Mormons Now Losing Billions to Affinity Fraud
September 13, 2010
Mormon folks in Utah have been fleeced of $1.4
billion over the past few years in affinity fraud schemes designed to
exploit their connection to the LDS community and culture, according to
Oh, yes, we've all seen it. Or heard about it from
friends and relatives.
Multi-level marketing. Miracle health
products. Peddled to people who have been raised in an LDS culture that
values “insider” status, kinship ties, hierarchy, and unquestioning
respect for authority over critical thinking and skepticism.
A Mormon taste for the miraculous doesn’t hurt
Fraud peddlers have been known to call down church
membership lists and enlist returned missionaries fresh back from
service and hungry for work. Their capital? Utah County, Utah, home to
Brigham Young University, and the beating heart of the Book of Mormon
A friend from a northern Utah farmtown remembers
that her dad always said: “If the first thing someone says when they
introduce themselves to you is that they’re LDS, keep your hand on your
Agency says three Ponzi schemes took $15 million
By Tom Harvey
The Salt Lake Tribune
Updated Jun 25, 2010
regulators have moved to halt what they allege are three related Ponzi
schemes that took in more than $15 million, apparently mostly from
Mormon Church members promised returns of 200 percent and more.
Securities and Exchange Commission has filed a complaint in Salt Lake
City’s federal court against four men who allegedly operated Ponzi
schemes in which money from new investors goes to pay off earlier
investors, making it appear a business is profitable.
in the civil complaint this week were Anthony C. Zufelt, 30, of
Roosevelt; Joseph A. Nelson, 33, formerly of Layton and now living in
EI Dorado Hills, Calif.; and David M. Decker, 36, of Provo and his
brother, Cache D. Decker, 32, of Leesburg, Va.
companies involved are Zufelt Business Services, of Syracuse; Silver
Leaf Investments, of Clearfield; and JCN, JCN Capital and JCN
International, all of Clearfield.
Melton, an SEC attorney in Utah, said the schemes involved soliciting
investments from people who were told their money would be used to
expand businesses that collected fees from merchants for processing
credit card payments.
were told they could earn a return of up to 220 percent because fees
from the processing businesses would grow as new clients were signed
up, he said.
of using investor monies to expand the credit card business, the four
used the money to pay off investors, for personal expenses or put it
into other businesses — including for a movie called “Pirates of the
Great Salt Lake.”
“would approach friends, family and other church contacts and tell them
he could get about 200 percent return for them in a short period of
time,” said Melton.
None of those named in the complaint could be reached for comment Friday afternoon.
said a number of victims told investigators that the accused used their
connections as members of The Church of Jesus Christ of Latter-day
Saints to solicit them.
was a high counselor in his stake who contacted LDS members through
church connections and church functions,” said Melton.
affinity fraud, in which members of a group sharing interests and
beliefs are targeted by scammers, is a particular problem in Utah,
where the LDS community is tightly knit with a high degree of trust
The complaint cites three interrelated schemes.
first, between June 2005 and June 2006, involved at least 36 persons
who invested more than $2.9 million in Zufelt Inc. The second, between
July and December 2006, impacted at least 11 people who invested
$770,000 in promissory notes offered by Silver Leaf Investments.
Zufelt controlled both companies. The three other defendants are accused of selling investments on his behalf.
allegedly oversaw the third scheme. The SEC charged that, starting in
June of 2005, Nelson solicited at least $12 million from more than 100
persons for investments in promissory notes offered by the JCN
companies he controlled.
scheme was active at least through the first months of this year,
Melton said. The SEC has obtained a temporary restraining from U.S.
District Judge Dee Benson that freezes the assets of those involved and
requires them to account for investor monies.
