Another Religion-based "Affinity Fraud" Case in Utah

[smac97]

Here:

Quote

Two Utah men who met while in prison for orchestrating unrelated securities fraud schemes have been charged by the SEC with new schemes that cost investors nearly $11 million, the SEC announced today.

The SEC also charged two other Utah men and a Utah company for their involvement in the fraud. The defendants agreed to settlements without admitting guilt or innocence. One defendant also pled guilty to criminal charges, was sentenced to five years in prison and ordered to pay restitution of more than $10 million.

Affinity fraud is far from unique to Utah.  But the large number of church members there mean that affinity fraud in Utah will almost always include deceptions based on (purported) shared membership in the Church.  

From the SEC Website:

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What is an Affinity Fraud?

Affinity fraud refers to investment scams that prey upon members of identifiable groups, such as religious or ethnic communities, the elderly, or professional groups. The fraudsters who promote affinity scams frequently are - or pretend to be - members of the group. They often enlist respected community or religious leaders from within the group to spread the word about the scheme by convincing those people that a fraudulent investment is legitimate and worthwhile. Many times, those leaders become unwitting victims of the fraudster's ruse.

These scams exploit the trust and friendship that exist in groups of people who have something in common. Because of the tight-knit structure of many groups, it can be difficult for regulators or law enforcement officials to detect an affinity scam. Victims often fail to notify authorities or pursue their legal remedies and instead try to work things out within the group. This is particularly true where the fraudsters have used respected community or religious leaders to convince others to join the investment.

Many affinity scams involve "Ponzi" or pyramid schemes, where new investor money is used to make payments to earlier investors to give the false illusion that the investment is successful. This ploy is used to trick new investors to invest in the scheme and to lull existing investors into believing their investments are safe and secure. In reality, the fraudster almost always steals investor money for personal use. Both types of schemes depend on an unending supply of new investors - when the inevitable occurs, and the supply of investors dries up, the whole scheme collapses and investors discover that most or all of their money is gone.

The website goes on to offer suggestions on how to avoid affinity fraud:

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• Check out everything - no matter how trustworthy the person seems who brings the investment opportunity to your attention. Never make an investment based solely on the recommendation of a member of an organization or religious or ethnic group to which you belong. Investigate the investment thoroughly and check the truth of every statement you are told about the investment. Be aware that the person telling you about the investment may have been fooled into believing that the investment is legitimate when it is not.
• Do not fall for investments that promise spectacular profits or "guaranteed" returns. If an investment seems too good to be true, then it probably is. Similarly, be extremely leery of any investment that is said to have no risks; very few investments are risk-free. The greater the potential return from an investment, the greater your risk of losing money. Promises of fast and high profits, with little or no risk, are classic warning signs of fraud.
• Be skeptical of any investment opportunity that is not in writing. Fraudsters often avoid putting things in writing, but legitimate investments are usually in writing. Avoid an investment if you are told they do "not have the time to reduce to writing" the particulars about the investment. You should also be suspicious if you are told to keep the investment opportunity confidential.
• Don't be pressured or rushed into buying an investment before you have a chance to think about - or investigate - the "opportunity." Just because someone you know made money, or claims to have made money, doesn't mean you will, too. Be especially skeptical of investments that are pitched as "once-in-a-lifetime" opportunities, particularly when the promoter bases the recommendation on "inside" or confidential information.
• Fraudsters are increasingly using the Internet to target particular groups through e-mail spams. If you receive an unsolicited e-mail from someone you don't know, containing a "can't miss" investment, your best move is to pass up the "opportunity" and forward the spam to the SEC at enforcement@sec.gov.

The Wikipedia article on this topic gives a number of examples of different types of "affinity" that have been used to advance fraudulent schemes, including "private school social circles," "Armenian-American community," "African American {community}," "African-American churches," "African-American Baptists," "Latin American investors," "various Christian churches," "Texas senior citizens," "the so-called 'Jewish circuit' of well-heeled Jews he met at country clubs on Long Island and in Palm Beach," "English-speaking elderly in Quebec," and . . .

