UTAH FRAUD BLOG

A discussion of investment scams and how they affect people in Utah

UTAH FRAUD BLOG

Monthly Archives: June 2015

Red Flags Galore: The SEC Sues Roger Bliss of Bountiful Utah for Fraud

Posted on by
13

There is a relatively new SEC case that definitely needs to be added to my growing list of Utah affinity fraud schemes.  On February 11, 2015, the Salt Lake City office of the U.S. Securities and Exchange Commission filed a lawsuit and obtained a temporary restraining order against Roger S. Bliss of Bountiful Utah.

This case has all of the hallmarks of a fraudulent scheme, but unfortunately a number of Bountiful residents (probably many were his ward members) lost their retirement savings because they failed to see – or worse ignored – all the red flags.

The SEC Complaint alleges that Mr. Bliss operated an “investment club” out of his large Bountiful home.  Members of the “club” would contribute funds for Bliss to day-trade Apple (AAPL) stock for what he represented to be huge profits.

Bliss allegedly told his friends and neighbors that he had an excellent trading record and had never lost money in the last six years [red flag]. Bliss told interested investors that he had achieved annual returns of between 100 to 300% [red flag], and claimed to be managing in excess of$300 million, $260 of which was his own money. Bliss also claimed there is no risk for investors [red flag], and guaranteed they would not lose their principal investment [red flag].

He told people that he taught investment seminars and traded for his own account for about a year until he felt comfortable enough with his proficiency and results to trade with his friends’ money.  And what a great friend he turned out to be…

He called his scheme an investment club (purportedly after consulting with an attorney) because he wanted to avoid being registered as a stock broker or investment advisor.  This is a big red flag — anyone who claims he or she can buy and sell securities on your behalf without being licensed and regulated by FINRA or the SEC is clearly violating the law.

According to the complaint, Bliss represented to investors and potential investors that when he traded their money he would take “50% of the upside” so that earnings on their investment are split.   The remaining 50% of profits were to be shared among investment club members, based on their percentage of equity in the club.  So even after the 50% split, Bliss promised investors would earn at least a 100% return on their investment because Bliss he was actually earning a 200% to 600% total annual return on his trading activities [huge red flag].  He told investors that his average profits were about $920,000 per day, and that he was averaging profits of over $2 million per day during 2015 in his investment club. [red flag]

Of course none of this was true.  According to brokerage records obtained by the SEC, Bliss lost $3,299,689 over the last three years of trading, and much of the money he received from his “club members” never even made it to his brokerage account.  The ending balance on his December 31, 2014 brokerage statement was just $32,362 — far less than the $300 million he told people he was managing in the “investment pool.”

Of course he could not show people the real trading records, so the SEC alleges that he created fake trading records and account statements that showed successful trading.  Bliss provided a fake account statement to one investor that showed a balance of over $85 million in the account. The statement showed a profit of over $4.9 million for the first 5 trading days of 2015.

So the question is WHY.  Why would so many good trusting people give this man their hard-earned money when the claims he was making were so obviously too good to be true?  Why did these people fail to consult with authorities such as the Utah Division of Securities or the SEC to find out whether his scheme was a scam?

I think the answer is simple: Greed.  People get so excited about the prospect of outrageous profits like the ones promised by the ironically named Mr. Bliss that they jump in head first without researching the investment opportunity.  And people in this state are far too trusting.  Just because someone shares your religion does NOT mean they can be trusted with your money.  Research the investment opportunity carefully and remember that if it seems to good to be true (such as 200% to 600% annual returns) it almost always is.

If you are a victim of Mr. Bliss’s scam please feel free to share your story anonymously in the comments below.

Copyright 2015 by Mark W. Pugsley.  All rights reserved.

The SEC says Utah investors are too trusting

Posted on by
Reply

This article by Caleb Larkin appeared in the Ogden Standard Examiner on June 8, 2015:

SALT LAKE CITY – The Securities and Exchange Commission (SEC) in Salt Lake City reports Utahns tend to invest in Ponzi and other financial fraud schemes at a higher rate than most states.

The SEC has 12 office locations nationwide that cover multiple states. Most offices appear in financial centers and cover a huge population. So why does Utah get its own dedicated office?

Karen Martinez, the regional director for the Salt Lake City SEC office, explained it may have to do with the historical significance of the site. “Salt Lake used to have an exchange, as a mining and railroad capital. That’s when the SEC office was created,” Martinez said.

However she also noted other offices have become obsolete, such as Seattle. Utah’s office may still be operating because of a higher need in the area.

The SEC enforcement office in Salt Lake City most often handles investor fraud cases. “Primarily our goal is investor protection,” Martinez said.

She acknowledged Utah has a large number of fraud cases they handle, specifically affinity fraud. Affinity fraud refers to investment scams that take advantage of specific social groups, religious affiliations, races, or ethnicities. One example of affinity fraud in Utah involved a deaf scammer who targeted deaf investors.

“Utahns tend to be a close-knit community,” Martinez said. “Unfortunately we tend to be very trusting of those who share common traits with us.”The Salt Lake office even handles out of state affinity fraud cases because of their experience as well as the fact that investors can live all over the country.

money-4Cheryl Mori, Martinez’s senior advisor, highlighted Roger Bliss’ case filed in February. Bliss, from Bountiful, told investors he was making a 600 percent increase each year trading Apple stock. He offered investors 50 percent on the profit returns. Members of his “investment club” simply looked at his affluent standing, his nice car, his family, and his church attendance to make a judgment.

