In 2010, the FBI said its Salt Lake City office was one of its top five hot spots for Ponzi schemes. This year, the investigation firm Marquet International placed Utah at No. 5 for what it calls a "Ponzi Propensity Ratio."
A Ponzi scheme is a form of investment fraud, when funds from new investors—rather than business profits—are used to pay back initial investors. This gives the appearance that a business is profitable when it may not be profitable at all.
Marquet compiled information on 329 Ponzi cases since 2002 and looked at the percentage of Ponzi fraud per state divided by that state's percentage of the nation's gross domestic product (GDP). That put Utah on the chart, right behind New York, Minnesota, Texas and Florida. While Utah did not have any extremely large Ponzi cases, approximately $646 million was involved overall in 11 cases.
In 2010, a Utah Securities Fraud Task Force investigated allegations of all types of financial fraud (not just Ponzi schemes). It found that more than 4,400 investors had fallen prey to questionable investment opportunities or business practices, resulting in the loss of $1.4 billion.
The most common victims of Ponzi schemes are the elderly, but in Utah, almost half of all financial fraud cases have targeted members of the LDS Church (Church of Jesus Christ of Latter Day Saints). People intending to defraud others may do so more successfully by using common interests and emotional ties to attract investors and build trust.
But Ponzi schemes do not always arise from bad intentions. Sometimes a business owner whose business is not able to pay out the profits he or she has promised feels pressured to show investors that their trust has not been misplaced. Such owners "borrow" from new investors to pay past investors, intending to pay everyone when the business grows. Unfortunately, this poor business decision can easily backfire if the business does not grow as planned.
Business owners who find themselves in this situation can benefit from the advice of a criminal defense attorney who understands how white collar crimes are charged. There may be actions a business owner can take pre-emptively to avoid criminal charges. If charges have already been filed, a strong defense will be essential.
Marquet has a number of suggestions for investors, primarily focused on being skeptical. Most notably, be wary of investment programs that seem to target a specific religious group, of guaranteed returns and of too-regular financial returns if you know that your investment is in a volatile market.
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