Flimflam Artists Strike It Rich in Utah With Feast of Unwary Victims

SALT LAKE CITY —  Welcome to Utah. Watch your wallet.

The Olympic vote-buying scandal was in keeping with a state known for its dubious financial dealings and frauds, both petty and grand.

There’s a good reason Salt Lake City is by far the smallest city where the U.S. Securities and Exchange Commission set up an office to fight fraud.

“There’s no shortage of work here and, in fact, we can’t get to a lot of stuff we come across,” says Kenneth Israel, who heads up the SEC outpost. His office is “swamped” with 25 cases of fraud under investigation, 20 administrative or court cases pending and an unending supply of complaints and referrals. Eight lawyers and accountants struggle with the workload.

The SEC was drawn to Utah in the early 1950s when a uranium boom inspired a run on stocks issued by hastily organized mining ventures that had few assets or prospects but found plenty of suckers. The flogging of worthless penny stocks earned Utah a reputation as the sewer of the securities industry. It has yet to fully shake the tag.

Now, fraud runs the gamut from old-fashioned Ponzi investment schemes that amaze Israel with their frequency--”we see a ton of those cases”--to modern Internet and identity thefts. Some days, the business page of the Salt Lake newspapers reads like a police blotter.

The roll call of Utah flimflams involves film deals, gold mines, 19th century railroad bonds, equipment leases for laser eye surgery, greeting cards, remote-controlled submarines, bank busts and corporate book-cooking.

Last year, an investment scheme almost took the city of Ogden and Duchesne County on supposed returns of up to 130% a month with rapid buying and selling of notes issued by the world’s leading banks. Municipal officers wised up before getting taken.

“It’s outrageous, but we see a lot of it,” says Israel, a 51-year-old SEC veteran. “If it seems too good to be true, it probably is, but people keep buying.”

Why so much fraud? Israel shrugs, but he has a theory: In a state dominated by Mormons, many off-market scams are peddled to a trusting flock inside church circles.

He makes clear that the Church of Jesus Christ of Latter-day Saints is not involved, but its close-knit structure provides a handy bunco incubator. Indeed, when Israel has to consult Mormon authorities on swindlers claiming church connections or business, the leaders are eager to cooperate.

“People are very trusting, especially if you’re in the same faith,” says Chris Thomas, a jeweler in Sandy, Utah, who was taken for $25,000 by a fellow churchgoer and neighbor. The man turned out to be an ex-felon. Thomas says criminals can find a haven in church, “and when you’re taken you’re supposed to be very forgiving.”

Other cases run to the incredible. In early November, a Utah auto mechanic was indicted in New Jersey for trying to redeem a counterfeit $100 million Federal Reserve bond. The mechanic says he got the note from a Philippine general through an intermediary and thought it was genuine, even though Federal Reserve denominations never topped $1 million.

Just as improbable was the sale of 19th century railroad bonds, not a great investment even in 1870. Buyers a few years ago thought they could redeem more than a century of U.S. government-backed interest from railroads that went belly up when Jesse James was robbing banks. Three Utah bond dealers are charged with making millions of dollars peddling hundreds of the dusty certificates. The paper was traced to a museum gift shop in Michigan.

So after the Olympic bribery scandal broke in late 1998, Gov. Mike Leavitt’s economic development chief fired off a worried memo to the governor: “Unfortunately, the Olympic scandal is renewing our reputation for having too many financial scams.”

Utah’s once-lauded Olympic bid executives, Tom Welch and Dave Johnson, await trial on federal charges of masterminding a decade-long bribery conspiracy to win the 2002 Winter Games by doling out $1 million in cash, gifts, travel and scholarships to international Olympic delegates.

The Olympic scandal broke before Utah finished licking the wounds from another financial scandal, the looting of Bonneville Pacific Corp., a publicly traded alternate energy company.

The scandal tarred former Salt Lake City Mayor Deedee Corradini, a company founder who had to pay a bankruptcy trustee $800,000 to settle civil charges. She avoided criminal prosecution, but five company officers were convicted of fraud.

One of Utah’s most famous scandals fleeced Mormon leaders, the church and other faithful of hundreds of thousands of dollars. By 1985, Mark Hofmann had built a thriving business peddling forged historic documents and letters, many relating to the church’s 19th century origins or challenging Mormon orthodoxy. The church was eager to control them.

Hofmann operated for years before his scheme started to unravel. As a distraction, he set off a series of pipe bombs that left one suspicious investor and a woman dead and himself badly maimed. In 1988, two years after he was imprisoned, Hofmann was told by the Utah Board of Pardons he would spend the rest of his life behind bars.

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Securities and Exchange Commission investor education:

https://www.sec.gov/oiea1.htm