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To many Utahns, it is surprising to learn that Utah has a long-held reputation as the fraud capital of the nation. Per ponzitracker.com, Utah had the sixth most Ponzi schemes among all states from 2008–2018. Perhaps even more surprising is that Utah has around 1.35 Ponzi schemes per 100,000 people, making Utah the most fraud-ridden state per capita in the United States. To put it in perspective how bad Utah’s problem with financial fraud is, consider Florida. The Sunshine State has the second-most Ponzi schemes per capita, with an average of .51 Ponzi schemes per 100,000 people (63 percent less than Utah!).
Knowing this unsettling fact, the logical question to ask is this: How can I protect myself or my business from falling prey to fraudsters? Well, the answer is simple in theory, harder in real life: do your due diligence.
An ideal due diligence standard can be boiled down to three steps. For the first step, suppose you are shopping for an investment adviser to invest your money. When you narrow in on a potential adviser, you should immediately perform an internet search of the adviser. Yes, you read that right. Simply search for the adviser’s name (and firm) online and see what comes up. You can find feedback to help you make an informed decision in any form, including reviews from clients, social media profiles and disciplinary actions, among others.
Second step: Assume you like the results of your internet search and want to continue your due diligence. Luckily for Utahns, our state is (once again) a pioneer in protecting investors and has established a white-collar crime offender registry. Utah’s white-collar crime offender registry functions similar to a sex-offender registry, where users can get online and view who has been charged and convicted in the past ten years of these white-collar crimes. You can find the registry online at www.utfraud.com/RegistryLists. The most common triggering offenses for this registry are securities fraud, theft by deception, unlawful dealing of property by fiduciary, fraudulent insurance, mortgage fraud, communications fraud and money laundering. Part of the legislative intent for this registry is to protect everyday investors, and providing this information to the public is a great service. Although this system has drawn some criticism, the theory of a white-collar crime registry is great, and it provides a useful tool for investors to dig even deeper into a prospective investment adviser’s suitability. And its free! Keep in mind that this registry is limited to state court convictions and does not typically include any federal adjudications (which will hopefully come up as you go through step one).
Third step: Be particularly cautious when considering investing with members of a group to which you are also a member. This type of fraud—where someone within a group takes advantage of a common identity shared by members of the group and accepts investments from them with the intent to defraud—is common in Utah and other places where there are large groups of religious folk. Regardless of who is telling you to invest and what returns they are promising, repeat to yourself over and over: if it’s too good to be true, it probably is. This should be your mantra when dealing with your money.
Taking these three steps may not have a guaranteed return of a safe investment (again, watch out for guaranteed returns that are too good to be true!), but it will help you identify those red flags that you may not have seen beforehand. Be careful out there, and remember: if it’s too good to be true, it probably is.
Written by John Huber and Alexander Baker