Check credentials before investing, theft victim warns
Financial experts say consumers should beware of affinity fraud, other threats
SALT LAKE CITY — A few years ago, St. George health care professional Steve Hansen, 52, was well on his way to his goal of saving for his eventual retirement.
But today, after falling prey to a man he met at church, he finds himself in the unenviable position of trying to recoup a six-figure savings loss he may never make up.
In 2007, Hansen met Alan Oviatt — a man who claimed at the time to have been an experienced options trader who had created a shell company that seemed to give his claim legitimacy. Looking back, he now knows it was all part of a fraud scheme.
“Over time, he kind of 'groomed me,'” Hansen said. “I invested $700,000. He lost $500,000, stole $123,000 and there was $77,000 left in the account when it was all done.”
A police affidavit filed in 5th District Court confirms that "the majority of the funds had been lost in the market" and Oviatt told Hansen he "removed $6,000 per month from (Hansen's) account for his own use" that totaled more than $123,000.
Unknown to Hansen, Oviatt had a past that included several civil judgments against him as well as multiple bankruptcy filings.
Hansen admitted that he had no prior dealings with options trading and relied completely on a person he thought was knowledgeable and trustworthy, particularly since Oviatt had held a prominent position handling finances in his local LDS Church stake. In retrospect, he said he should have conducted more due diligence in verifying Oviatt’s credentials before investing any money.
“I assumed that because of that (elevated financial) responsibility that he was somebody I could trust,” Hansen said. “The reason I invested so much was because of the expertise he portrayed that he had and the evidence he gave from previous successes that he claimed he had.”
Knowing what he knows today, Hansen said the lesson he learned and would advise any other potential investor to take into consideration is: “Trust nobody. If it sounds to good to be true, then it is.”
He has had to sell his house and is currently attempting to replenish his savings, though he said it is unlikely that he will ever be able to recoup such enormous losses.
“It took me 30 years to (save the $700,000)," he said. “I’m not sure (it’s possible to do it again).”
Hansen warns other consumers to contact the state Division of Securities before investing any money with people who claim to be experts who can provide high returns with little risk.
“The company he had set up was never registered. He was never licensed,” Hansen said. “The whole premise of the investment was a scam.”
Oviatt, who was convicted by jury of second-degree felony theft on Aug. 21, was sentenced to 120 days in jail on weekends and holidays, ordered to pay $123,000 in restitution and serve 36 months of supervised probation.
The Utah Division of Securities, along with its partner the North American Securities Administrators Association, has released a list of “Top Investor Threats” facing consumers.
The 2013 list examines offers, practices and investment scenarios that are being aggressively marketed to those trying to build and protect their nest eggs for retirement. Investigators are concerned that with the passage of the Jumpstart Our Business Startup Act lifting advertising restrictions on securities and other investments, consumers face even greater challenges when deciding where to invest their earnings.
“With new advertising flooding the marketplace and currency vehicles such as Bitcoin making headlines, investors are facing new and confusing messages,” said Keith Woodwell, Securities Division director. “Choose your investments carefully, don’t jump into something you don’t fully understand, and work with a licensed professional when it comes to protecting your money.”
Woodwell said that while there are some new scams making the rounds, most of the fraud activity centers on schemes that have been around for years and continue to lure unwitting victims.
“Look at affinity fraud. It’s the best way going to recruit new people because it’s all based on trust,” he explained. “(People) are investing not because of the underlying merits of (the deal), but because they trust (the perpetrator). (You rely on trust) because you go to church with this guy or you’ve got history with them through your family, work or some other organization rather than the cold analysis of the facts of the (investment offer) and whether it makes economic sense.”
Woodwell also said fears of traditional investment channels have risen in the wake of the national economic downturn, prompting more consumers to consider alternative avenues to invest their money.
“With the government shutdown and fear that the U.S. was going to default on its bonds, people aren’t sure what they can trust anymore making it pretty hard for the ordinary investor to put their money in mutual funds on Wall Street (even though) that is the safe place to be,” Woodwell said.
The Utah Division of Securities has listed the following as the top investor threats to consumers:
Private offerings: Fraudulent private placement offerings, commonly, are referred to as Reg D/Rule 506 offerings, continue to rank as the most common product or scheme leading to investigations and enforcement actions by state securities regulators.
Real estate investment schemes: As housing prices continue to recover in many U.S. markets, investors should be aware that schemes related to new real estate development projects or buying, renovating, flipping or pooling distressed properties are popular with con artists.
High‐yield investment and Ponzi schemes: Retail investors chasing yield often find themselves falling prey to high‐yield investment and Ponzi schemes promising unbelievably high rates of returns.
Affinity fraud: Marketing a fraudulent investment scheme to members of an identifiable group or organization. The most commonly exploited are the elderly or retired, religious or ethnic groups and the deaf community.
Scam artists using self‐directed IRAs to mask fraud: Investors should be mindful of potential fraudulent schemes when considering a self‐directed IRA.
Risky oil and gas drilling programs: Oil and gas drilling programs, which typically involve a high degree of risk, are suitable only for investors who can bear the loss of their entire principal investment.
New scams targeting investors include:
Proxy trading accounts: Investors should be wary of individuals who claim to have trading expertise and offer to set up or manage a trading account on an investor’s behalf.
Digital currency: Consumers now are able to purchase goods and services with virtual money. Unlike traditional coinage, alternative virtual currencies such as Bitcoin and PP Coin typically are not backed by tangible assets, are not issued by a governmental authority and are subject to little or no regulation.
New threats to small businesses include:
Capital‐raising pitfalls: New and enhanced opportunities to raise capital through crowdfunding, public advertising for investors under JOBS Act regulations and angel funding “solutions” also carry risks for unwary entrepreneurs.
Unregulated third-party service providers: Whether a crowdfunding portal or an accredited investor aggregator, it is important to perform due diligence and to understand that use of an unregulated third party to provide such services does not change your obligations under federal and state securities laws.
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