million for Beverly Hills Development. During that time he was paid $986,563 in compensation from the company for his work raising investment funds.

There were at least 100 investors from Box Elder County, many of which from Tremonton and Garland that invested with Jeppesen before 2005. Investments ranged from as little as $380 to as much as $467,000.

In June 2018, the Utah Division of Securities of the Department of Commerce filed three different reports against Jeppesen, a Stipulation and Consent Order, an Order of Adjudication and a Findings of Fact, Conclusions of Law and Recommended Order, all highlighting Jeppesen’s pattern of securities fraud from six different investors starting in 2010 while adding two other incidents that left many Box Elder County residents out of millions of dollars.

According to these documents, the Division determined that Jeppesen, with Jeppesen Land and Properties, are subject to a $300,000 fine. In the stipulation and consent order, it states that JLP is a business entity that was incorporated in Feb. 2011, and is currently an active entity registered with the Utah Division of Corporations with LaDene M. Jeppesen, 92, (Jeppesen’s mother), listed as the registered agent and manager. Jeppesen Land and Properties has never been registered with the Division as an issuer of securities and found no records showing securities registration, exemption from registration or notice filing in any manner for JLP, according to these documents.

If he fails to make the payments to investors he may be sentenced to addition time in jail and/or prison. It has not been stated in court records if Jeppesen has made any restitution to victims.