Mark Pugsley’s Recent Interview on Mormon Stories

I was recently interviewed by John Dehlin who runs the “Mormon Stories” Podcast about affinity fraud in Utah.  This episode is available in audio only through John’s podcast, or you can watch the video below.


Episode 606: Mormonism and the Culture of Fraud with Attorney Mark Pugsley

Ponzi-scheme-1In this episode we interview Utah attorney Mark Pugsley.  Mark is a commercial litigator at Ray Quinney & Nebeker, is the founder of the web site UtahSecuritiesFraud.com, and has handled civil disputes, investment fraud cases, securities arbitrations, whistleblower cases and regulatory investigations for over twenty years.

In this episode, Mark discusses the culture of financial fraud (e.g., ponzi schemes) within Utah Mormonism.

For those interested, a list of past Mormon-related cases will be assembled here.  Please feel free to share links to other stories in the comments below.

Fraud Cases discussed in the podcast:

    1. Val Southwick of Ogden, Utah (SEC Complaint was filed in February of 2008). Southwick left $180 million owing to investors when his company collapsed and was put into receivership.  This Ponzi scheme lasted over 20 years.
    2. Jeffrey Mowen of Lindon, Utah (SEC Complaint was filed in September of 2009). Raised approximately $41 million promising bank-backed CDs from a New Zealand bank that paid returns as much as 33% per month.
    3. Roger Bliss of Bountiful, Utah (SEC Complaint filed in February of 2015). Investors incurred losses of $3,299,689 relating to an “investment club” he ran out of his large Bountiful home. He told investors that he had achieved annual returns of between 100 to 300%.
    4. Dean Udy of Brigham City, Utah (Sued by State of Utah in August of 2012). Udy scammed approximately 1,500 investors who suffered a total  estimated loss of $20 million. He was a former stake president and regional representative in Brigham City, Utah.
    5. Travis Wright of Holladay, Utah (SEC Complaint was filed in 2010). He raised $145 million from 175 investors promising returns of 24% per year.
    6. John S. Dudley of Sandy, Utah. (US Attorney obtained a 17-count criminal indictment in May 2011) Investors suffered $6.8 million in losses, promised returns of 5-10% per month.
    7. Shawn Merriman of Denver Colorado (SEC Complaint filed in April of 2009). He was sentenced to 12½ years in federal prison for defrauding 67 victims out of $21 million.  Merriman was a Bishop in the LDS Church in Colorado and raised the money from friends, neighbors and fellow church members.  The government seized roughly $4 million in fine art, antique cars, sports memorabilia and animal trophies collected on his safari trips when they arrested him.
    8. Wendell Jacobsen of Fountain Green, Utah (SEC Complaint was filed in December of 2011, Utah AG’s office brought criminal charges earlier this year)  Allegedly raised $200 million from more than 400 investors promising returns of 12-15% per year returns by investing in apartment complexes.

Why Were So Many Madoff Victims Jewish?

This is a repost of an article by Harold Pollack that appeared in the Atlantic Monthly this week.  This has lots of relevance to the issues we deal with here in Utah; insular religious communities are a real hotbed for affinity fraud.  In fact, there is a reference to Utah’s unique affinity fraud problem and a reference to the “Fleecing the Flock” article about affinity fraud in Utah that appeared in the Economist several years ago.


Why Were So Many Madoff Victims Jewish?

The trust people tend to feel toward others in the same ethnic, racial, and political groups makes them easy targets for scammers.