Preying on the faithful: Though Mormons often victims, LDS Church skips fraud-prevention event
By Tom Harvey
The Salt Lake Tribune
Koerber, Hammons and Mowen -- a gallery of Utahns convicted or facing
criminal charges for involvement in some of the state's biggest fraud
the four represent only a sampling of the problem that has wracked Utah
in recent years as the recession has pushed more schemes into the open.
by the wave of fraud that by one estimate took $750 million out of
Utahns' pocketbooks last year, regulators, law enforcement officials
and attorneys are organizing a free "Fraud College" next month in Utah
County for the public to call attention to the problem and to try to
the one player that all agree has to lend its loud voice to the
proceedings if they are to be as effective as possible will be largely
silent -- the LDS Church.
is Utah, after all, where The Church of Jesus Christ of Latter-day
Saints claims about 60 percent of residents as members. Beyond the
numbers, there is the church's organization into close-knit local wards
led by male authority figures where members' social and religious lives
revolve around shared beliefs in the sacredness and uniqueness of their
characteristics make Mormons vulnerable to what regulators and
government investigators label "affinity fraud" in which groups who
through shared associations develop bonds of trust that can be easily
exploited by con artists. Though other faiths are similarly vulnerable,
that is particularly true in the insular Mormon culture of Utah.
this notion that if you pay your tithing and do what you're supposed to
do, the windows of heaven will be open to you and God will pour you out
a blessing such that there's not room enough to receive it," said Keith
Woodwell, a church member and director of the Division of Securities,
the state's chief investigator of investment fraud. "So it's very easy
for someone who has [fraud] as their motive to use that doctrine and
say, 'Look, you're a member in good standing and you pay your tithing
and you're entitled to be blessed.' "
not to participate » But the church, after initially signaling to
organizers that it would be a key player in the fraud conference that
is drawing representatives of other faiths, has chosen not to send a
high-ranking authority to speak.
A church spokesman declined to say why it was not participating.
F. Zimbelman, a Brigham Young University professor of accounting who
teaches a class about how frauds are committed, will be the LDS member
on the interfaith panel at the Fraud College. But he said will not be
speaking for the church.
church's decision is a disappointment for organizers, who wanted a
strong LDS presence to send a message about safe investments.
don't think any church has done enough, including the Mormon Church,"
said attorney Brent Baker, a former Securities and Exchange Commission
lawyer and a specialist in securities fraud cases.
by the level of fraud in Utah and the inability of government to deal
with the problem, Baker and fellow attorneys, state regulators and
others saw the Fraud College set for June 30 at Utah Valley University
in Orem as a way educate Utahns and give them the tools to evaluate
pitches and make decisions about whether to invest.
sessions will include an interfaith panel in which representatives of
several faiths are scheduled to participate. But organizers saw the
involvement of the LDS Church as crucial, given the level of fraud
perpetrated in its ranks and what many perceive as its muted response
to the problem.
think more needs to be done" by the church, said Francine Giani, a
church member and executive director of the state Department of
Commerce. "A couple of years ago we saw a statement that was read over
the pulpit that I was happy about, but we should see more and we should
see it often."
written statement, LDS Church spokesman Scott Trotter said church
leaders have been warning members for years about the dangers of fraud
and get-rich-quick schemes. "These messages have been delivered over
the pulpit in General Conference, in official letters from church
leadership, and in articles found in official church publications," he
without an official LDS presence, Fraud College organizers think they
will still be able to put on a credible event. The one-day session will
feature panelists speaking on various aspects of investing and on
investment fraud. Gov. Gary Herbert will be the keynote speaker.
Spokeswoman Angie Welling said the governor agreed to participate
because he's concerned about the issue.
often Utahns are very quick to simply trust those people in their inner
circles, whether it's through church affiliation or any other social or
recreational group," said Welling, adding that the governor will talk
about the importance of research before investing.
Bowden knows the pitch all too well. She and members of her family
invested about $1 million with a former LDS bishop, mostly because of
his standing in the church.
Hammons reached a great deal of people in the church, and I know he did
perpetuate the fact that he was a bishop or had been a bishop and that
was first and foremost your reason for trusting him,"said Bowden.
of St. George is facing trial this year on 10 felony fraud-related
charges for allegedly helping bilk dozens of people out of tens of
millions of dollars. Hammons, who denies he knowingly participated in a
crime, was the largest fundraiser for VesCor Capital, the entity
associated with what appears to be the biggest financial fraud case in
owner Val E. Southwick, who is serving a lengthy prison sentence for
his role, displayed LDS symbols in his Ogden office, and was known to
sometimes push his Mormon temple recommend across his desk at potential
investors. Southwick has been excommunicated, the church confirmed on
State regulator Woodwell would like to see the church treat fraud as a violation of as sacred relationship.
love to hear a very clear statement that this is a relationship of
scared trust that you have with your ward members, stake members," he
said. "And to abuse this relationship of trust, to take advantage of
someone financially, is not just a crime but that it is really a
reprehensible and an egregious abuse of that relationship. And it
should be treated in the same way the abuse of other sacred
relationships are treated. It's just like spousal abuse or child abuse."
in the country » Fraud is a long-standing problem in the state,
stretching back decades as it ebbs and flows, coming back each time
with a vengeance, said James Malpede, who leads the FBI's white-collar
crime unit in the state. Utah has lost its ranking as the top state per
capita in fraud but it remains a huge problem.
