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.
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.
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.
As background, Federal prosecutors have alleged that between 2006 and 2008 approximately 200 people invested between $9 million and $10 million in what they thought were bank-backed CDs from a New Zealand bank. Because Mowen himself had an extensive criminal record (he had been convicted of securities fraud in Utah in 2003, 2004 and 2007 and had convictions for theft in 2003 and 2004) he used others to raise the money for him. I believe virtually all of the money was raised from Utah County residents who were members of the LDS Church.
After he was charged criminally Mowen fled the country, but was quickly discovered in Panama and extradited back to the U.S. (he probably used his own passport). I don’t know exactly why he chose Panama but I suspect it’s because he learned to speak Spanish on his LDS mission. Then, as if things weren’t bad enough for him already, while he was in jail prosecutors alleged that Mowen tried to hire another inmate to kill four key witnesses in his case. Wow, smart guy. The only good news is that the Feds seized several million dollars of investor funds and raised more by selling off all of the cars he bought with it. His decisions to buy cars and put them in a warehouse in Bountiful rather than putting the money in a Swiss bank account ought to tell you something about his sophistication.
Here are my observations about this mess, which is not very different from all of the other affinity-fraud/Ponzi-scheme cases here in Utah. First, anyone who simply took TEN SECONDS to Google his name before they invested would have immediately discovered that Jeff Mowen had an extensive criminal record, including multiple convictions for securities fraud. If they had called a lawyer and asked him/her to perform a quick search of court records before investing they would have found numerous red flags as well.
But apparently the investors didn’t check up on him. But why the heck not? Why would you put hundreds of thousands of dollars of your hard-earned money into ANY investment without extensive research? Perhaps they trusted they guys who presented this to them because they were all members of the LDS church and (I assume) many were in the same ward. But I think the more likely explanation is that they were so drawn by the outrageously high rates of interest that were being offered that they just decided to go for it.
So what exactly were the promised returns that caused investors’ brains to cease functioning? According to court records Mowen and his co-conspirators offered promised as much as 33% per month.
So if ever there was an investment that was “too good to be true,” this was it! The 33% per month number should have sent off alarm bells with every investor! But unfortunately it did not; they raised $41 million in a relatively short time.
Mowen used others he knew as “finders” to raise money for him and paid them fees. This may have been done in part to hide his name and involvement from investors. When they hid Mowen’s involvement from investors they clearly committed securities fraud. Regardless of their motives, those folks either knew about Mowen’s history of fraud or they should have checked before hitting up all of their friends, family and ward members for money. And what are the consequences for the “finders” who brought in all of this money from investors without disclosing all of the facts about who was involved? Probably jail time.
In its complaint filed in the U.S. District Court for the District of Utah on Sept. 2, 2009 the SEC alleged that Thomas R. Fry, Bevan J. Wilde, Gary W. Hansen, Michael G. Butcher, James B. Mooring, David G. Bartholomew, Michael W. Averett and Mowen’s former wife, Erin O’Malley (formerly Erin O. Mowen) all assisted in this scheme. Specifically, the SEC’s complaint alleges that they raised approximately $41 million from the unregistered offer and sale of high-yield promissory notes to over 150 investors in several states, over half of which was lost to investors.
According to the complaint, around $18 million of the funds raised by Fry and the Promoters was funneled by Fry into a Ponzi scheme run by Mowen who misappropriated over $8 million of the funds. The complaint also alleges that Fry and the Promoters knowingly or recklessly distributed private placement memoranda to investors that misrepresented the level of their due diligence and falsely stated that all the funds were being used to make collateralized domestic real estate loans and domestic small business loans.
The complaint further alleges that, Fry, who dealt directly with Mowen, committed fraud by failing to disclose Mowen’s involvement and criminal history to the Promoters and investors. According to the complaint, Fry and the Promoters also committed registration violations with respect to the securities offerings and their status as brokers.
Jeff Mowen is not the only bad guy here, if these guys solicited money from investors without disclosing about Mowen’s criminal history to them then they have big problems. Ironically, if they HAD disclosed Mowen’s convictions in the private placement memorandum (which investors rarely read anyway) then they would probably not be in very much trouble, if any.
So what are the lessons to be learned from Jeffrey Mowen’s story?
- If it sounds too good to be true, it probably is.
- If anyone promises you 33% percent per month on your money, it is definitely too good to be true.
- Research the people soliciting the investment, not just the investment itself. Google their names.
- Ask an attorney to help you search for court records on individuals who are soliciting your investment.
- Read the private placement memorandum — all of it.
- Just because they are in your ward does NOT mean they are honest or that it is a good investment.
- If you get indicted by the feds don’t try to hide out in Panama. There are better places.
- When you’re in jail don’t try to hire another inmate to kill witnesses in your case, it will just make things worse.
© 2011 Mark W. Pugsley, all rights reserved.