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.

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