UTAH FRAUD BLOG

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

UTAH FRAUD BLOG

Monthly Archives: February 2016

Another Utah Ponzi Scheme? The SEC’s lawsuit against Marquis Properties

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Last month the Salt Lake Regional office of the US Securities and Exchange Commission filed a lawsuit and obtained an asset freeze against Marquis Properties, LLC, its CEO and President Chad R. Deucher, and the company’s Executive Vice President, Richard (“Rick”) Clatfelter.  In its complaint the SEC alleges that these men orchestrated a $28 million Ponzi scheme that defrauded more than 250 investors throughout the United States.  The complaint contains the following allegations:

  • That from March 2010, Marquis, through Deucher and Clatfelter, orchestrated a scheme to defraud unwitting investors by inducing them to invest in notes and investment contracts collateralized by real estate.
  • That Marquis represented that it would use investor funds to purchase real properties and that investors would receive guaranteed profits and return of principal upon sale of the properties. Marquis represented that investments were safe and low risk because the notes and investment contracts were 100% collateralized by valuable real property.
  • That Marquis failed to purchase properties with investor funds, however, and properties offered as collateral were often not owned by Marquis, were substantially encumbered, or were in uninhabitable or blighted condition.
  • That rather than using investor funds as represented, Marquis used investor funds to pay returns to earlier investors, in a classic Ponzi scheme. Marquis could not have paid returns to earlier investors without the influx of new investor money.
  • That Deucher caused Marquis to use investor funds to pay personal expenses of Deucher and directed Marquis to provide investor funds to his wife.

The SEC’s complaint charges violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”). The complaint also charges Deucher and Clatfelter with violation of Section 15(a) of the Exchange Act, and names Jessica Deucher as a relief defendant. The SEC is seeking injunctive relief, disgorgement, prejudgement interest, and civil money penalties from Marquis, Deucher, and Clatfelter.

The SEC’s investigation has been conducted by Scott Frost and Cheryl Mori and supervised by Richard Best. The litigation will be led by Amy Oliver.

If you are a victim of the Marquis Properties fraud and have a story to tell about it, please do so in the comments below.

NPR’s Planet Money Podcast: Episode 680: Anatomy Of A Scam

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You’ve seen these ads before: “Work from home. Make thousands of dollars a week. Call this number!” On this show, Planet Money’s team finds out what happens when you respond. It’s the story of a scam that will not die. This episode has secret documents laying out how it all works and recordings of actual phone calls.  And yes, there is unfortunately a Utah connection.

Mark Pugsley’s Recent Interview on Mormon Stories

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I was recently interviewed by John Dehlin who runs the “Mormon Stories” Podcast about affinity fraud in Utah.  This episode is available in audio only through John’s podcast, or you can watch the video below.

Episode 606: Mormonism and the Culture of Fraud with Attorney Mark Pugsley

by John Dehlin • 

Ponzi-scheme-1In this episode we interview Utah attorney Mark Pugsley.  Mark is a commercial litigator at Ray Quinney & Nebeker, is the founder of the web site UtahSecuritiesFraud.com, and has handled civil disputes, investment fraud cases, securities arbitrations, whistleblower cases and regulatory investigations for over twenty years.

In this episode, Mark discusses the culture of financial fraud (e.g., ponzi schemes) within Utah Mormonism.

For those interested, a list of past Mormon-related cases will be assembled here.  Please feel free to share links to other stories in the comments below.

Fraud Cases discussed in the podcast:

    1. Val Southwick of Ogden, Utah (SEC Complaint was filed in February of 2008). Southwick left $180 million owing to investors when his company collapsed and was put into receivership.  This Ponzi scheme lasted over 20 years.
    2. Jeffrey Mowen of Lindon, Utah (SEC Complaint was filed in September of 2009). Raised approximately $41 million promising bank-backed CDs from a New Zealand bank that paid returns as much as 33% per month.
    3. Roger Bliss of Bountiful, Utah (SEC Complaint filed in February of 2015). Investors incurred losses of $3,299,689 relating to an “investment club” he ran out of his large Bountiful home. He told investors that he had achieved annual returns of between 100 to 300%.
    4. Dean Udy of Brigham City, Utah (Sued by State of Utah in August of 2012). Udy scammed approximately 1,500 investors who suffered a total  estimated loss of $20 million. He was a former stake president and regional representative in Brigham City, Utah.
    5. Travis Wright of Holladay, Utah (SEC Complaint was filed in 2010). He raised $145 million from 175 investors promising returns of 24% per year.
    6. John S. Dudley of Sandy, Utah. (US Attorney obtained a 17-count criminal indictment in May 2011) Investors suffered $6.8 million in losses, promised returns of 5-10% per month.
    7. Shawn Merriman of Denver Colorado (SEC Complaint filed in April of 2009). He was sentenced to 12½ years in federal prison for defrauding 67 victims out of $21 million.  Merriman was a Bishop in the LDS Church in Colorado and raised the money from friends, neighbors and fellow church members.  The government seized roughly $4 million in fine art, antique cars, sports memorabilia and animal trophies collected on his safari trips when they arrested him.
    8. Wendell Jacobsen of Fountain Green, Utah (SEC Complaint was filed in December of 2011, Utah AG’s office brought criminal charges earlier this year)  Allegedly raised $200 million from more than 400 investors promising returns of 12-15% per year returns by investing in apartment complexes.
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Why Were So Many Madoff Victims Jewish?

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This is a repost of an article by Harold Pollack that appeared in the Atlantic Monthly this week.  This has lots of relevance to the issues we deal with here in Utah; insular religious communities are a real hotbed for affinity fraud.  In fact, there is a reference to Utah’s unique affinity fraud problem and a reference to the “Fleecing the Flock” article about affinity fraud in Utah that appeared in the Economist several years ago.

Why Were So Many Madoff Victims Jewish?

The trust people tend to feel toward others in the same ethnic, racial, and political groups makes them easy targets for scammers.