Last week’s ABC mini-series chronicled the most famous financial fraud in recent American history: Bernard Madoff’s $50 billion Ponzi scheme, which devastated elite institutions and families of the American Jewish community. The scale of Madoff’s crimes was breathtaking. There’s much to be said about his crimes—not least about the incompetence of the regulatory apparatus that failed to stop him despite repeated warnings and what researchers Greg Gregoriou and Francois Lhabitant quite appropriately called “a riot of red flags” over many years.The tragedy itself was also its own sort of warning. Madoff’s victims were not a random assortment of the well-off; he decimated a segment of the wealthy Jewish community and several Jewish charitable organizations. Knowing the general magnitude of Madoff’s crime, I’m still taken aback by the particulars, which betray Madoff’s lack of conscience and any sense of limits. He wiped out Elie Wiesel’s life savings, and stole $15 million from Wiesel’s foundation. Madoff defrauded Hadassah. Who defrauds Hadassah? That’s like mugging your grandmother.
 Such crimes would not have been possible without the cultural ease and social entre Madoff enjoyed in the Jewish community. To put a name on things, this was one of the worst affinity frauds in Americans history, whereby unscrupulous people exploit their cultural connections and people’s communal identities to rip them off. In that sense, Madoff’s crimes were a warning to everyone about how in-group feelings of trust leave people vulnerable.
Affinity fraud is depressingly common. My own incidental exposure would be comical if the stakes weren’t so serious. I happen to live in a majority African American neighborhood in south Chicagoland. Although you wouldn’t know it to look at me, marketing algorithms based on my street address and some of my purchases apparently reveal that I am a middle-aged, middle-class African American man.Based on that identification, I get an impressive volume of sales pitches. If the letters, Facebook ads and robo-calls are to be believed, President Obama is obsessed with refinancing my mortgage. Our 44th president particularly wants me to take out a 15-year loan, one much better than what can be found at the bank. He also wants to sell me health insurance and some other things, which would be good for me, and good for the community. Many such deals offer a low interest rate, and are targeted to people in fear of losing their homes. But then they charge hidden or opaque fees for “refinance consultations.” Some ask for people’s home titles or pose as intermediaries, falsely promising to make payments to the actual lenders. The details vary, but purveyors of such sales pitches hope that their too-good-to-be-true offering will go down easier when combined with appeals for political or ethnic solidarity.I sometimes chuckle when I hang up after fielding such a sales call. But there’s nothing funny about efforts to defraud people or to deceptively market products by exploiting people’s personal and communal ties. In light of the empty houses and fading for-sale signs not far from my front door, such pitches are especially terrible, as they purport to offer a way out to many people in deep financial difficulty.
 Other communities face similar challenges. In the lead up to the foreclosure crisis, unscrupulous lenders deployed Spanish-speaking saleswomen to target recent immigrants. Once they won consumers’ trust with a persuasive sales pitch, lenders presented consumers with incomprehensible English-language financial documents that often steered people into risky, overpriced, or fraudulent loans. In other cases, con artists offer to help immigrants of the same nationality, and use the opportunity to obtain people’s Social Security numbers and other financial information, which is then used for mortgage fraud.
Pretty much any powerful connection humans make with others provides some correspondingly powerful opportunity for affinity fraud. Here in Chicago, an ex-Marine exploited his service ties to defraud fellow veterans. Affinity fraud is an issue within the LGBTQ community, as well. A terrific Economist story, aptly titled “Fleecing the Flock,” quotes an Alabama regulator’s estimate that half the affinity frauds in that region arise in religious communities.
It’s easy to see why. Such communities’ intimate ties of faith and mutual trust create particular vulnerabilities. Traditions such as tithing normalize provision of substantial resources to co-religionists whose financial acuity and probity may be difficult to fully discern. The Church of Latter Day Saints has experienced such a spate of cases that the Economist noted the “hook of Mormon” as a distinctive concern.As those Obama mortgage pitches suggest, political tribalism provides another potent opportunity for connection—and thus fraud—in a polarized nation. Right-wing talk radio, for example, features an array of advertising for dubious financial products, whose sales pitch conveniently matches the programs’ scaremongering regarding economic policy. Glenn Beck’s connection with Goldline was one notorious example of such products. Beck’s program relentlessly depicted an American economy on the verge of hyperinflation and collapse—an apocalypse naturally hastened by Barack Obama and other liberal political leaders. During commercial breaks, Beck’s audience was then conveniently exposed to Goldline, a purveyor of dicey gold investments.
Perpetrators of affinity fraud seeking to win our trust do the most lasting damage when they recruit community leaders as explicit or implicit endorsers. Some seek to provide a sense of status or peer pressure through nominally exclusive opportunities to join them. Madoff wouldn’t let just anyone invest in his closed funds. Many practitioners of affinity fraud imply that they have secret and timely information, which can turn into serious money if one acts quickly and discreetly.Practitioners of affinity fraud subtly exploit a community’s distrust of outsiders to discredit alternative sources of information. It becomes a mark of collective identity to spurn conflicting information and advice. Of course the lame-stream liberal media looks down on us for putting so much of our retirement savings into gold. Of course the same Washington experts trying to cut Social Security and Medicare look down on this variable annuity which might plug the holes in your retirement plan.
It’s ironic: The most cynical and distrustful among us are often the easiest marks.The weird information economics of herding also matter. You entrust your money with someone. Many people you know are doing the same thing. Each of you hopes and believes that someone has done the due diligence regarding these investments. If no one actually has, how would you know? After a while, it’s embarrassing to even ask.Whatever public policymakers do to address these problems, individuals should be especially skeptical of any financial product embraced by influential people in their religious, cultural, or political communities. Given such realities, it’s a mistake to allow personal familiarity, community affiliation, or time pressure to become a substitute for proper written contracts and the same due diligence one would apply to any stranger selling investment products or advice.In the end, any person’s best protection against affinity fraud is to avoid complex or speculative investment products offered by anyone, since even the honestly-offered fancy investment products very rarely provide much benefit. Following a simple investment plan is pretty boring. It remains the best bet. Once Americans internalize the reality that vanilla stock-and-bond index funds basically outperform everything else, and that vanilla  fixed-rate mortgages are the safest way to get a loan, they’ll save themselves a lot of time. They just might save themselves a lot of heartache, too.

