ADVICE ON NOT GIVING INVESTMENT ADVICE

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This article is published with permission from the authors, Jason D. Rogers and Brad R. Jacobsen of the Vantus law Group.   

Many people would believe that investment advisers are only those that give opinions on which stocks, bonds or mutual funds to buy.  However, under applicable securities laws “investment adviser” is much more broadly defined than commonly thought, potentially including those who simply give general financial counseling or planning or those who recommend the purchase of a particular asset.

The question of whether or not a person is an investment adviser frequently arises in a real estate, insurance or other sales context.  Such salespeople would not generally think they are subject to the securities laws, but, depending on their activities, they may be. Continue reading →

FORBES: You Should Avoid Church and Rotary In Retirement Planning

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This article appeared in Forbes Magazine this month:

Avoid Church and Rotary In Retirement

MITTERFIRMIANSREUT, GERMANY - JANUARY 14: Vis...

Robert Laura, Contributor

As shocking as this may sound, when it comes to planning and investing your retirement savings, religious and civic organizations are quickly becoming places to avoid.  In the not-so-distant past, you could rely on the fellow who lead the pledge of allegiance or said the deeply devotional group prayer, but the growing trend of Affinity Fraud suggests those closest, and most like you, should be kept the furthest from your life savings.

Unlike “hate” crimes that are committed across racial, ethnic or religious lines, Affinity Fraud targets members of identifiable groups, such as religious or civic organizations, ethnic communities, elderly people and even professional associations.  Fraudsters infiltrate a group and seek to exploit the trust and friendship among its members. Often times they get a long-standing or high ranking member(s) of the group to unwittingly endorse the scheme and the scam spreads faster than a California wildfire. Continue reading →

No, You Can’t Even Trust The Mayor!

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UPDATE:  This week the U.S. Commodities Futures Trading Commission sued Christopher D. Hales, Eric A. Richardson and Bentley Equities LLC in Federal Court here in Utah.  A copy of the complaint can be found here.

According to the CFTC’s complaint, Bentley, Hales, and Richardson misrepresented to customers that they actively managed more than $1 million in commodity futures accounts. In reality, the defendants were not successful commodity futures traders and never managed more than $480,000 in commodity futures trading accounts at one time. In fact, the defendants lost approximately $1,296,600 of the Bentley participants’ and managed clients’ funds trading commodity futures contracts, according to the complaint.

The complaint further charges that the defendants misappropriated at least $628,000 of customer funds for personal use, including food, clothing, auto expenses, and utility and credit card payments. The defendants also allegedly used misappropriated funds to make payments to existing participants and clients, as is typical of a Ponzi scheme.

To conceal their trading losses and misappropriation, defendants allegedly issued false account statements to participants and clients by altering trading statements that they received from the futures commission merchant carrying the Bentley pool account. These doctored statements falsely showed inflated account balances and profitable commodity futures trading returns, when, in fact, the defendants’ futures trading for their participants and clients “consistently lost money,” according to the complaint.

The CFTC seeks civil monetary penalties, restitution, disgorgement of ill-gotten gains, trading and registration bans, and preliminary and permanent injunctions against further violations of the federal commodities laws. Continue reading →

State of Fraud

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This is a repost of a good article that appeared in this month’s edition of Utah Business.  It looks into why Utah has so much securities fraud and echos many of the same conclusions discussed elsewhere in this blog.

State of Fraud

Why is Utah Rife with Fraudulent Investment Schemes?

by Gaylen Webb

It’s been about four years since Val Southwick, the Bernie Madoff of Utah con artists, received his ticket to the state penitentiary for the biggest fraud scheme in Utah history. Today, Southwick sits quietly in a cell in Gunnison, serving out his nine consecutive sentences. Although he pled guilty and expressed remorse at his sentencing, he routinely declines media interviews and is mum about his fraud conviction and the tactics that supported his grand deception. Continue reading →

The SEC Issues an Alert on Social Media and Investing

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The SEC recently issued this Investor Alert warning all of us who use the Internet to be wary of people who contact you online to try to lure you into a scam.  This is a reprint of the alert:

Investor Alert: Social Media and Investing – Avoiding Fraud

The SEC’s Office of Investor Education and Advocacy is issuing this Investor Alert to help investors be better aware of fraudulent investment schemes that may involve social media. U.S. retail investors are increasingly turning to social media, including Facebook,YouTube,Twitter, LinkedIn and other online networks for information about investing. Whether it be for research on particular stocks, background information on a broker-dealer or investment adviser, guidance on an overall investing strategy, up-to-date news, or to simply discuss the markets with others, social media has become a key tool for U.S. investors.