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A 2012 article in The Economist reports that Utah is believed to have the highest per-capita rate of affinity fraud in the U.S. due to about two-thirds of the state's residents being members of the LDS Church among whom such crimes tend to flourish. Authorities estimate affinity fraud cost Utahns an estimated $1.4 billion in 2010 alone, an average of about $500 per resident. Salt Lake City attorney Mark Pugsley (who specializes in representing white-collar fraud cases) reports that Utah County is the hotbed of financial fraud in the state, particularly the roughly 25-mile corridor from Alpine through Provo. Pugsely suggests a number of factors explain the high rates of affinity fraud in Utah, including members of the LDS Church (also known as Mormons) tending to be overly trusting of those who are or present themselves as members of the church's leadership and thus failing to conduct standard due diligence for investments. In 2017, a statement from the FBI noted that Utah consistently ranked high in the states with "the most significant white-collar crime cases" and that Utah state legislature established an online registry for convicted fraudsters, hoping to prevent repeat offenses and inform the public.

We really need to work on this.  Members need to be very cautious, do a lot of due diligence, not be taken in by claims of unrealistic profits, and get everything in writing.  

Back to the SEC article:

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The alleged fraud centered around selling shares in a high-yield trading program that were advertised as paying 20% to 50% in returns per month, the SEC complaint said. In reality, the investors’ money was used to pay earlier investors and to pay personal expenses of the defendants, the complaint said.

Classic.  Absurd rate of return + affinity + ponzi payoffs = loss of lots of money.

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According to the SEC's complaint, Thomas J. Robbins of Heber City and Daniel J. Merriman of Kaysville met while incarcerated for separate and unrelated securities fraud convictions. After they were released, they created a proprietary, algorithmic trading program. Starting in 2016, the two solicited investor funds through a series of misrepresentations about the program, including that the Church of Jesus Christ of Latter-day Saints was an investor. They used alleged connections to the church to solicit new investors, the complaint said.

Robbins and Merriman told investors that Robbins had a “spiritual revelation” in 2008 about an exclusive algorithm for trading currencies, commodities, indices, stocks, bonds, ETFs, and other instruments but could not bring the vision to reality until 2011, when the technology caught up to his vision, the complaint said.

Oi.  Someone claiming "spiritual revelation" on making money.  

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In 2017, the complaint alleges, Robbins and Merriman, together with Clark J. Madsen and Mark W. Wiseman, both of Sandy, Utah, devised a new scheme to fraudulently sell millions of shares of stock in ConTXT, a technology company founded by Madsen. Because Robbins and Merriman were convicted felons, their involvement in ConTXT was concealed, the complaint said.

The complaint alleged that Robbins, Merriman and Wiseman lied about the use of investor funds, misrepresented ConTXT's financial condition, and misappropriated investor funds for their personal benefit. The SEC complaint filed in U.S. District Court for the District of Utah charged all defendants with fraud and charged Robbins and Merriman with violation of the broker-dealer registration requirements.

Robbins has been order to pay $848,567 in disgorgement plus prejudgment interest of $142,714. Merriman agreed to pay disgorgement of $744,191 plus prejudgment interest of $121,869, and a civil penalty of $192,768. Madsen agreed to pay disgorgement of $29,000 plus prejudgment interest of $3,531, and a civil penalty of $96,384. Wiseman agreed to pay disgorgement of $68,500 plus prejudgment interest of $8,341, and a civil penalty of $96,384. ConTXT agreed to pay disgorgement of $269,187 plus prejudgment interest of $32,779, and a civil penalty of $269,187.

In a parallel criminal action related to the trading program, Robbins pled guilty to securities fraud and money laundering and was sentenced to five years in prison and ordered to pay more than $10 million in restitution in December, according to the U.S. Attorneys Office for the District of Utah.

"For the love of money is the root of all evil..."  (1 Tim. 6:10).

Thanks,

-Smac

[bluebell]

They definitely didn't learn anything in prison the first time.

 

[strappinglad]

1 hour ago, bluebell said:

They definitely didn't learn anything in prison the first time.

Ah ... maybe the wrong things.

MLM scams are big in Utah , no?

[bluebell]

7 minutes ago, strappinglad said:

Ah ... maybe the wrong things.

MLM scams are big in Utah , no?

MLMs are big.  I don't of MLM scams since those are legal (even if I think they are dumb).