Red Flags Galore: The SEC Sues Roger Bliss of Bountiful Utah for Fraud

There is a relatively new SEC case that definitely needs to be added to my growing list of Utah affinity fraud schemes.  On February 11, 2015, the Salt Lake City office of the U.S. Securities and Exchange Commission filed a lawsuit and obtained a temporary restraining order against Roger S. Bliss of Bountiful Utah.

This case has all of the hallmarks of a fraudulent scheme, but unfortunately a number of Bountiful residents (probably many were his ward members) lost their retirement savings because they failed to see – or worse ignored – all the red flags.

The SEC Complaint alleges that Mr. Bliss operated an “investment club” out of his large Bountiful home.  Members of the “club” would contribute funds for Bliss to day-trade Apple (AAPL) stock for what he represented to be huge profits.

Bliss allegedly told his friends and neighbors that he had an excellent trading record and had never lost money in the last six years [red flag]. Bliss told interested investors that he had achieved annual returns of between 100 to 300% [red flag], and claimed to be managing in excess of$300 million, $260 of which was his own money. Bliss also claimed there is no risk for investors [red flag], and guaranteed they would not lose their principal investment [red flag].

He told people that he taught investment seminars and traded for his own account for about a year until he felt comfortable enough with his proficiency and results to trade with his friends’ money.  And what a great friend he turned out to be…

He called his scheme an investment club (purportedly after consulting with an attorney) because he wanted to avoid being registered as a stock broker or investment advisor.  This is a big red flag — anyone who claims he or she can buy and sell securities on your behalf without being licensed and regulated by FINRA or the SEC is clearly violating the law.

According to the complaint, Bliss represented to investors and potential investors that when he traded their money he would take “50% of the upside” so that earnings on their investment are split.   The remaining 50% of profits were to be shared among investment club members, based on their percentage of equity in the club.  So even after the 50% split, Bliss promised investors would earn at least a 100% return on their investment because Bliss he was actually earning a 200% to 600% total annual return on his trading activities [huge red flag].  He told investors that his average profits were about $920,000 per day, and that he was averaging profits of over $2 million per day during 2015 in his investment club. [red flag]

Of course none of this was true.  According to brokerage records obtained by the SEC, Bliss lost $3,299,689 over the last three years of trading, and much of the money he received from his “club members” never even made it to his brokerage account.  The ending balance on his December 31, 2014 brokerage statement was just $32,362 — far less than the $300 million he told people he was managing in the “investment pool.”

