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.

Two Convictions in the Mathon Ponzi Scheme

A long-running Arizona affinity-fraud case targeting members of the Church of Jesus Christ of Latter Day Saints took an important step toward conclusion with the conviction last week of  Guy Andrew Williams and his father Brent F. Williams.  In 2009 the Williams were indicted on 40 counts of conspiracy, wire fraud, mail fraud and money laundering and last week they were convicted of 38 counts in an action stemming from crimes targeting wealthy Mormons in Arizona and neighboring states beginning in 2002. The verdict capped a two-week trial conducted by visiting U.S. District Judge Jack Zouhary.

According to a 2005 article in the Arizona Republic,  the investments offered by Mathon Management Co. founders Duane Slade and Guy Andrew Williams seemed like can’t-miss deals.  The young investment stars courted clients and enticed savvy investors across the West to part with tens of millions of dollars.

Investors were promised annual returns as high as 120 percent secured by assets and prime real estate everywhere from the industrial belly of Baltimore to the bright lights of the Las Vegas Strip.  Investors, many of whom belonged the LDS Church, told investigators that they had confidence in Slade and Williams because they were former Mormon missionaries would steadfastly guard their clients’ money. Continue reading “Two Convictions in the Mathon Ponzi Scheme”

How Do Ponzi Schemes Get Started?

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?”

The Dangers of Being a “Finder” – Another Conviction in the VesCor Ponzi Scheme

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”

Man dupes friend, others out of more than money – ksl.com

This is a repost of a story that appeared yesterday on ksl.com.

December 16th, 2010 @ 7:33pm

By Jasen Lee

SALT LAKE CITY — For much of his life, Eric Nelson had been a person who saved and planned for his family’s future.

After doing so diligently for more than 20 years, he now finds himself trying to recover from “acute financial stress” brought on by his dealings with an admitted fraudster — a man who turned the lives of Nelson’s family and many others upside down by stealing tens of thousands of dollars from each, not to mention their hopes for better lives.

On Dec. 20, Fasi Filiaga Jr., 49, is scheduled to be sentenced after pleading guilty to four counts of securities fraud. In March, Filiaga was charged with misusing over $2 million in funds from investors, including Nelson, who believed they would receive high returns using trading techniques they would learn from Filiaga.

Nelson said he lost thousands, which has put an intense financial strain on his family, though he is “solvent.”

“I’ve put myself in a bit of a financial crisis (and) I’m still in it,” the 46-year old Lindon father of four explained. “With … some hard work I’ve been able to do some restructuring.” Continue reading “Man dupes friend, others out of more than money – ksl.com”

Former Mormon Bishop and Art Collector Will Spend 12 years in Prison

Today there was yet another article about an individual who held a position of trust in the LDS Church and used that position to commit fraud.  U.S. District Judge Marcia Krieger sentenced  Shawn Merriman to 12½ years in federal prison this afternoon 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.

One of my favorite parts of this story is the fact that before he was caught Mr. Merriman put together some sort of a traveling exhibit for his art called “The Renaissance of Faith in Art,” which included about two hundred prints by Renaissance artists including Rembrandt van Rijn, Albrecht Durer, Lucas van Leyden and Peter Paul Rubens.  The exhibit was primarily displayed in LDS wards and stake centers in Denver.  Even the Mormon Times wrote a glowing article about this guy and how his art collection promotes the Church.  He has now been excommunicated.

The SEC’s Complaint against Mr. Merriman can be read here.

Copyright © 2010 by Mark W. Pugsley. All Rights Reserved.

Former Stake President, Regional Representative… and Scam Artist

Ronald-Dean-Udy_mugshot.400x800R. Dean Udy, 71, a former stake president and regional representative in Brigham City, Utah was sentenced to 1-to-15 years in state prison last week on securities fraud charges.  He pled guilty to a scheme that ran for 12 years or more.  According to the article in the Ogden Standard Examiner, “Udy’s victims total 1,500, with an estimated loss of $20 million.”

Prosecutors alleged that Mr. Udy  “traded on his positions in The Church of Jesus Christ of Latter-day Saints, which included membership in a stake presidency and as a regional representative in Box Elder County” to gain people’s trust.  “People felt Brother Udy would never do anything wrong.”

So what is the lesson here?  If anyone uses their church position (explicitly or not) to gain your trust in connection with an investment pitch — run for the hills. Don’t trust anyone just because they are a church leader or even  a church member.   Do your homework and check out the individual, the company and everyone connected with the potential investment opportunity on the Utah Division of Securities, FINRA and the SEC databases.

Mr. Udy first entered into a Consent Order with the Division of Securities in 2002, but that didn’t slow him down.  He was then charged criminally in 2005 and pled guilty to two felony criminal counts in 2007.  However, that sentence was held in abeyance for 36 months after he agreed to pay full restitution to his investors and to provide accurate information to the State about those investors. But that didn’t happen, and it took several years for the judge to lose patience with him and send him to jail.

In June a federal grand jury indicted him and his son, Cameron, for charges alleging they ran a $11.4 million in bank fraud in Las Vegas, and they face trial on that charge in October.

Copyright 2010 by Mark W. Pugsley.  All rights reserved.

Clawback Lawsuits: How Investing in a Ponzi Scheme Can Bite You – Twice

Over the past several years I defended about sixteen clawback lawsuits that were brought by the Receiver in the $200 million Vescor Receivership here in Utah.  The unfortunate reality of these cases is that many investors in Ponzi schemes ultimately get sued by the Receiver — even though they thought they were victims.

Although they usually don’t realize it, investors who invest early in a long-running Ponzi Scheme often receive more money back than they put in because these schemes typically pay out high rates of interest.  They might think they lost money because their principal is gone, but in reality they more than made it up in interest payments over the years — made with new investors’ money. Continue reading “Clawback Lawsuits: How Investing in a Ponzi Scheme Can Bite You – Twice”