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Utahns falling prey to affinity fraud



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SALT LAKE CITY -- A New York judge sentenced Bernard Madoff today to 150 years in prison. The judge imposed the maximum sentence because he says he wanted to send a message that Madoff's multi-billion dollar Ponzi scheme is not just a "bloodless crime that takes place on paper. "

Prosecutors say the Madoff case is a perfect example of what they call "affinity fraud." They are scams that prey on members of close knit groups such as religious or ethnic communities, the elderly, or professional associations.

Utah too has seen a slew of affinity-fraud cases. These scams exploit trust and friendship in groups of people who have something in common.

Many of Madoff's victims were Jewish. In our state, religion is also a common thread in these affinity-fraud cases. Madoff victim Burt Ross says he lost not just $5 million to the Ponzi scheme. He said, "But there was also a tremendous violation of trust, and trust is what we build everything we value on."

Violation of trust was a theme in one of Utah's largest Ponzi schemes, the $140 million fraud of Ogden businessman Val Southwick.

At a parole hearing in December 2008, investor Adam Titus recalled how Southwick even used his LDS faith to build trust. "He said to me, at the time, that 'we probably do not need to have a contract at all. We can just go to the temple together, and we can consummate our transaction there,'" recalled Titus.

Keith Woodwell, director of the Utah's Division of Securities, says a con man gains trust by being a member of a group, or enlisting a group's leaders to help market it. He said, "There's an increased level of trust just because you feel like people I know are in this, or the guy who is approaching me, making the offer, is someone I know," Woodwell said. "He's connected to the same group of people I'm connected to, so I'm more likely to trust him."

The U.S. Attorney's Office now has nearly 60 mortgage fraud cases under investigation, 10 times more than 3 years ago.

Most involve affinity fraud. U.S. Attorney for Utah Brett Tolman said, "Nearly all of the fraud schemes we see will have family, friends, church members, members of church congregations, all part of the fraud or at least investing in the scheme."

To avoid becoming an "affinity fraud" victim, authorities suggest being even more cautious when investing your money with someone you know.

If you have questions, contact state investigators. They can run a check on someone's business history, or if they have the proper license.

E-mail: jdaley@ksl.com

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John Daley

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