Of course he could not show people the real trading records, so the SEC alleges that he created fake trading records and account statements that showed successful trading.  Bliss provided a fake account statement to one investor that showed a balance of over $85 million in the account. The statement showed a profit of over $4.9 million for the first 5 trading days of 2015.

So the question is WHY.  Why would so many good trusting people give this man their hard-earned money when the claims he was making were so obviously too good to be true?  Why did these people fail to consult with authorities such as the Utah Division of Securities or the SEC to find out whether his scheme was a scam?

I think the answer is simple: Greed.  People get so excited about the prospect of outrageous profits like the ones promised by the ironically named Mr. Bliss that they jump in head first without researching the investment opportunity.  And people in this state are far too trusting.  Just because someone shares your religion does NOT mean they can be trusted with your money.  Research the investment opportunity carefully and remember that if it seems to good to be true (such as 200% to 600% annual returns) it almost always is.

If you are a victim of Mr. Bliss’s scam please feel free to share your story anonymously in the comments below.

Copyright 2015 by Mark W. Pugsley.  All rights reserved.

The SEC says Utah investors are too trusting

This article by Caleb Larkin appeared in the Ogden Standard Examiner on June 8, 2015:

SALT LAKE CITY – The Securities and Exchange Commission (SEC) in Salt Lake City reports Utahns tend to invest in Ponzi and other financial fraud schemes at a higher rate than most states.

The SEC has 12 office locations nationwide that cover multiple states. Most offices appear in financial centers and cover a huge population. So why does Utah get its own dedicated office?

Karen Martinez, the regional director for the Salt Lake City SEC office, explained it may have to do with the historical significance of the site. “Salt Lake used to have an exchange, as a mining and railroad capital. That’s when the SEC office was created,” Martinez said.

However she also noted other offices have become obsolete, such as Seattle. Utah’s office may still be operating because of a higher need in the area.

The SEC enforcement office in Salt Lake City most often handles investor fraud cases. “Primarily our goal is investor protection,” Martinez said.

She acknowledged Utah has a large number of fraud cases they handle, specifically affinity fraud. Affinity fraud refers to investment scams that take advantage of specific social groups, religious affiliations, races, or ethnicities. One example of affinity fraud in Utah involved a deaf scammer who targeted deaf investors.

“Utahns tend to be a close-knit community,” Martinez said. “Unfortunately we tend to be very trusting of those who share common traits with us.”The Salt Lake office even handles out of state affinity fraud cases because of their experience as well as the fact that investors can live all over the country.

money-4Cheryl Mori, Martinez’s senior advisor, highlighted Roger Bliss’ case filed in February. Bliss, from Bountiful, told investors he was making a 600 percent increase each year trading Apple stock. He offered investors 50 percent on the profit returns. Members of his “investment club” simply looked at his affluent standing, his nice car, his family, and his church attendance to make a judgment.

“You know if that the little voice inside your head says this is too good to be true, it is almost always right!” Martinez said. Bliss lost more than $3 million trading. He retained almost nothing for investors to reclaim by the time they brought the case to the SEC.

Martinez explained they try to move quickly on large cases to freeze assets and save investors’ funds. However most fraudulent investment advisors burn through funds before the case reaches the SEC. The SEC’s Office of Investor Education creates public awareness on different investor topics to protect Utahns before they succumb to such schemes.

The SEC in Salt Lake City files between 20 and 25 cases each year. Most claims average $25 million in fraudulent damages. Martinez explained many of the tips from investors will lead to quick resolutions from a simply phone call. Most long-term cases the Salt Lake office deals with focus on bribery investigations. A common issue is US companies bribing foreign government officials for a favorable business standing in their country. The SEC, however, also handles many ongoing, non-public, cases.

“We are getting more and more focused on investment advice for retirees,” Martinez said.

She explained the increased focus on retirement funds leads to bad advisement on retirement investments. One specific example she noted is with military and government employees. Brokers often offer bad investment advice to this group or fail to give full disclosure.

Charges range from interface fraud, as the most severe, to technical violations such as failing to register a security. A security in financial terms refers to a mutually beneficial agreement to trade financial assets. Some charges require proof of “intent to deceive.” Others are negligence based charges that come about when a broker fails to make all materials known or didn’t perform their due diligence.

