Quantcast

Unfriendly theft: Educating against affinity fraud

Published: Monday, Feb. 13 2012 8:43 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.

"The value of this kind of event is that it draws attention to a problem in our community which is often underrated and misunderstood," he said. Otterson said his address would include remarks on raising awareness about affinity fraud, particularly among members of the LDS faith.

One Utah County resident said she lost $35,000 to an affinity fraudster she met at church. She said stiffer penalties are needed for criminals who take advantage of those who are vulnerable.

"He used religious (ideals) against me," said Kaylene, who did not want her last name used. "He told me that he was guided by the spirit and said he was the financial rescuer of people."

Her story is a common one in Utah, where more than half the cases of investment fraud that are investigated by the state Division of Securities involve affinity fraud, said agency director Keith Woodwell.

"If the (sales) pitch is coming from someone who we share an affinity with, whether it's through a religious bond or family relationship, a co-worker or just somebody we feel comfortable with, we're far more likely to delude ourselves into believing that this (investment opportunity) could be real," he said. "Just look at Bernie Maddoff. It started off as affinity fraud within the Jewish community."

He said Utah's losses have real impact. "If you think about if that money instead had been directed to legitimate (purposes), it could have done a tremendous amount of good, and instead it's wasted on fraud scams," he said.

Woodwell said more frequently the profile of the people who find themselves as victims of fraud are of "better than average level of sophistication."

"They are well-educated people who do know something about the financial universe and how it operates," he said. "In some cases, it makes it easier for us to con ourselves if we think we're smart and feel like we have a little knowledge of how things work in the investment arena and the business world."

As the amount of fraud nationwide has increased, so has the focus from state and national law enforcement agencies.

In Utah, the FBI has targeted various types of scams, including investment fraud, health care fraud, insurance fraud and mortgage fraud. During the past few years, the number of fraud cases has remained relatively stable, while the dollar amounts involved have grown dramatically.

"Back in the late '90s, if we worked a $3 million or $4 million case, that was considered a pretty significant case," said supervisory special agent Jim Malpede. "Today, I don't have the resources to work cases that are less than $10 million, for the most part."

He said that a lot of their efforts are going into investigating cases that exceed $50 million. Due to the hike in fraud, his office has received about a 30 percent increase in agent resources.

Last year, Gov. Gary Herbert signed three bills into law aimed at protecting Utahns from affinity scammers.

"Affinity fraud is the worst type of white collar crime, because it preys on, and betrays, personal relationships," Herbert told the Deseret News.

"Much like the seat belt education that took place in the past, the state of Utah is trying to educate investors to be careful, use common sense and do their homework. Bottom line: If something sounds too good to be true, it probably is."

Email: jlee@desnews.com

Twitter: JasenLee1

Get The Deseret News Everywhere

Subscribe

Mobile

RSS