While social media can provide many benefits for investors, it also presents opportunities for fraudsters. Social media, and the Internet generally, offer a number of attributes criminals may find attractive. Social media lets fraudsters contact many different people at a relatively low cost. It is also easy to create a site, account, email, direct message, or webpage that looks and feels legitimate – and that feeling of legitimacy gives criminals a better chance to convince you to send them your money. Finally, it can be difficult to track down the true account holders that use social media. That potential for anonymity can make it harder for fraudsters to be held accountable. As a result, investors need to use caution when using social media when considering an investment. Continue reading →

The LDS Church Issues a Strong Position on Affinity Fraud

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I am pleased to see that after years of urging from me and others who have seen affinity fraud perpetrated within LDS church congregations for years (especially in Utah County) the church has finally stepped up to the plate and taken a stronger position on this issue.  They did so at the annual Fraud College event that took place on February 15, 2012 at the University of Utah, and on their website.  The church was asked to speak at the first Fraud College 2010, but they declined that year, and they declined again in 2011.  This “head in the sand” response to the problem was infuriating to federal and state law enforcement officials – and to me.

Thankfully the Church leadership finally decided this year that they needed to acknowledge and confront the growing incidence of church members — often in positions of trust within the church — victimizing other church members.  The FBI has stated that Utah is a hot spot for financial fraud and estimate that $2 billion worth of fraud is “under investigation or being prosecuted in Utah courts.”

The speaker at the conference was Michael Otterson, managing director of the Church’s Public Affairs Department.  And he didn’t mess around.  He compared fraudsters to child molesters because they “exploit one of the things we value most: the trust that makes our communities what they are.”

Continue reading →

UPDATE: Lessons to be Learned from Jeffrey Mowen

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Here is an update on this story from the Salt Lake Tribune.  There is another moral to this story that is evident in these prosecutions, and that is you need to be careful who you solicit money on behalf of, and its better not to do it at all.  If you are not licensed to sell securities and accept a fee for raising money on behalf of another person it could get you into a lot of trouble — regardless of whether its a scam or not:

Utahns among six sanctioned over Ponzi scheme

By Tom Harvey
The Salt Lake Tribune
Published: March 7, 2012

Federal regulators have imposed sanctions on six Utah and Colorado men for their involvement with Jeffrey Mowen, the Utah County man who plead guilty to fraud charges for running a Ponzi scheme that took in about $18 million from investors on promises of returns of 2 percent or more a month.

The Securities and Exchange Commission said the six solicited millions of dollars of investor money that went to Mowen using false claims about where the money would go and about the security of the investments.

Sanctions were imposed against Thomas R. Fry, Cedar Hills; Michael W. Averett, Pleasant Grove; Michael G. Butcher, Loveland, Colo.; Gary W. Hansen Berthoud, Colo.; James B. Mooring, Highland; and Bevan J. Wilde, Highland.

Mowen SEC Sanctions

In a 2009 lawsuit the SEC said the six had raised about $41 million from 150 investors in various states. Of that, about $18 million went to Mowen, who used about half of it to make interest payments to investors so it appeared his operation was profitable in what’s known as a Ponzi scheme.

Mowen, who is now serving a 10-year prison sentence, misappropriated another $8 million for personal use, including buying a large collection of luxury and antique motor vehicles, with another $650,000 going to his then wife.

The lawsuit said Fry led the group of promoters in distributing false information about the investments. They also failed to do adequate research to ensure the information was legitimate, it said.

Fry ignored the fact that Mowen had been under investigation and eventually was convicted of securities fraud, the lawsuit said. When Fry learned that Mowen had been convicted, he failed to disclose that information to investors or other promoters.

Fry and the others settled the lawsuit against them and were ordered not to commit anymore violations. The SEC is seeking repayment of funds they earned in the process.

In recent administrative actions, the SEC barred the six from participating in investment sales, services and promotions, including penny stocks.

A seventh man named in the lawsuit, David G. Bartholomew, continues to defend himself.

tharvey@sltrib.com

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Tom Harvey reported in the Salt Lake Tribune yesterday that Jeff Mowen finally pled guilty to one count of wire fraud and will spend ten years in prison.  I have not previously written about Mr. Mowen, but now that he has pleaded guilty I feel like I can write about it.  I met with Jeff Mowen several times when he was trying to hire me as his defense attorney.   He never actually hired me and he certainly never paid me a dime, but I am not going to reveal any potentially privileged communications in this post. Continue reading →