Utah’s trusting culture puts investors at a disadvantage. Martinez believes “Utahns need to be vigilant. They need to do their homework. They need to research the individuals who offer investment advice.”

Repost: Affinity fraud continues to plague Utahns and Mormons

This is a great article by Donovan C. Baltich that appeared on July 16, 2014 in BYU’s newspaper The Daily Universe:

The case of a Davis County man wanted for an alleged scheme that officials say took the life savings of Utah residents and brought in tens of millions of dollars shows the vulnerability of Utahns to financial scams. The 63-year-old suspect, set for an initial court hearing in July in Salt Lake City, is alleged  to have used the cachet of two Utah institutions — the LDS Church and the Boy Scouts of America — to bilk his victims.

Confidence between members of a religious group has its drawbacks when used by confidence-men, or ‘conmen.’ When a fellow member of a ward, cultural group, neighborhood or school builds affinity and then exploits that trust to profit from it, it’s known as affinity fraud.

The state with the highest rate of affinity fraud is Utah, where more than 60 percent of its population belongs to the LDS Church. The FBI calculates that there were more than 4,400 victims in 2012 with a net loss of $1.4 billion. It’s not that LDS Church members and Utahns haven’t been warned. In 1982, then BYU President Jeffrey R. Holland warned students about such schemes. Warnings have appeared many times over the years in conferences and church publications with a similar theme — if it sounds to good to be true, it probably is.

“I was working … on the BYU—Hawaii Campus only to open the Sunday edition of the Honolulu Advertiser to read this headline: ‘Mormon Utah called a test market for scams,’” Elder Holland said. “‘Utah’s large Mormon population has become a prime target for con artists and swindlers.’”

Many cases of fraud were revealed in the 1980s because of economic decline. Fraud skyrockets when the economy booms, but it is exposed in downturns. The highest case profile of affinity fraud in history was exposed during the recent great recession. This was the case of Bernie Madoff, who used his affiliation as a Jew to target the Jewish community.

“There’s also a mentality … that if we’re righteous we’re going to get wealthy … so when we hear about somebody in the community, our friend or some church leader, who has some great investment we think, ‘Well that’s a blessing for us and we’ve paid our tithing and so forth,’” Zimbelman said. “They decide they don’t need to do their homework because someone else is in it that they trust.” Zimbelman is BYU’s expert on financial statement fraud. He discusses the reason why members of the LDS Church often fall prey to con artists.

Affinity fraud affects victims on a large scale but also has local applications. Travis Hardin, a BYU student, lived at the Riviera Apartments during Fall 2010 semester. One of his roommates was charismatic and claimed to be a BYU basketball player. He was popular within his apartment complex and the Helaman Halls community, but his fame came crashing down when another roommate exposed him.

“You just didn’t realize that his real life was showing through the whole time,” Hardin said. “Everything was a lie; he even lied about what his last name was.”

Hardin’s fraudulent roommate had previously served time in prison for committing check fraud. He invited Hardin and others to move into a house with him. He even collected down payments from them, but the house never actually existed.

Fasi Filiaga Jr., a member of the LDS Church, ran a company called Spread Trade Systems, an organization that taught individuals how to invest in stocks and options. He ran his seminars via the Internet, bringing in students from all over the nation and from various religious denominations.

Over a series of years, a relationship of trust flourished between Filiaga and his students. He then invited them to take part in his investment management group. They would give him money, and he would invest it for them.

One particular student, Eric Nelson of Utah County and also a member of the LDS church, remained skeptical of Filiaga’s investment group, even though their commonality as Mormons helped Nelson relate with Filiaga. Nelson studied the company and attended the investment meetings for a full year before he and his wife decided to invest.

“It was a fraud from the beginning. The money given to Fasi was never invested; it went to him and his company,” Nelson said.

Over the duration of his investment group, Filiaga swindled $2 million out of his students. Filiaga was not charged for his crimes until Nelson and other victims filed a class-action lawsuit against Filiaga. As a result, Filiaga is serving time in prison. Con artists often say their investments will bring returns of more than 20 percent in a quarter and that one should act fast.