But I think that part of the reason that these things are so popular in Utah isn't just an issue of misplaced affinity or trust.  I think it comes from a deep-seated idea (or belief or desire) that God will bless the righteous financially.  So while a lot of people will hear someone promise a 50% return on an investment and run, some who espouse the prosperity gospel idea (or even just really hope it's true) will instead be like "well sure, God can make that happen and I'm worthy so of course He'll make that happen for me!" and sign right up.

[Meadowchik]

It is seductive indeed to replace due diligence with hopeful feelings. I know the feeling and we're still paying for financial choices we made as people eager to trust others. 

 

[Calm]

56 minutes ago, bluebell said:

like "well sure, God can make that happen and I'm worthy so of course He'll make that happen for me!" and sign right up.

Especially if they are looking for ways to help their family have a better life. ‘It is a righteous desire, so one will be blest’ logic.

[Ahab]

Hmmm... so am I going to be getting a mansion in heaven or not ???

It is hard to know who I can trust these days... but THIS ONE PERSON I KNOW ALWAYS COME THROUGH FOR ME WHEN I REALLY NEEDS HER !!!

[Ahab]

Just now, Ahab said:

Hmmm... so am I going to be getting a mansion in heaven or not ???

It is hard to know who I can trust these days... but THIS ONE PERSON I KNOW ALWAYS COME THROUGH FOR ME WHEN I REALLY NEEDS HER !!!

... OH, and there are also a few men I know who are totally trustworthy too.

[Ahab]

4 hours ago, smac97 said:

"For the love of money is the root of all evil..."  (1 Tim. 6:10).

Thanks,

-Smac

To love money is to want to nurture it and take care of it so that what you have of it will grow and develop into as great a sum of money as the person who has it wants it to be... many thousands or even millions more of it !!!

To hate money is to want to get rid of it and to have very little if any regard for it so that even if you lost all that you had of it you would still be just as happy as you were with it while not caring very much if anything about it.

So the question I always have in regard to money is what is the best way for me to use and otherwise get rid of all that I have of it.  It's just something that I have to do.

Edited January 9, 2021 by Ahab

[Kenngo1969]

10 minutes ago, Ahab said:

To love money is to want to nurture it and take care of it so that what you have of it will grow and develop into all of the good things the person who has it thinks it can be. ...

I think you know full well that that's not the sense in which Paul is using the word "love" when he speaks of the love of money being the root of all evil.

[Ahab]

38 minutes ago, Kenngo1969 said:

I think you know full well that that's not the sense in which Paul is using the word "love" when he speaks of the love of money being the root of all evil.

I know full well that he did... see my edited post which will I hope make what I meant more obvious.

Edited January 9, 2021 by Ahab

[Bob Crockett]

That reminds me of the Utah County "Dream Mine" scheme that caught up several church leaders. 

https://www.reliefmine.com/

 

Edited January 8, 2021 by Bob Crockett

[strappinglad]

Wealth allows one to be very comfortable in one's misery. 🤑

[Ahab]

45 minutes ago, Ahab said:

To love money is to want to nurture it and take care of it so that what you have of it will grow and develop into as great a sum of money as the person who has it wants it to be... many thousands or even millions more of it !!!

To hate money is to want to get rid of it and to have very little if any regard for it so that even if you lost all that you had of it you would still be just as happy as you were with it while not caring very much if anything about it.

So the question I always have in regard to money is what is the best way for me to use and otherwise get rid of all that I have of it.  It's just something that I have to do.

 

[Ahab]

1 hour ago, strappinglad said:

Wealth allows one to be very comfortable in one's misery. 🤑

It is fun to give away, though.  It makes me happy to get rid of it when and the ones I give it to seem to want to get rid of it too.

... oh, and we were talking about money, not wealth.

Edited January 9, 2021 by Ahab

[Kenngo1969]

7 hours ago, smac97 said:

... "For the love of money is the root of all evil..."  (1 Tim. 6:10).

Thanks,

-Smac

 

4 hours ago, Ahab said:

To love money is to want to nurture it and take care of it so that what you have of it will grow and develop into all of the good things the person who has it thinks it can be.