“You know if that the little voice inside your head says this is too good to be true, it is almost always right!” Martinez said. Bliss lost more than $3 million trading. He retained almost nothing for investors to reclaim by the time they brought the case to the SEC.

Martinez explained they try to move quickly on large cases to freeze assets and save investors’ funds. However most fraudulent investment advisors burn through funds before the case reaches the SEC. The SEC’s Office of Investor Education creates public awareness on different investor topics to protect Utahns before they succumb to such schemes.

The SEC in Salt Lake City files between 20 and 25 cases each year. Most claims average $25 million in fraudulent damages. Martinez explained many of the tips from investors will lead to quick resolutions from a simply phone call. Most long-term cases the Salt Lake office deals with focus on bribery investigations. A common issue is US companies bribing foreign government officials for a favorable business standing in their country. The SEC, however, also handles many ongoing, non-public, cases.

“We are getting more and more focused on investment advice for retirees,” Martinez said.

She explained the increased focus on retirement funds leads to bad advisement on retirement investments. One specific example she noted is with military and government employees. Brokers often offer bad investment advice to this group or fail to give full disclosure.

Charges range from interface fraud, as the most severe, to technical violations such as failing to register a security. A security in financial terms refers to a mutually beneficial agreement to trade financial assets. Some charges require proof of “intent to deceive.” Others are negligence based charges that come about when a broker fails to make all materials known or didn’t perform their due diligence.

Utah’s trusting culture puts investors at a disadvantage. Martinez believes “Utahns need to be vigilant. They need to do their homework. They need to research the individuals who offer investment advice.”

Boston Man Claimed Day Trading Strategy Was Inspired By The Holy Spirit

Posted on by
Reply

350-prosperity-gospelThis is not a Utah case, but I thought the parallels to other cases I have written about here were striking.  This is a repost of an article that appeared in the Boston Globe today:

Man charged in Ponzi scheme claimed a ‘divine’ strategy

By Jack Newsham GLOBE CORRESPONDENT 

Charles L. Erickson has been charged with running a Ponzi scheme and raising funds from people at his church by claiming his investment strategy was divinely inspired.

The Massachusetts Secretary of State’s office said Tuesday it filed civil charges against Erickson seeking compensation for investors and a ban from the securities industry. According to the Secretary of State’s office, Erickson started collecting money in 2010 and his scheme fell apart in 2014.

“Erickson believed that the ‘Holy Spirit’ had given him a proprietary system for day trading a particularly volatile type of futures contract,’’ the complaint filed by Galvin’s office said. “Erickson pooled investor funds into online brokerage accounts and began trading pursuant to his purportedly divine system.”

According to Galvin’s office, Erickson began investing in E-Mini Russell 2000 futures contracts in 2008 to supplement his retirement income. In 2010, he started taking money from others at his unnamed Ashland church, but did not invest all of it; about half was kept in his checking accounts to pay the returns he promised.

By late 2014, he told investors that he had “lost everything.” Around seven of the at least 25 investors were fellow church members. Some of his investors, Erickson allegedly told investigators, were living “hand to mouth.”

“Ponzi schemes are insidious tricks on investors because they seem to work, but inevitably collapse,” Secretary of State William Galvin said in a statement. “It is especially distressing when it occurs in the context of affinity fraud where investors are victimized by misplaced trust.”

A spokesman for the secretary of state’s office said Erickson didn’t have an attorney. He could not immediately be reached for comment, but according to the complaint, said it was “my shame and my sin” that he recruited people from his church.

Shane Baldwin of Layton, Utah Has Finally Been Criminally Indicted

Posted on by
1

BaldwinWhen you practice law in the area of investment fraud you tend to get a lot of calls about some cases and individuals — especially once the payments stop coming in.  I can honestly say that I have received more calls regarding Layton, Utah resident Dwight Shane Baldwin over the past six or seven years than any other individual.  I previously wrote about Baldwin in a post titled “Silverleaf Fraud Filing” in March of 2010, when the initial civil charges were filed.  He later entered into a Stipulation and Consent order in June of 2010 with the Utah Division of Securities. Well, these cases move slowly but I am pleased to report that three sets of criminal charges have now been filed against Baldwin.

As reported by Tom Harvey at the Salt Lake Tribune, last month prosecutors filed criminal charges for the third time in less than a month.  The latest allegations are that he cheated investors out of more than $14 million.  Baldwin faces fourteen second-degree felonies, including Securities Fraud, Communications Fraud, Theft, Unlawful Dealing with Property by a Fiduciary, and engaging in a Pattern of Unlawful Activity..

The Affidavit of Probable Cause filed by the Utah Attorney General’s Office alleges that Baldwin, as founder and manager of Silverleaf Financial, told investors that he would use their money to purchase distressed debt that was purportedly secured by real property. As usual, investors were promised abnormally large returns in exchange for their investment — always a red flag.

However, as is often the case, an investigation by the Utah Division of Securities and the Federal Bureau of Investigations revealed Baldwin engaged in numerous deceptions while trying to obtain investor funds, including misrepresenting expected investment returns. He is alleged to have told one investor he was investing $2 million in an asset purchase but never actually invested the money. In another transaction he told multiple investors he had a buyer ready to purchase an asset and none of the investors were repaid any of their initial investment. It is also alleged that Baldwin used $1 million of investor money on personal expenses.

In a news release, Utah Attorney General Sean Reyes stated that “people should verify the legitimacy of a deal or offering, before ever trusting anyone, even close friends and family, with money to invest.”

I couldn’t agree more.

Copyright © 2015 by Mark W. Pugsley