At the time it was called the biggest investment scam in Utah's history.
Eighteen years ago Utah businessman Grant Affleck was convicted on eight counts of criminal fraud. He later was sentenced to 10 years in federal prison for bilking about 650 investors out of an estimated $20 million.
Long before the busts of boiler-room peddlers of fraudulent securities or the artificially inflated profits of Bonneville Pacific came to light, prosecutors were praising Affleck's conviction, believing it would deter scam artists and cause investors to be more careful.
But in the midst of today's economic slump and a new generation of investors apparently unaware of yesterday's schemes, white collar crime still pervades Utah from mail fraud and embezzlement to bankruptcy fraud and Ponzi schemes.
From fiscal year 2001 to 2002, the number of criminal charges filed by the Utah Division of Securities nearly doubled from 35 to 66.
Utah filings in 2002 represent 18 percent of the total 360 criminal actions filed by all states, said Tony Taggart, director of the Utah Division of Securities.
"We actually doubled the number of convictions from 15 to 30 in the same period," said Scott Thompson, division spokesman.
Also in fiscal 2002, the division recovered $16.5 million in investor funds, up from $7 million a year earlier.
"That's the highest amount we've had in the last five or six years," Thompson said. "I think the word is out that we are taking a hard stand."
Taggart said in the early 1990s the division was filing about two criminal charges a year.
"If you have a person that steals 50 bucks from a 7-Eleven, they are probably going to go to prison. Yet, you had people in Utah that would steal a million dollars from someone's life's savings, and they would get an administrative action or fine. That just didn't seem right. There clearly wasn't a deterrent," Taggart said.
When Taggart took the helm at the division in 1998, he wanted to build upon the record of his predecessor, Mark Griffin, who had implemented a strong enforcement program.
"When I first became the director we went into a boiler room and saw on the wall, 'Don't call the following states because they will prosecute you.' Utah, of course, was not on that list," Taggart said.
Taggart vowed to change the way con artists viewed the state. Last week, he found the list he had been hoping for.
The state of Texas had uncovered an operation selling fraudulent securities and confiscated a list that placed Utah at the top of states not to call.
"That's what tells me that we're starting to have an affect on some of these types of firms," Taggart said. "One of the reasons they are afraid of us is because we have investigators that will pose as investors and do undercover work."
But this is not the first time Utah authorities have taken such a stand.
When the Affleck fiasco first broke, fraud and rip-off schemes in Utah were as common as seagulls around a dump.
The Wall Street Journal once called Utah the fraud capital of the world. Another national newspaper labeled Salt Lake City as "a place with its own enterprise zone for financial chicanery."
"There was a lot of penny-stock fraud going on. We had a lot of these scams that were out there of all shapes and sizes. You can't imagine how many of them there were. They were happening so frequently that there was a very high level of concern about this," said Brent Ward, former U.S. attorney who prosecuted Affleck.
Ward attacked the problem head-on, coordinating law enforcement efforts with public service announcements warning the public.
"There is no doubt in my mind that there was a heightened awareness about this kind of thing and that it was reduced from what it had been before," Ward said. "But this is the kind of thing, just looking at human nature, it goes through cycles. . . . I don't know if it has anything to do with economic cycles, but when you are in the down cycle it may be possible people may be looking for alternative ways to earn money, and they become prey to these kind of operators more readily."
Dan Bingham, supervisory special agent for the Federal Bureau of Investigation's Salt Lake office, said Utahns also seem to display "a certain naivete."
"That is the perception among law enforcement," Bingham said. "The word is out on the street you can play in Utah and there are plenty of victims to be had."
Bingham points to Utah's high rate of personal bankruptcy filings and says bankruptcy fraud is rampant, as people hide or undervalue their assets.
"That's a major area of abuse because there is some gamesmanship there. If they do certain things they may legally be able to get away with it," Bingham said.
Another recent example of the problem is the bankruptcy filing of Wynn Co. Inc., a Salt Lake-based used car dealership that was forced by the state's Motor Vehicle Enforcement Division in July to shut down after failing to pay off liens and deliver titles.
The Wynn Co. lured hundreds of investors by promising high-interest returns. Dennis T. Wynn, owner of the defunct company, told investors their money was secured through automobile contracts. Early investors ended up receiving some monthly interest payments, but it didn't last long.
Money from later investors was used to pay off other obligations or shuffled between other Wynn holdings. As debts mounted and fewer investors took the bait, the Wynn Co. folded.
By then investors learned their money was inadequately secured.
Mildred Murphy of Arizona invested $34,000 with the Wynn Co., with part of the money coming from her late husband's 401(k) account.
"My investment was to have doubled in four years if no interest was drawn on it," Murphy said. "In January, the check I got for the interest bounced. That is the last check I received."
According to the Utah Division of Securities, which is conducting an investigation of Wynn Co., several of the promissory notes were double-collateralized, secured by a single vehicle.
Anna W. Drake, a bankruptcy attorney representing Wynn Co. and W.F.G. Acceptance Inc. an affiliate of Wynn Co. and also in bankruptcy said the combined debt of the two companies totals more than $48 million. But Wynn Co. holds unencumbered assets of roughly $214,000, with $500,000 in contract receivables, leaving many investors out of luck.
Wynn has been charged with five misdemeanor counts for such things as failure to deliver a title. According to Jodi Monaco, a spokeswoman for the Motor Vehicle Enforcement Division, Wynn may face 30 or more additional charges for such things as double collateralizing and failure to pay off liens.
Wynn denies that there was any misuse of funds.
"All of these crimes have one thing in common: they leverage on people's greed," Bingham said. "If it sounds too good to be true, it probably is. . . .
"Greed is the key factor here. People don't recognize it in themselves, sometimes. They think, 'Wow, this is a great deal.' "
Kent Morgan, assistant justice division chief of the Salt Lake County District Attorney Office, said that is why Utah needs to keep improving its efforts at wiping out white collar crime."Are we there yet? No. This is still a very risky place. But I think it is no more risky than other metropolitan areas," Morgan said. "The best defense we have against people who commit this kind of fraud is to let people know what the scam is. If they don't have continued investors, they can't make any money, and they can't operate."
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