Last week’s ABC mini-series chronicled the most famous financial fraud in recent American history: Bernard Madoff’s $50 billion Ponzi scheme, which devastated elite institutions and families of the American Jewish community. The scale of Madoff’s crimes was breathtaking. There’s much to be said about his crimes—not least about the incompetence of the regulatory apparatus that failed to stop him despite repeated warnings and what researchers Greg Gregoriou and Francois Lhabitant quite appropriately called “a riot of red flags” over many years.The tragedy itself was also its own sort of warning. Madoff’s victims were not a random assortment of the well-off; he decimated a segment of the wealthy Jewish community and several Jewish charitable organizations. Knowing the general magnitude of Madoff’s crime, I’m still taken aback by the particulars, which betray Madoff’s lack of conscience and any sense of limits. He wiped out Elie Wiesel’s life savings, and stole $15 million from Wiesel’s foundation. Madoff defrauded Hadassah. Who defrauds Hadassah? That’s like mugging your grandmother.
 Such crimes would not have been possible without the cultural ease and social entre Madoff enjoyed in the Jewish community. To put a name on things, this was one of the worst affinity frauds in Americans history, whereby unscrupulous people exploit their cultural connections and people’s communal identities to rip them off. In that sense, Madoff’s crimes were a warning to everyone about how in-group feelings of trust leave people vulnerable.
Affinity fraud is depressingly common. My own incidental exposure would be comical if the stakes weren’t so serious. I happen to live in a majority African American neighborhood in south Chicagoland. Although you wouldn’t know it to look at me, marketing algorithms based on my street address and some of my purchases apparently reveal that I am a middle-aged, middle-class African American man.Based on that identification, I get an impressive volume of sales pitches. If the letters, Facebook ads and robo-calls are to be believed, President Obama is obsessed with refinancing my mortgage. Our 44th president particularly wants me to take out a 15-year loan, one much better than what can be found at the bank. He also wants to sell me health insurance and some other things, which would be good for me, and good for the community. Many such deals offer a low interest rate, and are targeted to people in fear of losing their homes. But then they charge hidden or opaque fees for “refinance consultations.” Some ask for people’s home titles or pose as intermediaries, falsely promising to make payments to the actual lenders. The details vary, but purveyors of such sales pitches hope that their too-good-to-be-true offering will go down easier when combined with appeals for political or ethnic solidarity.I sometimes chuckle when I hang up after fielding such a sales call. But there’s nothing funny about efforts to defraud people or to deceptively market products by exploiting people’s personal and communal ties. In light of the empty houses and fading for-sale signs not far from my front door, such pitches are especially terrible, as they purport to offer a way out to many people in deep financial difficulty.
 Other communities face similar challenges. In the lead up to the foreclosure crisis, unscrupulous lenders deployed Spanish-speaking saleswomen to target recent immigrants. Once they won consumers’ trust with a persuasive sales pitch, lenders presented consumers with incomprehensible English-language financial documents that often steered people into risky, overpriced, or fraudulent loans. In other cases, con artists offer to help immigrants of the same nationality, and use the opportunity to obtain people’s Social Security numbers and other financial information, which is then used for mortgage fraud.
Pretty much any powerful connection humans make with others provides some correspondingly powerful opportunity for affinity fraud. Here in Chicago, an ex-Marine exploited his service ties to defraud fellow veterans. Affinity fraud is an issue within the LGBTQ community, as well. A terrific Economist story, aptly titled “Fleecing the Flock,” quotes an Alabama regulator’s estimate that half the affinity frauds in that region arise in religious communities.
It’s easy to see why. Such communities’ intimate ties of faith and mutual trust create particular vulnerabilities. Traditions such as tithing normalize provision of substantial resources to co-religionists whose financial acuity and probity may be difficult to fully discern. The Church of Latter Day Saints has experienced such a spate of cases that the Economist noted the “hook of Mormon” as a distinctive concern.As those Obama mortgage pitches suggest, political tribalism provides another potent opportunity for connection—and thus fraud—in a polarized nation. Right-wing talk radio, for example, features an array of advertising for dubious financial products, whose sales pitch conveniently matches the programs’ scaremongering regarding economic policy. Glenn Beck’s connection with Goldline was one notorious example of such products. Beck’s program relentlessly depicted an American economy on the verge of hyperinflation and collapse—an apocalypse naturally hastened by Barack Obama and other liberal political leaders. During commercial breaks, Beck’s audience was then conveniently exposed to Goldline, a purveyor of dicey gold investments.
Perpetrators of affinity fraud seeking to win our trust do the most lasting damage when they recruit community leaders as explicit or implicit endorsers. Some seek to provide a sense of status or peer pressure through nominally exclusive opportunities to join them. Madoff wouldn’t let just anyone invest in his closed funds. Many practitioners of affinity fraud imply that they have secret and timely information, which can turn into serious money if one acts quickly and discreetly.Practitioners of affinity fraud subtly exploit a community’s distrust of outsiders to discredit alternative sources of information. It becomes a mark of collective identity to spurn conflicting information and advice. Of course the lame-stream liberal media looks down on us for putting so much of our retirement savings into gold. Of course the same Washington experts trying to cut Social Security and Medicare look down on this variable annuity which might plug the holes in your retirement plan.
It’s ironic: The most cynical and distrustful among us are often the easiest marks.The weird information economics of herding also matter. You entrust your money with someone. Many people you know are doing the same thing. Each of you hopes and believes that someone has done the due diligence regarding these investments. If no one actually has, how would you know? After a while, it’s embarrassing to even ask.Whatever public policymakers do to address these problems, individuals should be especially skeptical of any financial product embraced by influential people in their religious, cultural, or political communities. Given such realities, it’s a mistake to allow personal familiarity, community affiliation, or time pressure to become a substitute for proper written contracts and the same due diligence one would apply to any stranger selling investment products or advice.In the end, any person’s best protection against affinity fraud is to avoid complex or speculative investment products offered by anyone, since even the honestly-offered fancy investment products very rarely provide much benefit. Following a simple investment plan is pretty boring. It remains the best bet. Once Americans internalize the reality that vanilla stock-and-bond index funds basically outperform everything else, and that vanilla  fixed-rate mortgages are the safest way to get a loan, they’ll save themselves a lot of time. They just might save themselves a lot of heartache, too.