Hard times seem to bring out more scammers, according to the Utah Division of Securities, which is seeing everything from bogus promissory notes to foreign money-exchange fraud and equity stripping.
Repeated warnings to the public haven't had much effect, says division director Keith Woodwell. "We're not learning. And a good con makes you think it's your idea. You con yourself because you want to believe it's true."
His suggestion for avoiding rip-offs seems simple: "Remember that there is ALWAYS a direct correlation between return and risk. Low-risk investments don't yield much. And while there are a few investments that may bring in more than a 10 percent return a year, they all carry high risk."
The most common securities scam, according to the division, is the use of an unsecured promissory note to ease any worries of a mark as he's separated from his money. The scheme could be anything, Woodwell notes. It might use real estate or money or — Woodwell's personal favorite — front-row concert tickets that could supposedly be resold for a good, reliable return.
Whatever the promissory note purports to be, he says, it should be protected by a recorded trust deed that puts your name on it. But with fraud, that never seems to happen.
Linda Allen is a businesswoman and former stockbroker who considered herself fairly savvy in the ways of finance until she got caught in the crosshairs of an increasingly popular type of securities scam, which involves foreign-exchange trading.
The man who bilked her out of close to $70,000, Robert Leroy Maready, recently pleaded guilty and is awaiting sentencing, Woodwell said.
Before Allen lost her money, if you'd asked, she would have told you she had checked him out. She had a friend at a title company look for judgments against him. That showed only a small one, years old. "Stuff happens" and that didn't raise any flags. She also visited Maready's home, where he traded, and watched him at work.
"He had this good-sized private office, and there were six or eight computers set up in it, each displaying multiple charts and graphs of markets around the world and what was going on," she says. "It looked impressive."
She watched him work and saw with her own eyes that he was making money, using his "proprietary" methods. He was going to teach her to do the same thing, and while she trained, they would use her money and split the proceeds. The first night, he made $11,000.
Not bad for a couple hours' work when you're trying to build a retirement nest egg, she figured. Still, it was "an important remaining piece of my future. I told him I cannot afford to lose this, and he told me it was the closest thing to a sure thing."
Three days later, he lost $32,000, and that unleashed a barrage of excuses. She eventually learned that he flat-out took $25,000 of her money to pay back someone else with whom he had earlier trouble, as part of a bid to avoid jail.
Woodwell said Allen's experience is not rare. And one of the hardest things for investigators and consumer-protection agencies is keeping the public alert and warned. Scams are made up, sometimes, very nearly in real time. Just as bad jokes start circulating two minutes after a tragedy, fraud flourishes on the fly. That's why a short time after the terrorist attacks of Sept. 11, 2001, so many scams sprang up around alleged "Homeland Security" projects, Woodwell says. And while those have died back a bit, they still exist.
Another popular pitfall right now is "equity stripping," or the over-collateralization of assets. That has cost consumers and lenders money recently, as borrowers sign loans for more than property is worth — such as 125 percent the value of homes — especially if actual values drop. Increasingly, people are finding themselves "upside down" in home and car loans.
In one scheme flourishing in rural communities, you admire an acquaintance's brand-spanking-new, tricked-out pickup truck and he tells you that he knows how you can get one for free, just like he did. You borrow extra and give the excess to some financial "genius" who promises you'll get back so much interest that it will make the payment for you.
Woodwell says his staffers have talked to a number of people who have been thus tricked. Often, with scams including this one, you do in fact get a payment or two — maybe even long enough to convince you so you'll share your good fortune with friends and they can be conned, too. Then the money stops coming in.
Some people are so desperate that they allow themselves to be taken twice. We hit a snag, but with a little more money, we think we can get it back. "Absolutely do not reload, even if you lost money. You'll lose more," Woodwell says.
Division investigators also warn consumers to be aware of an "affinity" aspect to scams. Rick Urdahl lost more than $300,000 to a "golfing buddy" he knew from his country club. Dwight E. Williams conned Urdahl and three others into investing in his video company to bolster funds leading to an initial stock offering. They were supposed to get at least 10 percent interest and a chance to buy stock at a great discount. Williams didn't show up for his own trial and was convicted in absentia.
Allen was lulled into a false sense of trust because items artfully arranged in Maready's office made it seem he shared her religious convictions.
That strategy is particularly common, says Woodwell. And many religions, including The Church of Jesus Christ of Latter-day Saints, teach that there are rewards for a righteous, honest person. So someone who's about to be victimized may believe that the offer that seems too good to be true is really just a literally heaven-sent opportunity, he warned.
Offers and opportunities should be checked out before investing — not after, when things are unraveling, Woodwell says.
"Our message is: Be skeptical," he says. "Demand documentation, and if you don't understand it, don't invest."
The division's staff members not only can, but want to look into individuals who are offering you a once-in-a-lifetime shot at wealth. And the division workers would like to hear from you before you get taken, Woodwell says.
They can see if someone is licensed as the law requires in order to offer certain financial services, and look for a history of complaints or discipline in any state. They can tell you your dream opportunity is similar to fraudulent activity they've been investigating. If there's real property involved, like oil royalties, they can see if a registered security exists to verify the property. Just call 801-530-6600.
Unfortunately, Woodwell says, "we get called too late. People mostly call when they already know they've been scammed."
Top scams in Utah
1. Unsecured promissory notes. If your investment is supposed to be secured by something, a recorded trust deed should name you.
2. Foreign-currency-trading scams. Foreign currency trading is a legitimate business that trades more than $1 trillion a day. But a number of scams center on it, often involving some kind of "proprietary" method or software that explains why you can't get a lot of details on the so-called magic that promises to make you rich.
3. Banking-related schemes. Beware of offers that promise higher returns than normal.
4. Equity stripping. These scams involve borrowing more than something (such as a house or car) is worth and investing the difference in something that promises high returns. Instead, the scammer gets the investment, and you get skunked.
Source: Utah Division of Securities
E-mail: lois@desnews.com