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Frauds and How to Spot Trouble

James McTighe, head of the Salt Lake FBI, and other officials describe how affinity frauds and Ponzi schemes can cost unsuspecting victims their life savings.


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James S. McTighe/FBI Special Agent in Charge:

It’s truly sad that an unscrupulous individual can convince a trusting person to invest their life savings in a fraud that results in them losing everything that they’ve worked so hard for in their lives.

Ken Israel/Director, Securities and Exchange Commission Salt Lake Regional Office

The frauds we see in Utah that are the biggest problems to Utah investors are typically what we call offering frauds. And they can be of several different varieties. Probably the most notorious right now are what are called Ponzi schemes.

Keith Woodwell/Director, Utah Division of Securities:

Whatever the story is about how money is being made whether they say they are investing in real estate, whether it’s trading foreign currency, whether it’s investing in antiques or concert tickets, we’ve seen all of those, but 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, and there’s no real income being generated by the underlying business.

Ken Israel/Director, Securities and Exchange Commission Salt Lake Regional Office:

Ponzi schemes always collapse eventually and it’s typically because you run out of newer investors.

Keith Woodwell/Director, Utah Division of Securities:

If you can’t bring enough new money in to pay off your old investor it’s like a house of cards it collapses, falls in on itself and everybody that invested is left holding the bag.

James S. McTighe/FBI Special Agent in Charge:

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.

Kaylene/Affinity Fraud Victim:

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’.

He just had the right words to say and I was single, I was a widow and he knew, he knew what to say to me to make me think everything was going to be great and so I did everything in my power to get the money and I gave it to him without even getting a contract signed.

Keith Woodwell/Director, Utah Division of Securities:

Affinity fraud is not really a type of fraud; it’s more a way to market your fraud. So any kind of scam that a con artist is putting together, you use affinity fraud to find investors. I think of it more in terms of friends and family fraud, that’s an easier term to recognize.

Ken Israel/Director, Securities and Exchange Commission Salt Lake Regional Office

Affinity frauds are fairly common here in Utah. Usually here they are directed at members of the LDS Church and that’s because the investment solicitations come through church connections.

James S. McTighe/FBI Special Agent in Charge:

Because of the trusting relationships they have with other church members, unscrupulous people can take advantage of that. But affinity fraud is not confined to just the LDS Church; any other church member can become a victim of affinity fraud for the same reasons.

Ken Israel/Director, Securities and Exchange Commission Salt Lake Regional Office:

We see affinity frauds in all kinds of varieties, they can be directed at ethnic groups or racial groups, other kinds of religious groups and they are certainly not confined to Utah, we see them all over the country.

Keith Woodwell/Director, Utah Division of Securities:

People tend to not do the due diligence and research they should do because they think this is a person I know, I go to church with him, he’s been my neighbor for 15 years, whatever the circumstances are, I work with this person, I know him, he’s good for it, I can trust him.

Ken Israel/Director, Securities and Exchange Commission Salt Lake Regional Office:

I think a lot of these scam investments are sold by people who are great salesmen, quite frankly. They can be charming; they can use existing relationships they may have with investors. I had one defendant in a case many years ago who said, ‘give me a story and I can sell it to anybody’, and he was right.

Kaylene/Affinity Fraud Victim:

He had done it enough and I think taken enough people’s money and that’s how he lived and he had a great big home, he lived a really good lifestyle.

James S. McTighe/FBI Special Agent in Charge:

If the individual asks you to keep the investment secret, that should send up red flags. If the individual drives a fancy car, lives in a large home and makes a point of showing you all these things, don’t necessarily believe that this individual is a sound investor, he may be a shyster that’s trying to take your money.

Keith Woodwell/Director, Utah Division of Securities:

And so when a promoter comes to you and says to you ‘hey, I’ve got the answer’, I can make you 3% a month, 4% a month, 5% a month, whatever it is, guaranteed with little or no risk, they’re lying to you. There is no such investment. Risk, reward always go together. If you want high rewards, you’re taking on high risk.

James S. McTighe/FBI Special Agent in Charge:

I think the maxim buyer beware is appropriate. Individuals who want to invest their money have to complete their due diligence. Research the investment firm you are planning on investing your money with, research the individual you are planning on investing your money with.

Ken Israel/Director, Securities and Exchange Commission Salt Lake Regional Office:

Check out what’s being offered through as many independent sources as you can. Just don’t just take the statements or materials given to you buy the person selling you the security as truth.

Keith Woodwell/Director, Utah Division of Securities:

You know, when it comes to fraud I think the best advice probably came from, well it’s what my grandmother used to say to me and probably what many grandmothers have said to many people through the years, if something sounds too good to be true, I wouldn’t say it probably is, I would say it is too good to be true. When it comes to investing there is no free lunch out there.

Kaylene/Affinity Fraud Victim:

Losing the 35-thousand has been devastating for me. I refinanced my condo; I live on a set income. I am not afraid to let anybody know, don’t invest in something you don’t know is a sure thing; don’t trust the person that keeps telling you everything that you want to hear. 