“If you know where the treasure is, you’re not selling maps to show people how to find the treasure; you’re digging up the treasure yourself,” Zimbelman said. “Any kind of return like that, any kind of outrageous interest rate (20 percent), is … virtually guaranteed that it’s a ponzi scheme.”

In 2011, Utah’s governor signed an affinity fraud bill into law. Its aim is to exact harsher penalties on those who exploit confidence against vulnerable adults, like the elderly or mentally handicapped. As fraud is usually exposed in times of economic downturn, data is unavailable to show the effects of the law.

“It’s too early to tell if the law deters affinity fraud; we don’t have a large enough sample size yet,” said Keith Woodwell, director of the Utah Division of Securities. “The bill doesn’t work retroactively, but we’ve had a handful of cases since 2011 that have had harsher penalties applied.”

As measures are taken to deter fraudulent activities, it is ultimately up to individuals to steer clear. Zimbelman advises people to do their homework, to diversify their portfolios and when propositioned with an investment opportunity to think, ‘why do they want me?’ and ‘how do they make their money?’ When investment opportunities sound to good to be true, they usually are.

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”

Guest Post: An Inside Story of Utah Fraud

Editor’s Note: This is a guest post by a person whose father was convicted of securities fraud in Utah.  All identifying information has been removed to protect the author’s identity.  The opinions in this post belong solely to the author.

 

It’s no secret tarrest-manhat securities fraud is a mounting problem in Utah, where the faith and trust of LDS congregations is second to none. Possibly a picturesque place to raise a family, but it’s also a bright, shining beacon for any good con man looking to take advantage and make a few (million) easy bucks. I should know, my father was one.

As a child, I had little to no idea what my father’s line of work was. We were always told he was “a consultant.” What matters might he consult on? We had no idea. “Something with computers” was the usual answer, since the internet boom was in its infancy and not many people would have the know-how to question it. (That’s a tell-tale sign of a con: vague descriptions, few specifics, and an air of “Oh you wouldn’t know about it…”) Continue reading “Guest Post: An Inside Story of Utah Fraud”

Ward Financial Clerk Alan Oviatt Sentenced for Defrauding Ward Members in St. George

This is a repost of an article that appeared in The Spectrum yesterday about the sentencing of Alan Herbert Oviatt.   There is also a civil case pending before the Utah Division of Securities that could result in additional civil fines and penalties.

St. George resident sentenced for theft

Written by Kevin Jenkins
Oct. 22, 2013 | thespectrum.com

ST. GEORGE —A St. George resident convicted of stealing more than $100,000 from a fellow church member whose $700,000 investment was otherwise depleted through a failed series of online trades was sentenced to jail time and a court order to repay the victim Tuesday.

Alan Herbert Oviatt, 56, was found guilty of felony theft in August after a jury found him guilty of taking $123,000 from the investment without authorization at a rate of about $6,000 per month. The victim, Steve Hansen, recovered $77,115.99 still remaining in the investment account after the theft was discovered in 2010, but the remainder of the investment was lost in the market.

“You lost over $500,000 of my money because you had no expertise. …Did you think it was going to make my day by stealing $123,000 more?” Hansen asked.

Hansen and his wife, Wendy, told 5th District Court Judge Jeffrey Wilcox that they wanted Oviatt to be sent to prison for the maximum amount of time possible because they don’t believe he will ever repay them and to send a message to the public that “crime doesn’t pay.”

Wilcox sentenced Oviatt to the statutory amount of time for a second-degree felony —between one and 15 years in prison and a fine of $10,000 —but the judge set the sentence aside in favor of 36 months of probation and 120 days in the Washington County Jail to be served on weekends and holidays, starting Friday.

“I don’t want you to see this as being lenient,” Wilcox told the Hansens. “I do want Mr. Oviatt to be (making payments) and there’s no way to do that if he’s in prison or in jail.”

Wilcox ordered Oviatt to repay the $123,000 at a rate of $1,000 per month, which Oviatt’s attorney, Jay Winward, said his client would be able to do based on his expectation of income from a $4,000 a month job.