To hate money is to want to get rid of it and to have very little if any regard for it so that even if you lost all that you had of it you would still be just as happy as you were with it while not caring very much if anything about it.

So the question I always have in regard to money is what is the best way for me to use and otherwise get rid of all that I have of it.  It's just something that I have to do.

 

3 hours ago, Kenngo1969 said:

I think you know full well that that's not the sense in which Paul is using the word "love" when he speaks of the love of money being the root of all evil.

 

3 hours ago, Ahab said:

I know full well that he did.

Okay, then either (1) your proffered interpretation doesn't make sense; or (2) the Scripture doesn't make sense.  Given a choice between deciding whether: (1) "black-letter" scripture doesn't, on its face, make sense; or (2) someone's idiosyncratic reading of black-letter scripture doesn't make sense, I'm going to choose the latter every time.  Have a good evening.  (This will be my last post on the subject: You're free to believe, erroneously, as you wish. )

[sunstoned]

5 hours ago, Bob Crockett said:

That reminds me of the Utah County "Dream Mine" scheme that caught up several church leaders. 

https://www.reliefmine.com/

 

Off Topic:  This was one of the larger of the historic Utah frauds.  I have studied the Relief Mine history and actually explored the mine itself.  There are still many of the faithful in Southern Utah County who continue to believe Bishop Koyle's story and hold Relief Mine stock.

[mgy401]

 

18 hours ago, bluebell said:

"well sure, God can make that happen and I'm worthy so of course He'll make that happen for me!" and sign right up.

Of course.  After all, I made a covenant with God that He would make me filthy rich; and if a pack of twice-convicted felons are the tools He has chosen to keep his word, then I just need to repent of my lack of faith!

[Scott Lloyd]

On 1/8/2021 at 5:01 PM, strappinglad said:

Wealth allows one to be very comfortable in one's misery. 🤑

I accept the adage that money (or wealth) does not buy happiness. What it does buy is a sense of security and assurance. Not the same thing as happiness, but not an insignificant thing either. 

Edited January 11, 2021 by Scott Lloyd

[Stargazer]

On 1/8/2021 at 9:54 PM, Meadowchik said:

It is seductive indeed to replace due diligence with hopeful feelings. I know the feeling and we're still paying for financial choices we made as people eager to trust others. 

 

I've subjected myself to expensive financial screwups dealing with perfectly legitimate business opportunities because I didn't seem to be able to accurately measure my own capabilities and tendencies. There was one particular real estate opportunity (a bank foreclosed house) that had the potential of making a fair amount of money, or a smaller amount if I had chosen to handle it in a less risky way. It ended up that I didn't do either one, and another real estate developer (whom I knew, incidentally), found the property independently, bought it, fixed it up, and sold it for a profit of near $100K after just 3 or 4 months. I spent a few thousand dollars on education, and never used any of it. Taught me that I wasn't really a businessman and I just stick to being an employee.

[Tacenda]

I went to a shower of a former neighbor's daughter and she told me about a mutual friend that was moving, they were walking partners, they lost $300,000.00 because of a ponzi scam, dealing in silver. So this family is having to sell their home! It's so sad!

[Bob Crockett]

I have resolved since I was a young man:

1.  Never enter into business dealings or investments with a member of the church.  I've very much enjoyed the fruits of this.  I have on occasion lent money to members of the church merely because I knew them at church; I have never once been paid back.

2.  Never go into partnership with or hire as an employee a member of the church merely because I know him to be a member of the Church. The problem with violating this rule is that if you have to let a partner or employee go, they inevitably trash your name with your friends in the church. 

3.  Never hire as a financial advisor, accountant, insurance agent, etc etc a member of the church.  I tend to breach that rule, but so long as they don't have any say in my finances I can make my own decisions.  The problem with violating this rule is that you let people you see at church every week know your business.  On more than one occasion my fiduciary members of the church have been blabbing my business.

4.   Never take on as a client a member of my stake.  I've followed that rule usually.  When I have broken that rule they always, without exception, think they don't have to pay my bills.   The same thing happens when I take on as a client a member of the church not in my stake.  They almost always don't think they have to pay my bills.

5.  I have actually sued members of the church, people I don't know, representing non-members.  They like to use ecclesiatical methods to afflict me.  (My stake president always ignores the pressure.)

