Church members should not let their natural trust blind them to the dangers of those who would exploit it. —LDS Church spokesman Michael Otterson
OGDEN — A former LDS bishop is facing criminal charges after investigators say he involved members of his congregation or those who knew him through his church position in an investment scheme.
Chad Bennett Reid, 57, of South Ogden, was charged with three counts of securities fraud and one count of engaging in a pattern of unlawful activity, all second-degree felonies, for allegedly swindling at least three people out of more than $100,000. Charging documents state that the fraud occurred between March 2005 and February 2009 and resulted in a loss of $270,500 taken from 31 different investors.
The three counts of securities fraud stem from incidents that began with a man who was in the LDS young single adult 14th Ward at Weber State University while Reid was serving as bishop. The man was Reid's executive secretary in the ward and "said he trusted Reid implicitly due to Reid's church position and their association," the charges state.
In November of 2005, the man said Reid told him about NetFundz LLC, which had a business model purporting to offer large companies such as Wal-Mart and Wells Fargo the service of handling and operating the corporations' charitable giving operations. Reid told the man that if he invested $50,000, he would have 1 percent ownership in the company and even though he would have his money fully returned in a year, he would retain his ownership in the company, according to court documents. Reid allegedly said similar companies sold for $100 million.
"It was presented as a once-in-a-lifetime opportunity," an investigator with the Utah Division of Securities wrote, listing other representations Reid allegedly made. "The investment was a way for the little guys to have something to invest in and be part of a big reward. … Reid was purposefully targeting those he felt were the little guys (to invest) because they were the ones that could benefit most." Reid told him others in the ward had also invested, the court affidavit states.
But, according to the affidavit, Reid failed to mention more than $210,000 in tax lien judgments and $31,000 in debt collection judgements. The alleged victim culled funds from his savings, 401(k), stock sales and a loan to pay Reid $50,000 and signed an equity investment agreement giving him 1 percent membership interest in NetFundz.
The man, in turn, told two of his friends about the investment opportunity. Reid said he'd allow the second man to invest because he had served an LDS mission with the first man and because the first man served with him in the bishopric. The two friends each signed on, one also paying Reid $50,000, while another borrowed $25,000 from his father to invest.
After one year, Reid allegedly encouraged the men to leave their money with the company, and in return, he offered increased ownership in the company. At one point, Reid said he was offered $50 million for NetFundz but wanted to wait because he said similar companies had recently sold for $200 million to $500 million, the affidavit states.
The initial investor twice let Reid keep the money but said the man's business model changed at some point. Reid then began talking about a company called Saveclick, which he said would provide and manage student loans for college students, the charges state.
Around 2009, when the investor's money was due, it was not returned.
"(The investor) tried for months to contact Reid with no response," court documents state. "(He) then made contact with Reid's business partner, Brian Tobler. Tobler indicated … that Reid couldn't communicate with (the investor) anymore because of the ecclesiastical position that Reid held when the investment was made."
Reid has apparently paid back $38,294, but it was to one investor who had given $75,000.
According to the state Division of Securities and the FBI, approximately $2 billion has been lost since 2010 by investors to those using various scams, including insurance fraud, Internet fraud and Ponzi schemes. Utahns are believed to be particularly vulnerable to affinity fraud, or fraud where potential victims are targeted through a common bond such as friendship, ethnic or religious affiliation, due to its trusting culture.
The Church of Jesus Christ of Latter-day Saints has repeatedly warned its members against affinity fraud, even taking part in a Fraud College earlier this year, where church spokesman Michael Otterson advised members to cultivate a healthy skepticism.
"Church members should not let their natural trust blind them to the dangers of those who would exploit it," Otterson said at the time. "Should someone — inside or outside of the church — come to you with a financial proposition, ensure that you practice financial discretion and consult qualified, professional advisers with well-established public reputations. There is a difference between trust and naiveté, and church members must be informed and cautious."
Otterson also said the LDS Church offers its support to those who have been victimized, cooperates fully with fraud investigations and returns the donations of members that can be traced to fraud. Perpetrators of fraud can also face disciplinary action from the church. This is in addition to its efforts to prevent fraud by educating its members.
"The church offers these warnings in the hope that financial scams among its members can be prevented from happening in the first place," Otterson said.
Reid's attorney, Martin Gravis, declined to comment on the case. Calls placed to Reid's home were not answered Friday.
Reid's next court appearance is set for Jan. 16, when he will decide whether he wants to have a preliminary hearing on the evidence against him.