Deputy Prosecutor Zachary Weiland challenged the income figure, noting he’d contacted the purported employer earlier in the day and was told “nothing’s set in stone yet.” Weiland also noted that Oviatt claimed to have been working in information technology but the Internet-based health product company he’d cited as an employer “is nonexistent.”

Wilcox accepted Winward’s argument that if Oviatt fails to make the $1,000 monthly payments then the court can lift the stay on the sentence and send Oviatt to prison, however.

Hansen said he and Oviatt met each other as fellow members of The Church of Jesus Christ of Latter-day Saints while Hansen was serving as a financial clerk in his ward and Oviatt was a clerk in the umbrella stake unit.

Oviatt learned Hansen had lost money in a prior investment and took advantage of their acquaintance to build Hansen’s confidence that Oviatt could do a better job because he had successfully handled large amounts of money as a licensed options trader, claims that later proved to be false, Hansen said.

Oviatt also claimed to have had enough of his own money to make an offer on a nearly $2 million home promoted in the local Parade of Homes, Hansen said. On the other hand, Oviatt failed to mention a series of financial problems, including two bankruptcies, he had experienced during the previous decade.

Hansen said their agreement, which he had in writing but without signatures, included a plan that Oviatt would stop the trades if 50 percent of the investment was lost, and would not take any money unless the investment earned more than a 20 percent return.

A state Securities and Exchange Commission case against Oviatt is pending, stemming from the complaint.

“I believe you started grooming me right from the start. You knew our financial situation,” Hansen said in comments directed to Oviatt.

Hansen blasted Oviatt’s claims during the trial that the two were partners in a business run by Hansen, that Hansen was a “sophisticated investor” who enjoyed taking big risks, and that there was no formal agreement regarding the investment.

“You lied on the stand (in court) when you said you never came to my house. …I was surprised at how easy it was for you to raise your hand to the square and swear to tell the truth, and then lie your guts out,” Hansen said.

Oviatt and his wife read statements directed to the Hansens acknowledging Oviatt’s remorse and responsibility for the family’s loss. Oviatt expressed gratitude to arrive at a resolution of the case after more than three years of court proceedings.

“I look forward to my sentence,” he said.

Michael Dee Madsen of Herriman, Utah Charged with Securities Fraud

Below is an article that appeared in The St. George Spectrum yesterday.  The alleged losses are relatively small so it has not garnered the attention of the press here in Salt Lake City, but the facts are important because they illustrate the modus operandi of guys like this.  The facts alleged in the indictment are a  classic affinity-fraud scheme – Utah style.

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Alleged con man appears in court

Written by Kevin Jenkins

ST. GEORGE —A Northern Utah resident accused of conning a St. George woman out of her retirement savings by using a relationship of trust within his church congregation and purported signs from God made his initial appearance Tuesday in 5th District Court.

Michael Dee Madsen, 37, of 4971 W. Buffalo Court, Herriman, is charged with felony counts of unlawful dealing of property by a fiduciary, theft and securities fraud, as well as a misdemeanor count of doing business without a license.

Madsen said he plans to retain a Utah County attorney who is representing him and his wife, Indra Charlese Madsen, on unrelated charges there. Madsen has been charged in Utah County with theft, communications fraud, unlawful use of a financial card and a racketeering count of pattern of unlawful activity. Continue reading “Michael Dee Madsen of Herriman, Utah Charged with Securities Fraud”

UPDATED: Yet Another Local Ponzi Scheme Indictment – Newport Financial

UPDATE: According to an article in the Salt Lake Tribune yesterday, Michael Kay Smith, 66, and his son, Quintin Fullmer Smith, 33, each pleaded guilty to two counts of third-degree felony attempted securities fraud as part of a plea deal with prosecutors in which four second-degree felony counts of securities fraud and one count of pattern of unlawful activity were dismissed.  The two men each face up to 10 years in prison when they are sentenced in 3rd District Court in September. 

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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 “UPDATED: Yet Another Local Ponzi Scheme Indictment – Newport Financial”