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SALT LAKE CITY — Utah has a long-held reputation as the fraud capital of the United States, mostly based on anecdotal evidence.
But a nationwide Ponzi scheme database that Florida attorney Jordan Maglich compiled offers proof that the ignominious label appears deserved.
Utah had the sixth most Ponzi schemes among all states from 2008 to 2018, despite ranking 31st in population, according to ponzitracker.com. Only California, Florida, New York, Texas and Illinois, in that order, had more.
When Salt Lake attorney Mark Pugsley ran a per-capita analysis of the numbers, Utah topped the list for the most Ponzi schemes — and it's not even close.
Pugsley found Utah has 1.35 Ponzi schemes per 100,000 people. Florida is the next highest state at 0.51 per 100,000 people, nearly two-thirds lower.
"This is a question people have been asking for a long time, 'Is Utah really that bad?'" he said. "This for the first time gives us some quantifiable basis to say yes, we are that bad. Not only are we bad, but we're way worse than anyone else by a long shot."
Overall, Utah investors lost over $1.5 billion in those scams over those 10 years. The number does not include other affinity frauds and investment scams which Pugsley estimates account for another $500 million in losses to Utah residents.
Also, removing the massive $17 billion Bernie Madoff scam in New York, Utah has the highest loss per capita of $502 per person, more than double the next highest state. Including Madoff pushes the per-capita loss in New York to $1,093.
Maglich, who represents court-appointed receivers in fraud cases, compiled the database using publicly available news sources over a 10-year period, generally including schemes of $1 million or higher. He started the website in 2011 to warn people about the scams.
Utah, he said, isn't the state people would think of as ranking sixth in the number of Ponzi schemes, right behind some of the most populous states in the country.
"I think that's one of the biggest surprises or takeaways from this accumulation of data," Maglich said. "Unfortunately, the data bears it out."
The database only includes those identified as Ponzi schemes. Maglich found 42 in Utah in the past 10 years. Given all the other white collar fraud that occurs in Utah, it understates the volume of financial scams in the state.
Pugsley, who blogs about Utah fraud, said there's no clear answer as to why fraud is more rampant in Utah than in other states.
But after helping people recover losses from investment fraud for 25 years, he said he's learned that Utahns are simply too trusting, particularly when the person soliciting an investment is in their Latter-day Saint ward or shares their religious affiliation.
Though commonly called "affinity fraud," it's more of a way for con artists to market their scams to people in their communities. They exploit their close personal relationships, whether it's in business or more likely through neighborhood or religious associations.
Maglich said many perpetrate the scheme by getting the blessing or participation of those who share their faith and use it as a distribution and solicitation network.
Pugsley said Latter-day Saints are taught to trust their feelings, but while that might be a valid basis for religious decisions, it's not for business decisions. He also said he found people who believe if they're using the money for good, God would protect it.
The new Ponzi scheme data comes amid two of the largest cases in Utah history.
Federal authorities last fall accused Rust Rare Coin and its owners of running a $200 million Ponzi scheme. The case is pending.
Next month, a federal judge will sentence Claud R. "Rick" Koerber for a $100 million Ponzi scam. Prosecutors say Koerber preyed on many fellow members of The Church of Jesus Christ of Latter-day Saints to take investors for $100 million.
"Koerber’s crimes are emblematic of the fraud that occurs here in Utah," according to a sentencing memorandum in which prosecutors are seeking a 20-year prison sentence in the case.
One victim wrote to the court: "Rick used neighborhood friends, political figures and religious leaders to gain other peoples’ trust. Rick used these people to validate that he was (an) honest person and a good person. Rick also emphasized his positions within the church as validation that he was a trustworthy and sincere person."
Another wrote: "Many of these individuals, (Koerber included), were members of the predominant religious organization in the area, noted for a standard of honesty and trustworthiness. Some held high positions. Whether intentional or not, this association lent confidence in and validity to Koerber’s programs. Our dad does not deal deceitfully and doesn’t expect it in others. This experience has taken the wind out of his sails."
Those stories aren't unusual in Utah. They happen all too often, fueling the state's reputation as the fraud capital of the United States.
In 2011, Marquet International, a business investigation firm, placed Utah at No. 5 for what it called a "Ponzi propensity ratio." The FBI ranked Salt Lake City fourth in the country among Ponzi scheme hot spots in 2010 and more recently called it one of the top five states for white collar crime.
The Wall Street Journal named Salt Lake City the "Fraud Capital of America" in a 2015 story.
Utah is the only state with a dedicated regional U.S. Securities and Exchange Commission office that services no other location.
The state's fraud epidemic has reached such significant proportions that state lawmakers a few years ago created the nation’s first white collar crime offender registry, which includes photos, names and aliases of Utah fraudsters.
