BYU Universe Article on FRAUD COLLEGE

February 4, 2012 in Fraud College IN THE NEWS

http://universe.byu.edu/index.php/2012/01/27/lds-church-joins-effort-to-fight-utah-fraud-wave/

LDS church joins effort to fight Utah fraud wave

SALT LAKE CITY (AP) — Concerned about the tidal wave of fraud sweeping over Utah that has reached an estimated $2 billion in purported scams, The Church of Jesus Christ of Latter-day Saints is stepping up to participate this year in an event that aims to erect a protective wall.

After skipping the first Fraud College conference in 2010, the church, whose members have been battered as victims of fraud, is sending Managing Director of Public Affairs Michael Otterson to speak at the Feb. 15 conference.

“It’s extremely significant,” said Brent Baker, a Salt Lake City securities attorney and one of the Fraud College organizers. “For the first time we’re going to hear an official statement by the LDS Church other than a diluted message about being good to your fellow man.”

Financial scams have come to light at alarming levels in Utah in the past four years. The recession pushed into the open schemes that are carried out through what’s known as affinity fraud, in which con artists exploit bonds of trust that form in groups of people who share beliefs or interests.

Affinity fraud strikes various groups. Many Jews were victims of Bernie Madoff, whose investors were swindled out of about $20 billion. Scams also have coursed through fundamentalist Christian churches and the deaf community.

Rabbi Ilana Schwartzman from the Congregation Kol Ami and Pastor Myke Crowder of the Christian Life Center in Layton also will be speaking at the Fraud College, a free conference for the public that aims to educate those attending about how to avoid fraud.

But in Utah, Mormons make up 60 percent of the population and form strong bonds of trust in wards, making them vulnerable to someone who wants to take advantage of that trust. Utah also is home to many returned missionaries who are susceptible to pitches to become salespeople for such schemes, Baker said.

 

Associated Press

 

Brent Baker, a Salt Lake City attorney, is seen in this April 24, 2009 file photo. Baker is an organizer for the Fraud College event Feb. 15 at the University of Utah. Concerned about the tidal wave of fraud sweeping over Utah that has reached an estimated $2 billion in purported scams, The Church of Jesus Christ of Latter-day Saints is stepping up to participate this year in an event that aims to erect a protective wall. (AP Photo/The Salt Lake Tribune, Al Hartmann) DESERET NEWS OUT; LOCAL TV OUT

“It is not a Mormon problem (overall), but because of the concentration in this state, it is absolutely a Mormon problem,” said Baker, who is a practicing member of the faith. “We are the perfect petri dish that, because of various factors ,allows the fraud bacteria to grow.”

The LDS Church declined to officially comment on why it is sending Otterson to the conference this year.

In the past, the church has issued letters read to wards and talked about the problem in general at its semi-annual conferences. But some beliefs that reside in Mormon culture make members vulnerable to predators who want their money, according to regulators and others. They assert that this necessitates a deeper involvement by the LDS Church.

Like some members of evangelical churches, some Mormons believe that God blesses the faithful with financial success, which is equated with the expensive trappings of watches, cars and houses.

Against that backdrop, the church’s absence at the 2010 Fraud College was lamented by regulators, law enforcement officers and others concerned about fraud.

They see the church’s participation this year as even more significant because the level of fraud appears to have increased since the first Fraud College, when a local, state and federal task force said scams that had taken in $1.4 billion were under investigation or being prosecuted in courts.

James Malpede, who directs the FBI’s white-collar crime unit at the Salt Lake City office, said he’s tallied new schemes that have come to light since then that add an estimated $500 million to $600 million to that figure.

“All these cases are affinity cases,” said Malpede, who said suspicions are normally not reported until the schemes collapse because the victims “actually wholeheartedly believe in what they are being sold.”

That means they often invest everything they can into one operation.

“They put everything into it so when it comes to light the money is no longer there, they’ve lost almost everything,” Malpede said.

In 2010, the FBI named its Salt Lake City office as one of the top five “hot spots” for financial fraud, putting it alongside much bigger offices in some of the nation’s largest cities.

The Utah Division of Securities, the state agency that regulates investment opportunities, saw the number of complaints rise almost 16 percent from 2010 to 2011, while the number of cases it opened for investigation has risen by nearly 30 percent.

Division Director Keith Woodwell said the numbers surprised him.

“My prediction going into 2011 would have been we would see it start to drop back down a little bit,” Woodwell said. “It had been up in 2008, 2009, and I think a lot of that was the function of the recession because so many Ponzi schemes collapse at the same time when you have a recession.”

The rise in new cases could be attributable to the fact the Division of Securities has more investigators looking into schemes and to a jump in complaints that may have been linked to the agency’s public service announcements and other publicity, he said.

“So whether the increase in complaints and cases really means there’s more fraud going on in the state, I think it’s hard to say because I know there are a huge number of cases that go unreported,” Woodwell said.

Another huge alleged Ponzi scheme, in which initial investors are paid through money generated through newer investors rather than actual profits in an investment, recently came to light when the Securities and Exchange Commission sued a father and son duo from Fountain Green. The agency said the company called Management Solutions Inc., run by Wendell A. Jacobson, 58, and his son, Allen R. Jacobson, 33, took in more than $200 million from about 225 investors. If the allegations are proved in court, it would be one of the two largest financial frauds in Utah history.

“Wendell Jacobson and Allen Jacobson belong to The Church of Jesus Christ of Latter-day Saints and appear to have used their membership and the connections arising there … to obtain the trust of prospective investors,” the SEC said in its complaint.

The Jacobsons also are the subject of an FBI and IRS criminal investigation, according to court filings.

The case also may indicate how fraud has wormed its way into the fabric of Utah.

Investors included prominent members of the Legislature and LDS Church, according to a transcript that quoted attorney Mark Pugsley.

Robert Pedersen II, the cofounder and CEO of Zagg Inc., said in talking to potential investors, he’s found that the state’s reputation for a high level of fraud tends to obscure all the positive aspects of Utah’s thriving business community, including its educated, smart workforce and entrepreneurial dynamic.

“I definitely have seen how it has created a negative impression,” he said, adding that for a business looking to attract investors, “it is a huge hurdle to overcome.”