Posted by RQN.

In the last two days the SEC has filed two new cases against two more Utah-based companies and individuals who are alleged to have engaged in Ponzi Schemes.

On March 23, 2011, it filed a complaint against Mike Watson Capital, LLC, a company based in Provo, Utah. The SEC also named Michael P. Watson, a resident of Mapleton, Utah, and Joshua F. Escobedo, a resident of Spanish Fork, Utah as defendants. According to its press release the SEC has alleged that Watson and Escobedo “raised more than $27.5 million from more than 120 investors through Mike Watson Capital’s issuance of promissory notes… Watson and Escobedo told investors that returns were generated by real estate investments, and backed by substantial equity and cash flow produced by company properties. In reality, the properties never generated sufficient income to cover investment interest or redemptions, and therefore investor returns were paid primarily from new investors’ funds.” The SEC alleged that the company owes more than $19 million in unpaid principal and interest on its promissory notes to investors, its real estate portfolio has tanked, and commercial banks have foreclosed on at least nine properties. This one looks pretty grim for the people who initially invested $27 million of their hard-earned money with these two Utah County guys – and for those of you who received part of the $9 million they paid back to investors, you may find yourselves named in a clawback lawsuit. Yes, everyone is a loser in these cases. Interestingly, the Washington State Department of Financial Institutions brought charges against these same guys nearly a year ago.

In yet another case filed yesterday in the United States District Court here in Utah, the SEC sued Scott Clark, and two businesses he ran called Impact Cash and Impact Payment Systems. The SEC complaint alleges that between 2006 and 2010 Clark raised more than $47 million from over one hundred investors. Some of the investors believed they were buying stock in the company itself, but the majority of the victims were told that their capital would be used to fund the loans. Clark told investors that his companies generated revenues of at least 80% per year. The SEC alleges that Clark used investor funds to buy three Mercedes Benzes, a restored 1963 Corvette, a $25,000 home theater system, expensive furniture, bronze statuary and snowmobiles. It is unclear whether the investors will be able to recover some or all of their investments; this is the type of case where a Receiver is often put into place. The only thing that is unique about this Impact Cash case is that Mr. Clark and his companies were all based in Logan, as opposed to Utah County where most of these schemes seem to occur. The Salt Lake Tribune story about this case can be found here, and as usual the reader comments are entertaining.

The total investment in these two schemes, much of which came from the good citizens of the State of Utah, was $74 million.

© 2011 Mark W. Pugsley, all rights reserved.

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