 

Edited January 11, 2021 by Bob Crockett

[smac97]

21 minutes ago, Bob Crockett said:

I have resolved since I was a young man:

1.  Never enter into business dealings or investments with a member of the church.  I've very much enjoyed the fruits of this.  I have on occasion lent money to members of the church merely because I knew them at church; I have never once been paid back.

Avoiding business dealings with members of the Church is difficult if you live in Utah or another area heavily populated with members of the Church.  However, I have had a longstanding practice of never taking on legal work from a member of my ward or stake.  If I do take on such work, it is strictly pro bono.

21 minutes ago, Bob Crockett said:

2.  Never go into partnership with or hire as an employee a member of the church merely because I know him to be a member of the Church. The problem with violating this rule is that if you have to let a partner or employee go, they inevitably trash your name with your friends in the church. 

"Merely because I know him" being the operative phrase, I quite agree with you.

21 minutes ago, Bob Crockett said:

3.  Never hire as a financial advisor, accountant, insurance agent, etc etc a member of the church.  I tend to breach that rule, but so long as they don't have any say in my finances I can make my own decisions.  The problem with violating this rule is that you let people you see at church every week know your business.  On more than one occasion my fiduciary members of the church have been blabbing my business.

I am happy to hire a member of the Church who is competent, and who is not in my ward or stake, and who does not trade on his/her membership as a selling point.

21 minutes ago, Bob Crockett said:

4.   Never take on as a client a member of my stake.  I've followed that rule usually.  When I have broken that rule they always, without exception, think they don't have to pay my bills.   The same thing happens when I take on as a client a member of the church not in my stake.  They almost always don't think they have to pay my bills.

If my relationship with a person arises through the Church (such as through ward/stake), then I refer them out to another attorney.  

21 minutes ago, Bob Crockett said:

5.  I have actually sued members of the church, people I don't know, representing non-members.  They like to use ecclesiatical methods to afflict me.  (My stake president always ignores the pressure.)

I have sued many hundreds of people in Utah, many of whom are presumably members of the Church.  I have never once had a problem with one of them trying to use "ecclesiastical methods" to get back at me.

Thanks,

-Smac

[Bob Crockett]

1 hour ago, smac97 said:

 

I have sued many hundreds of people in Utah, many of whom are presumably members of the Church.  I have never once had a problem with one of them trying to use "ecclesiastical methods" to get back at me.

 

Different in California.  I had one fellow I was suing for fraud bring parts of his high council with him.  He was a high councilor.  They would heckle me in the hall and call my stake president. I got a big judgment.

[rongo]

56 minutes ago, smac97 said:

I am happy to hire a member of the Church who is competent, and who is not in my ward or stake, and who does not trade on his/her membership as a selling point.

Here's the opposite side of that coin. Years ago, before I had gotten my sea legs as a teacher, I didn't renew my contract and wanted to do something else. A member of my ward hired me as his office manager because  I was his bishop. I wouldn't have wanted my bishop into the guts of my company, but it was a good job while it lasted (he decided to close up the business and do something else after a few months). I did payroll (including myself); took and ordered inventory; advertised, interviewed, and hired/fired people; and anything else he needed me to do. I had unlimited access to his business account (which was substantial --- it was an eye-opener to me about a world foreign to me) and could have embezzled everything if I had wanted to. Of course, I would have been on the run or in prison after that, but the sole reason he approached me was he wanted someone he was willing to trust with access to everything, and I was that guy. He would have me move money around between different accounts --- for example, to hire people from New York and move them and get them situated in Florida on short notice. That was a lot of money to move! He needed to go from two secretaries to one, and agonized over having to let her go, so he asked me to do it for him. It wasn't bad, because she was a student, and he offered two month's severance (she took it just fine. More than fine!).

He even had me sign checks for him with his signature. That is a good object lesson for investiture of authority --- if it were questioned, it wasn't a matter of me signing his name; it was him signing his name when I did it, because he recognized it and authorized it as such. I big part of my job was making it so he didn't have to come in. Again, not something I would have done, but that's how he wanted it. 

That's sort of the opposite of affinity fraud --- affinity hiring. It can work out, but the counsel from you two is probably much wiser, in general and overall.