Utah named a top Ponzi state again
As if Utah didn't need more validation of this sort, a new study by a business intelligence firm has placed the state No. 5 nationally for generating fraudulent Ponzi schemes.
That follows the FBI last year naming its Salt Lake City office as being in one of the agency's Top 5 "Ponzi hotspots" in the nation.
Marquet International, which conducts investigations and supports litigation out of offices in Boston and New York, released its Ponzi study Tuesday. Ponzi schemes, named after the early 20th-century's Charles Ponzi, are operations in which monies from newer investors are used to pay initial investors to make it appear a business is profitable. The scam enables fraudulent firms to attract even more victims.
Marquet's study compiled information on 329 cases since 2002 from public sources such as criminal and civil lawsuit cases, Securities and Exchange Commission records and news media articles. The information was put into a spreadsheet and analyzed in various ways.
Using that data, the company created what CEO Chris Marquet calls the Ponzi Propensity Ratio, the percentage of Ponzi fraud per state divided by its percentage of the nation's gross domestic product.
That ratio puts Utah atNo. 5, after New York, Minnesota, Texas and Florida.
"Given that [Utah] did not have any of the mega-Ponzi schemes in the study (its largest fraud ranked 28th overall), but rather had a series of 11 steady solid frauds, we yet again affirm that [the state] seems to have been a breeding ground for Ponzi schemes in the past decade," the report said.
Val Southwick and his VesCor companies had the dubious distinction of being No. 28. Southwick is serving a prison sentence after his guilty plea to fraud charges.
Utah also comes out a top Ponzi state by other measurements.
By sheer numbers of schemes totaling more than $1 million, Utah was ranked No. 10, with 11. California had the most, at 66. As a percentage of the total number of cases, Utah was ninth, with $646 million involved.
"If you look at all three of those analytical clips, it says to me Utah, for some reason, has a high propensity for breeding fraud," said Marquet.
The study shows that members of the same religious group were the targets of Ponzi schemes about 30 percent of the time, second only to the elderly and retired people, at 34 percent.
The top position of the elderly helps explain why Florida is one of the top Ponzi states, and the high percentage of people in Utah who belong to The Church of Jesus Christ of Latter-day Saints helps explains its high ranking.
"If you look at individual cases, a lot of them are targeting LDS members," said Marquet.
Keith Woodwell, director of the Utah Division of Securities, said in Utah the percentage of affinity fraud which targets a group whose members share common interests and emotional ties, such as a church affiliation is likely much higher than the national average.
"I would say it's probably closer to 50 percent of the scams we see in Utah that are marketed based on some type of affinity group," he said.
Woodwell said the study reinforces what his agency has been saying for some time.
"It's a serious problem in Utah, and investors need to be careful when they are selecting who they are going to put their money with," he said.
Last year, the Utah Securities Fraud Task Force, made up of local, state and federal agencies, said it was investigating cases that involved all kinds of financial fraud that allegedly took in about $1.4 billion from 4,400 people.
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Tips to avoid investment fraud
1 • Thoroughly check out prospective investment advisers.
2 • If it sounds too good to be true, it probably is.
3 • Be skeptical of exotic financial products.
4 • Be skeptical of "once-in-a-lifetime" claims.
5 • Be highly skeptical of "guaranteed" returns or "risk-free" investments.
6 • Be skeptical of investment programs that target at specific groups, such as members of the same religion.
7 • Be skeptical of flimsy disclosures and statements.
8 • Be wary of too-regular returns, especially in a volatile market.
9 • Be skeptical of new or unknown investment firms/advisers.
10 • Be skeptical if your investment adviser is also the custodian of your investment.
11 • Avoid high-pressure sales tactics and blind Internet solicitations.
12 • Diversify your investments.
Source: Marquet International