James S. McTighe/FBI Special Agent in Charge:

It’s truly sad that an unscrupulous individual can convince a trusting person to invest their life savings in a fraud that results in them losing everything that they’ve worked so hard for in their lives.

Ken Israel/Director, Securities and Exchange Commission Salt Lake Regional Office

The frauds we see in Utah that are the biggest problems to Utah investors are typically what we call offering frauds. And they can be of several different varieties. Probably the most notorious right now are what are called Ponzi schemes.

Keith Woodwell/Director, Utah Division of Securities:

Whatever the story is about how money is being made whether they say they are investing in real estate, whether it’s trading foreign currency, whether it’s investing in antiques or concert tickets, we’ve seen all of those, but 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, and there’s no real income being generated by the underlying business.

Ken Israel/Director, Securities and Exchange Commission Salt Lake Regional Office:

Ponzi schemes always collapse eventually and it’s typically because you run out of newer investors.

Keith Woodwell/Director, Utah Division of Securities:

If you can’t bring enough new money in to pay off your old investor it’s like a house of cards it collapses, falls in on itself and everybody that invested is left holding the bag.

James S. McTighe/FBI Special Agent in Charge:

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.

Kaylene/Affinity Fraud Victim:

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’.

He just had the right words to say and I was single, I was a widow and he knew, he knew what to say to me to make me think everything was going to be great and so I did everything in my power to get the money and I gave it to him without even getting a contract signed.

Keith Woodwell/Director, Utah Division of Securities:

Affinity fraud is not really a type of fraud; it’s more a way to market your fraud. So any kind of scam that a con artist is putting together, you use affinity fraud to find investors. I think of it more in terms of friends and family fraud, that’s an easier term to recognize.

Ken Israel/Director, Securities and Exchange Commission Salt Lake Regional Office

Affinity frauds are fairly common here in Utah. Usually here they are directed at members of the LDS Church and that’s because the investment solicitations come through church connections.

James S. McTighe/FBI Special Agent in Charge:

Because of the trusting relationships they have with other church members, unscrupulous people can take advantage of that. But affinity fraud is not confined to just the LDS Church; any other church member can become a victim of affinity fraud for the same reasons.

Ken Israel/Director, Securities and Exchange Commission Salt Lake Regional Office:

We see affinity frauds in all kinds of varieties, they can be directed at ethnic groups or racial groups, other kinds of religious groups and they are certainly not confined to Utah, we see them all over the country.

Keith Woodwell/Director, Utah Division of Securities:

People tend to not do the due diligence and research they should do because they think this is a person I know, I go to church with him, he’s been my neighbor for 15 years, whatever the circumstances are, I work with this person, I know him, he’s good for it, I can trust him.

Ken Israel/Director, Securities and Exchange Commission Salt Lake Regional Office:

I think a lot of these scam investments are sold by people who are great salesmen, quite frankly. They can be charming; they can use existing relationships they may have with investors. I had one defendant in a case many years ago who said, ‘give me a story and I can sell it to anybody’, and he was right.

Kaylene/Affinity Fraud Victim:

He had done it enough and I think taken enough people’s money and that’s how he lived and he had a great big home, he lived a really good lifestyle.

James S. McTighe/FBI Special Agent in Charge:

If the individual asks you to keep the investment secret, that should send up red flags. If the individual drives a fancy car, lives in a large home and makes a point of showing you all these things, don’t necessarily believe that this individual is a sound investor, he may be a shyster that’s trying to take your money.

Keith Woodwell/Director, Utah Division of Securities:

And so when a promoter comes to you and says to you ‘hey, I’ve got the answer’, I can make you 3% a month, 4% a month, 5% a month, whatever it is, guaranteed with little or no risk, they’re lying to you. There is no such investment. Risk, reward always go together. If you want high rewards, you’re taking on high risk.

James S. McTighe/FBI Special Agent in Charge:

I think the maxim buyer beware is appropriate. Individuals who want to invest their money have to complete their due diligence. Research the investment firm you are planning on investing your money with, research the individual you are planning on investing your money with.

Ken Israel/Director, Securities and Exchange Commission Salt Lake Regional Office:

Check out what’s being offered through as many independent sources as you can. Just don’t just take the statements or materials given to you buy the person selling you the security as truth.

Keith Woodwell/Director, Utah Division of Securities:

You know, when it comes to fraud I think the best advice probably came from, well it’s what my grandmother used to say to me and probably what many grandmothers have said to many people through the years, if something sounds too good to be true, I wouldn’t say it probably is, I would say it is too good to be true. When it comes to investing there is no free lunch out there.

Kaylene/Affinity Fraud Victim:

Losing the 35-thousand has been devastating for me. I refinanced my condo; I live on a set income. I am not afraid to let anybody know, don’t invest in something you don’t know is a sure thing; don’t trust the person that keeps telling you everything that you want to hear.