"I'd say per capita it is one of the worst in the country," said Malpede.
How bad? The agency is mostly limiting itself to investigating cases in Utah involving $20 million or more.
of what we're working on is $25 million and up, and a lot of what we're
working on is $100 to $150 million and more," said Malpede.
Baker said he came up with an estimate of the amount of money Utahns
lost to big fraud schemes in 2009 based on cases in which charges have
been filed and those he knows of where no actions have yet been brought.
a rough calculation of Ponzi schemes I saw over the last year that came
through Utah and I would say it was at least $750 million."
Hines, chief of enforcement at the Division of Securities and a 20-year
veteran of fraud investigations in Utah, said state and federal
officials are limited in what they can do in educating people about how
to avoid affinity fraud.
step back as a regulator I look at it this way. If the trust within the
affinity causes the harm, the affinity has some responsibility in
helping us solve the problem," he said. "As regulators, we can't do it.
We can't catch their attention."
Fraud College is intentionally being staged in Utah County, which in
the past decade or so has become a center for fraud in the state.
a much higher percentage of cases in Utah County or that touch Utah
County," said Malpede of the FBI, who was assigned to Provo for a time.
Koerber, who has pleaded not guilty to 20 fraud-related charges in
federal court, operated out of Utah County with an real estate
investment operation the government says raised at least $100 million.
Jeffrey Mowen also was a Utah County resident. He is in jail waiting
trial on charges of fraudulently taking about $10 million of investor
on Utah County » Officials say there are several reasons for Utah
County's heightened profile. One is the growth of wealth over the past
20 years as the economy prospered before the recession and the
corresponding rise in home prices. This left many would-be investors
with the belief they had available funds that could return big profits.
Mark Pugsley, who handles securities cases and recently served on the
advisory board for the Division of Securities, told about one man who
was soliciting investments for Mowen in Utah County that is 77 percent
just used the ward list and went straight down and made phone calls to
everybody. Next to each name where they successfully raised money they
wrote a dollar figure in the margin," said Pugsley, who also blogs
about fraud in Utah at utahsecuritiesfraud.com.
fraud-related phenomenon particular to Utah and more so to Utah County
are the recruitment of returned missionaries into what turn out to be
illegal activities and the creation of investment programs based on
multilevel marketing models.
missionaries often come back with enhanced communications skills and
thick skins but in recent years have been met with fewer employment
options because of the recession, Baker said. Other young people also
are caught up in scams when they are recruited to raise money for
businesses, he said.
have this 18- to 25-year-old segment that frankly is being recruited as
lieutenants and ultimately perpetrators or perpetuators of the fraud,"
would like to see the church debrief missionaries about the dangers of
being caught up in a fraudulent activities as they seek employment
after their church service.
say another type of fraud particular to Utah County involves multilevel
marketing in which participants recruit others into an investment, who
then recruit still others, with each level receiving a return from the
investment of those recruited after them.
of companies use that marketing plan legitimately, but recruitment of
people into some types of "business opportunities" within the
multilevel marketing business model often crosses legal lines, and
participants become victims and participants in the crime at the same
the securities industry you rarely hear of multilevel marketing of
fraud programs," said state regulator Hines. "But [in Utah] we hear of
them with regularity."
this fraud is taking a toll not just on individual Utahns but on the
state's economy and its future. Millions of dollars have been drained
that could have gone to legitimate businesses or even into relatively
of those hundreds and hundreds of millions of dollars leak out of the
legitimate investment system and just disappear," said attorney Baker.
"That can't go to fund the company that has the next cure for cancer or
the new clean energy company, nor can it go into safer market-based
products like mutual funds."
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