Unfriendly theft: Educating against affinity fraud

Published: Monday, Feb. 13 2012 7:00 p.m. MST

SALT LAKE CITY — Jerome Mayne never thought of himself as a criminal, even though he was violating the law.

The former loan officer — now convicted felon — spent nearly two years in federal prison for participating in a scam during the mid-1990s by making loans to homebuyers using fraudulent information. While his role in the scam was relatively minor, the penalty he paid was significant.

Along with four other co-conspirators, he was charged with conspiracy to commit mail fraud, wire fraud and money laundering. In 1999, he pleaded guilty to the first two counts and spent 21 months in a minimum-security federal prison in Yankton, S.D.

"There were several red flags looking back," Mayne said. Writing loans for clients that didn't have proper documentation and fudging critical data did not seem quite right to Mayne at the time. But he didn't take action to stop it.

"When I look back on it … it was stupid in retrospect," Mayne said. "In fact, it wasn't just stupid, it was criminal."

Mayne will be one of the featured speakers at a half-day conference called "Fraud College" that will be held in Salt Lake City on Feb. 15 at the University of Utah main ballroom from 8:30 a.m. until noon. Individuals may register online for the free event by visiting www.fraudcollege.org.

Real estate schemes are among the many fraud crimes perpetrated in Utah and states across the nation every year. And they've helped fuel Utah's reputation as a place where fraud thrives.

Losses exceeded $1.4 billion in Utah in 2010, said Brent Baker, event organizer and locally based attorney specializing in white collar crime.

"To put that number in perspective, in that same year, skiers and snowboarders spent around $1.2 billion, according to the Utah Ski and Snowboard Association," he said.

While the state and Securities and Exchange Commission investigated the $1.4 billion in frauds, the Salt Lake City office of the FBI reported an additional $600 million in fraud losses under scrutiny during that same period.

According to the Utah Department of Commerce, there are currently 57 active fraud investigations being conducted by the Utah Division of Securities.

One of the focuses of the Fraud College event will be affinity fraud, which government experts claim is especially prevalent across the state.

Affinity fraud refers to scams in which the perpetrator uses personal contacts to swindle a specific group, such as a church congregation, a Rotary club, a professional circle or an ethnic community. Most affinity frauds are Ponzi schemes, in which money from new investors is used to repay old ones, or is siphoned off by the promoters.

Baker said that in 2011, the number of reported affinity fraud cases climbed 30 percent to 40 percent from the prior year with reported losses totaling approximately $250 million.

The message of the conference is clear — be cautious about where and with whom you invest your money or share personal information, Baker said.

"The problem is really a trust problem," he said. "Affinity fraud is especially insidious because it's a breach of this special relationship of trust."

The issue has become a significant concern for leaders of the state's predominant faith. Among the featured speakers at the event will be Michael Otterson, managing director of public affairs for The Church of Jesus Christ of Latter-day Saints.

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