No, You Can’t Even Trust The Mayor!

Posted on by
1

Former Mayor Eric Richardson

UPDATE #3:  The U.S. Commodity Futures Trading Commission (“CFTC”) announced today that it obtained federal court orders for more than $2.7 million in disgorgement and civil monetary penalties against Bentley Equities, LLC  and its principals, Christopher D. Hales and Eric A. Richardson.

On May 31, 2013, the Honorable Dee Benson of the United States District Court for the District of Utah, Central Division, entered a Consent Order for Permanent Injunction against Richardson requiring him to pay $100,000 in disgorgement and a $150,000 civil monetary penalty. On May 14, 2013, Judge Benson also entered an Order that requires Hales to pay $382,080 in disgorgement and $1,146,240 in civil monetary penalties and Bentley to pay an $840,000 civil monetary penalty. That Order also permanently bans Hales and Bentley from engaging in any commodity-related activity.

But its doubtful that any of this money will ever get paid back to the victims.  Hales is currently an inmate at the Federal Correctional Institution in Safford, Arizona, and Richardson is currently an inmate at the Florence Federal Correction Complex in Florence, Colorado. In their criminal cases Hales was sentenced to more than seven years imprisonment and ordered to pay $12,719,236 in criminal restitution, and Richardson was sentenced to a year and a day imprisonment and ordered to pay $110,000 in criminal restitution.

UPDATE #2:  These guys have been busy!  Three days after resigning as mayor of Cedar Hills (finally) Eric Richardson was charged in federal court with bank fraud in connection with an alleged equity skimming scheme.  Richardson signed a blank loan application in February 2010 with Heritage West Credit Union for $57,144 for a 2009 Land Rover, knowing that an accomplice would falsely represent his monthly income was $15,000 and that he was an area manager with Bentley Equities for five years, according to court documents filed on June 27, 2012 in U.S. District Court.

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 →

The SEC’s New Investor Bulletin on Affinity Fraud

Posted on by
1

Last week the SEC’s Office of Investor Education and Advocacy issued a new Investor Alert to help educate investors about affinity fraud, a type of investment scam that preys upon members of identifiable groups, such as religious or ethnic communities or the elderly.  Below is the full text of the alert:

What is Affinity Fraud?

Affinity fraud almost always involves either a fake investment or an investment where the fraudster lies about important details (such as the risk of loss, the track record of the investment, or the background of the promoter of the scheme). Many affinity frauds are Ponzi or pyramid schemes, where money given to the promoter by new investors is paid to earlier investors to create the illusion that the so-called investment is successful. This tricks new investors into investing in the scheme, and lulls existing investors into believing their investments are safe. In reality, even if there really is an actual investment, the investment typically makes little or no profit. The fraudster simply takes new investors’ money for the fraudster’s own personal use, often using some of it to pay off existing investors who may be growing suspicious. Eventually, when the supply of investor money dries up and current investors demand to be paid, the scheme collapses and investors discover that most or all of their money is gone.

Continue reading →

Where money meets faith, bring skepticism

Posted on by
1

This is a repost of a good article on affinity fraud by  that appeared in the Washington Post this week:

Where money meets faith, bring skepticism

Robert “Dr. Shine” Freeman, a Maryland minister, took the command “let us pray” and turned it into “let us prey.”Because that’s what he did. He preyed on his people. Prosecutors said Freeman, 56, hid assets to avoid paying hundreds of thousands of dollars in debts. He recently pleaded guilty to obstructing bankruptcy court proceedings and received a 27-month prison sentence. He was ordered to pay more than $630,000 in restitution to four church members who took out loans to buy cars and a mansion.

What Freeman did falls under “affinity fraud.” Affinity fraud is when people use a personal connection such as religion or ethnic status to gain people’s trust and their money.Nearly one in four Ponzi schemes involve affinity-group targets, according to a study by consulting firm Marquet International of major Ponzi schemes in the United States since 2002. The three most common affinity groups targeted by Ponzi schemers, accounting for 85 percent of such cases, were the elderly or retired, religious groups and ethnic groups. Continue reading →

Why FINRA’s New Rules on “Suitability” Are Important for Investors

Posted on by
1

FINRA, the regulatory organization that governs broker-dealers, has now implemented a major overhaul of its suitability rules that could have a big impact on investors who feel that they were misled by their stock broker. The new rules went into effect on July 9th and require brokers to (1) perform reasonable due diligence on investment products they recommend, (2) understand those investments, and (3) have a reasonable basis to believe that a security or investment strategy is “suitable” or appropriate for the given investor.  Suitability evaluations must be undertaken with respect to every investor and his or her particular situation. Among other things, a broker must look at an investor’s age, investment experience, time horizon, liquidity needs and risk tolerance when making an investment recommendation.  In short, every investors situation is unique and investment recommendations must take that into account. Continue reading →

ADVICE ON NOT GIVING INVESTMENT ADVICE

Posted on by
1

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

Posted on by
1
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 →

State of Fraud

Posted on by
5

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 →