SALT LAKE CITY — Two state agencies are warning seniors to watch out for investment pitches tempting consumers to look beyond Wall Street for profits.
The Utah Division of Securities and the Utah Department of Commerce released a Top Ten list of Investor Threats to educate consumers about investment fraud and offered cautionary tales of people who found themselves on the wrong side of investment scams.
Kay, 65, was a victim of securities fraud in the summer of 2007. She agreed to tell her story on condition her full name not be used.
She said her neighbor, Tyler Archuleta, approached her and asked if she wanted help landscaping her yard. After accepting Archuleta’s help, she rode with Archuleta to Kearns to rent landscaping equipment. During the trip, she heard Archuleta speak on his cell phone with someone about his trucking business.
Archuleta told her that he had been a long haul trucker, but now had employees working for him and a fleet of 250 semi-trucks held by the company he co-owned with his wife Danielle.
A few days later, Kay went to Archuleta’s home to learn more about his business and to inquire about doing business with the couple’s firm or buying shares in the business.
Kay said she was told that for $300,000 she could buy a semi-truck and two trailers, but she would also need to pay to hire a driver, pay $2,000 a month for insurance and for the Archuletas to schedule deliveries, and that the semi-truck would generate about $600 per day. She said she was also told that if she did not like that deal, she could pay the Archuletas $300,000 instead and they would pay her $30,000 a month for 12 months with 20 percent interest for a total of $360,000.
Kay eventually decided to invest $300,000. She signed a contract with the Archuletas that said, among other things, that Archuleta Trucking, LLC would liquidate company assets to repay her if there was a problem that left the company unable to return her promised investment.
Shortly after she invested, Kay said she saw Archuleta talking to their neighbor and went over to inquire if the neighbor also “gave money” to invest in the business. She said Archuleta ignored her question in front of the neighbor and later told her not to tell the neighbor about the investment.
From September 2007 until March 2008 Archuleta paid Kay a total of $95,000 — leaving her $265,000 short of her promised principal and interest.
The company was not licensed to receive the investments and the Archulettas were charged with securities fraud in March, according to the Division of Securities.
Kay said she was devastated and even endured ridicule by some people in her community who thought she was careless for getting involved.
“Don’t do it,” she warned those who might consider investing in risky ventures.
Vance Ward, 64, and his wife JoAnn, 60, of Arbon, Idaho said they were victims of securities fraud in 2010. The Wards said they had known Ronald Dean Udy of Brigham City for twenty years, ever since he sold life insurance policies to the Wards’ relatives and subsequently to the Wards.
The Wards and Udy shared the same LDS religion and Udy had been an official in his church.
Ward said that if Udy was living the principals taught by his church then he should be trustworthy, a common assumption by those who suffer from affinity fraud. Ward said that when Udy indicated the investment was safe, the Wards felt they could trust him and decided to invest.
“He always seemed to be on the “up and up,” but apparently wasn’t,” Ward said.
The Wards invested approximately $86,000 from December 2009 through March 2010. In offering and selling a security to the Wards, Udy failed to disclose he was not licensed in the securities industry. To date, the Wards have not received a return on their investment or their principal back.
“Sometimes, don’t trust somebody even if you know them,” Vance Ward said.
“If it sounds too good to be true, then it probably is,” he added.
Udy has appealed his concurrent sentences of one to fifteen years in prison for securities fraud, and zero to five years in prison for false statements in a securities document. He remains in prison.
“Fraudsters are constantly looking for their next act and this list of investor threats gives investors a heads up on how internet investing and other tactics may be used to prey upon their hard earned savings,” said Keith Woodwell, Division of Securities director.
As the economy struggles, consumers may be more inclined to look for ways to get higher returns on their investments — including considering high-risk, high-reward investments. State officials warn potential investors to beware of “too good to be true” investment opportunities.
“As technology advances and the stock markets rise and fall, senior investors remain prime targets for investment fraud,” said Francine Giani, Commerce executive director. “Make sure your money is safe and sound by reviewing any investment offer and a professional’s license with our Division of Securities.”
Top 10 Investor Threats: Products and Practices
1) “Crowdfunding” and internet investment offers — Investors should note that when the new “crowdfunding” rules take effect next year, they will not make these investments less risky. Small startups are among the riskiest of investment categories under the best of situations.
2) Gold and precious metals — The promise of continued increases in value pitched by high-profile celebrities on television, radio or the Internet too often lure unsuspecting investors into any number of gold or precious metal scams.
3) Real estate investment schemes — While legitimate real estate investments can play a role in a diversified portfolio, investors should be aware that bogus schemes related to buying, renovating, flipping or pooling distressed properties are also very popular with con artists.
4) Risky oil and gas drilling programs — Investments in oil and gas drilling programs typically involve a high degree of risk and are suitable only for those who can bear risking their entire principal investment.
5) Promissory notes — Sales of promissory notes are often the favored investment vehicle for Ponzi schemes. As with all investment opportunities, investors are encouraged to make sure the security is registered with the Utah Division of Securities.
6) Scam artists using Self-Directed IRAs to mask fraud — Self-directed IRAs are now a common vehicle for fraud where promoters push a Ponzi scheme or other investment.
7) Unlicensed salesmen promoting liquidation recommendations — Senior citizens are often enticed to shift their investments from traditional securities to annuities with the promise of guaranteed income and an easy way to transfer the value of the annuity to beneficiaries upon death. Consumers should note that most insurance agents are not licensed securities professionals and do not have the training to determine the suitability of liquidating securities products.
8) Regulation D Rule 506 private offerings — Fraudulent private placement offerings are one of the most common investment schemes seen in Utah due to a federal exemption which allows these investments without oversight from a state agency.
9) Bad advice or from investment advisers — The 2010 Dodd-Frank Act transferred mid-sized investment advisers to primary supervision by Utah state regulators, rather than the SEC. Utah’s Division of Securities has already begun working with these mid-sized investment advisers, assisting them in complying with state registration requirements and applying already robust examination programs.
10) Foreign funds for visas scheme — Commonly known as an EB-5 Investment-for-Visa Scheme, investors are often told this is a “safe” investment due to an influx of foreign cash. Investors considering any enterprise with an EB-5 should make sure to obtain full information on every component of the venture, including all funding sources and the background of all promoters.