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Utah Task Force: Fraud Victims’ Losses Top $1 Billion New Educational Campaign Warns of Ponzi Schemes and Affinity Fraud

FBI Salt Lake City June 03, 2010
  • FBI Salt Lake City Press Office

When members of the Utah Securities Fraud Task Force met earlier this year to talk about investment fraud cases, one important discussion focused on why Utahns fall victim to common fraud schemes. As a result, investigators in Utah want to warn residents about Ponzi schemes and affinity fraud. To help educate Utahns, here’s what members of the task force recommend:

  • Watch a new six-minute educational video about Ponzi schemes, affinity fraud, and how to spot trouble. The video, which was produced by the FBI Salt Lake City Division, features interviews with FBI Special Agent in Charge James S. McTighe, Security and Exchange Commission Regional Director Ken Israel, Utah Division of Securities Director Keith Woodwell, and an investor who explains how affinity fraud cost her thousands of dollars. Video
  • Read below about the scope of the problem in Utah, how Ponzi schemes and affinity fraud work, warning signs, investor research tools, and where to report fraud.
  • The Utah Department of Commerce is warning Utah investors to beware of fraud. Watch for a new billboard campaign and public service announcements sponsored by the Utah Department of Commerce, Division of Securities.
  • Learn how to protect your pocketbook—at no cost—by attending the Fraud College on June 30 at Utah Valley University in Orem. Learn more at the Utah Division of Securities website, http://www.securities.utah.gov/, or at http://www.fraudcollege.info/.

Task Force Currently Investigating More Than 100 Fraud Cases

The Utah Securities Fraud Task Force is made up of government agencies that collaborate on fraud investigations. Members include the FBI, the Securities and Exchange Commission (SEC), Internal Revenue Service, Criminal Investigation (IRS-CI), the U.S. Postal Inspection Service, the Utah Department of Commerce, Division of Securities, the Utah County Attorney’s Office, the United States Attorney’s Office for the District of Utah, and the Utah Attorney General’s Office.

Analysis Shows Fraud Losses Top $1 Billion

According to a recent analysis of investment fraud cases currently under investigation by agencies on the Utah Securities Fraud Task Force, there are approximately:

  • 4,400 victims who have lost an estimated $1.4 billion to investment fraud
  • 370 subjects (potential perpetrators) identified

Ponzi Schemes Popular in Utah

We hear about Ponzi schemes a lot these days. How do they work? Con artists who run Ponzi schemes often promise big financial returns and may tell potential investors they operate programs that can sound impressive, such as:

  • Foreign Exchange Currency Trading
  • Prime Bank Investment
  • Commodities Investments
  • Real Estate Investments

Keith Woodwell is the director of the Utah Division of Securities and explains what shysters do with your money: “The hallmark of the Ponzi scheme is that you use money from new investors to pay off your old investors and of course put a bunch in your pocket at the same time.” A promoter may require investors to find new people to bring into the investment. “Ponzi schemes always collapse eventually and it’s typically because you run out of newer investors,” adds Ken Israel, director of the SEC’s Salt Lake Regional Office.

Utahns Victimized by Affinity Fraud

Affinity fraud occurs when a con artist preys on a group of people who share a common bond. FBI Special Agent in Charge James S. McTighe describes it this way: “Affinity fraud is when someone you know—for example a church member, a coworker, or a friend—takes advantage of you in an investment fraud scheme.” In Utah, some con artists have been known to take advantage of people who belong to the Church of Jesus Christ of Latter-Day Saints. One investor, who is featured in the FBI’s educational video, believes the pitch she heard can serve as a warning to others: “He was a religious man, so he says, and he really, he really put on the ‘You know I am so guided by the spirit’, and ‘I know I am here to help you’, and ‘just trust me’.” SAC McTighe warns that affinity fraud can affect people who belong to any church or other organization. He encourages Utahns to watch for red flags and do their research before they invest.

Signs of Trouble

  • The investment offer is unsolicited
  • It sounds too good to be true
  • You’re promised big monthly or yearly returns with little or no risk
  • You’re asked to keep the investment offer secret
  • The promoter cannot answer specific questions or provide you with written financial documentation
  • Slick websites and glossy literature can be deceiving, and also be suspicious of documentation that looks unprofessionally produced
  • The promoter won’t give you time to research the investment
  • You are told you are one of the lucky few allowed in on the investment
  • You are required to bring in more investors
  • The salesperson is not licensed or the product is not registered

Research Before you Invest

Get tips, warnings, and confirm a promoter or firm is licensed and the product is registered by using the SEC’s websites and the Utah Division of Securities website:

More information from the FBI: http://www.fbi.gov/whitecollarcrime.htm

Suspect Investment Fraud? Report It!

FBI Salt Lake City Division:
(801) 579-1400

Securities and Exchange Commission:
1-800-732-0330 or (801) 524-5796

Utah Division of Securities:
(801) 530-6600