Posted by Mark Pugsley.

As part of the buildup for the Utah Fraud College event a great article entitled Know Your Frenemy appeared in Utah CEO Magazine yesterday. This is somewhat unique because unlike most of the educational efforts that target individuals, this article focuses on the harm that can come to businesses from fraud:

“Companies strive to build a trusted name and brand, and according to Hill, that sort of trust is just what perpetrators are looking to exploit. “You need a community of trusted friends in order to have affinity fraud,” he says. “All the things that make for a good community also make for affinity fraud.”

Discussing equity skimming schemes, which have been common over the past several years here in Utah, the article quotes Keith Woodwell, director of the Utah Division of Securities:

“A fairly common problem has been ‘equity skimming’ or ‘equity milling,’ where someone is buying an asset that is financed for more than it’s worth.” This has particularly been a problem recently for the state’s auto dealers. A common scenario is for the fraud perpetrator to convince someone to take out, for example, a $25,000 loan on a $20,000 car. “They tell them they’ll invest the extra money and use the money made from that investment to issue a monthly check to make the car payment,” Woodwell says. “What they tell you is that you essentially get a car for free.” However, the end result is usually that the person ends up owing $25,000 on a depreciating asset that was never worth more than $20,000 in the first place.”

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