Utah's 'White Collar Crime Registry'

In 2015, Utah became the first state in the U.S. to implement a white-collar crime registry. Similar to a sex-offender registry, Utah's registry provides searchable information and history about felons who've been convicted of white-collar crimes. This begs the question: Why would Utah want to be the first to implement this resource? Primarily because of the increasing prevalence of white-collar crime in the state — particularly, affinity fraud.

An affinity fraudster, who either purports or actually is a member of an identifiable group, fosters trusting relationships through common bonds as the catalyst for schemes. In California, Armando Ruiz preyed on members of the Hispanic community. [See the March 12, 2012, Securities and Exchange Commission (SEC) charges.]

In Chicago, Clayton A. Cohen, a former marine, focused his attention on "investments" from current and former military. (See the Aug. 6, 2013, SEC release.)

Gaston Cantens used his position in the Florida Cuban American community to gain investors. (See the April 5, 2012, SEC release.)

Bernie Madoff used his affiliation with Jewish communities to further his fraudulent activities and operate his $50 billion Ponzi scheme. Fraudsters via social groups or religious affiliations gain the trust of "investors," who often forgo appropriate due diligence. In Utah, affinity fraudsters often misuse trusting relationships among members of the Church of Jesus Christ of Latter Day Saints, or the LDS Church (Mormons).

The FBI ranks Salt Lake City as one of the top five Ponzi scheme hot spots in the nation. (See State of Fraud, by Gaylen Webb, Utah Business, April 1, 2012.) With roughly 60 percent of Utahans identifying as Mormon and 40 percent as active Mormons, LDS communities are enticing targets for affinity fraudsters in Utah.

The Utah legislature began to fight back against affinity fraud in 2011 when it modified the Utah Uniform Securities Act to include harsher penalties for those who used positions of authority to defraud others or who preyed on adults who are impaired because of age, mental or physical disability. (See Utah Code Ann. §61-1-13 et al.) The battle continued in 2015 with the White Collar Crime Registry (WCCR).

What does the registry do?

HB 378 (which became Utah Code Ann §77-42-101, et al) passed the Utah House 65-7 and unanimously passed the Utah Senate during the 2015 legislative session and created the WCCR.

The WCCR allows users to search by a registrant's name, aliases, date of birth, height, weight, eye color, hair color, current photo and a list of crimes for which they've been convicted.

The law requires registration of individuals convicted of one or more of seven specified crimes: securities fraud, theft by deception, unlawful dealing of property by a fiduciary, fraudulent insurance, mortgage fraud, communications fraud and money laundering. The offender must be on the registry for 10 years for a first offense, an additional 10 years for a second offense and for life on a third offense.

The law also includes a provision that allows offenders to petition for removal from the registry after five years if they've met certain conditions including restitution. They also must complete any treatment ordered by the court or the Board of Pardons, not be convicted of any other crimes, have notified victims about the petition and hadn't been found liable in any case that involves fraud, deceit, breach of fiduciary duty or misappropriation of funds.

The law changed the statutes for the named offenses to include registration as part of the punishment. For those convicted between 2006 and 2015, the law requires registration unless the felon has complied with all court orders, paid all restitution and hadn't been convicted of any further crimes for which registration would be required. 

Who are Utah's fraudsters?

Travis Wright

Travis Wright lived in the affluent Salt Lake City suburb of Holladay when he began to recruit investors in 1999 as the manager of a loan fund. He used his position in the community and membership in the LDS Church to recruit investors; sometimes he promised them upwards of 44 percent returns. He had a total of 184 investors that invested more than $167 million into his Waterford Loan Fund.

Wright told investors this fund was doing "hard-money lending" — secured by real estate, but Wright didn't invest much of the total funds in real estate. He only invested $25.7 million of the total $167 million on behalf of Waterford, and those investments only earned $9.4 million. One of those investments included $1.1 million in a venture producing sandwiches that could be preserved and sold in vending machines — "sandwich in a can." (See the SEC complaint, case 2:10-cv-00602-CW, filed July 1, 2010.)

"Some investor funds were loaned to third parties and some of those loans made to borrowers were repaid in full. However, on the whole, Waterford used monies received from its new investors to pay debts owed to previous investors, and also to pay funds to [Wright] as income and for [Wright's] personal use," Wright admitted in a declaration to the bankruptcy court. (See "Trustee: Waterford Ponzi scheme 2nd-largest in Utah," by Tom Harvey, The Salt Lake Tribune, Oct. 22, 2010.) He spent more than $14 million on a mansion once owned by former Utah Jazz player Jeff Hornacek, art, mounted big game, rifles, extravagant vacations for his extended family and friends, and a large monthly allowance for his wife.

The acquisition of new investor funds Wright used to provide apparent returns to older investors halted with the financial decline in 2008 when new investors weren't coming in, and old investors were demanding returns (which also precipitated Madoff's demise). As Warren Buffet famously once said, "you only find out who is swimming naked when the tide goes out." (See the 2001 chairman's letter to the shareholders of Berkshire Hathaway Inc.)

Waterford Loan Fund was forced into bankruptcy in 2009, and Wright's personal assets became part of the estate. The SEC sued Wright, and he was charged in federal court. He ultimately came to an agreement with the U.S. attorney in 2012 when he pleaded guilty to mail fraud and was sentenced to 10 years in federal prison. (See Man who led $145 million Ponzi scheme sentenced to 10 years, by Wendy Leonard, KSL.com, Jan. 7, 2012.)

Rick Koerber

Rick Koerber was raised in the small town of Casper, Wyoming. He eventually returned to Wyoming after college, and with a $10,000 investment formed an internet service provider. When he took the parent company public, Wyoming regulators alleged he'd misled investors. Koerber filed for bankruptcy in Wyoming.

Koerber and his wife moved to Utah and settled in Utah County, south of Salt Lake City. He created what he called his "equity milling program" in which he bought and sold houses and charged up to $2,000 to students of his real-estate investing seminars.

He called the money that he acquired from others for investment properties "loans." Many of the "investors" borrowed from their retirement accounts and used credit card advances to obtain the funds they "loaned" to Koerber.

Koerber also took "loans" from other investment funds to pay for his properties. As with many schemes of this type, he promised outrageous returns to earlier "lenders." His seminars, which often targeted other Mormons, focused on the good and altruistic things that "lenders" could do with their returns.

When real estate dropped in 2007, many of his properties went underwater. The amount of money he actually invested in real estate was minimal; the rest was profits that he spent to support an exorbitant lifestyle. (See 'Latter-day capitalist' Rick Koerber: Rags to riches and back again, by Tom Harvey, Salt Lake Tribune, Oct. 17, 2009.)

A grand jury indicted Koerber in May 2009 on mail and wire fraud charges. The U.S. attorney for the district of Utah added and dropped charges over the next few years. A federal district judge ultimately dismissed the entire case because he found that delays by the prosecution were a violation of the Speedy Trial Act of 1974. The government appealed and the 10th Circuit found that the district court failed to consider the seriousness of the charge when it dismissed the case and sent it back to the district court for review. (See United States of America v. Claud R. Koerber, 10th Circuit Opinion, Jan. 21, 2016.)

Jeffrey Mowen

Utah white-collar cases aren't limited to affinity fraud. In 2006, Utahan Jeffrey Mowen presented himself to Thomas Fry as an international banker with 20 years of experience. He said that as a foreign currency trader he was generating 50 percent to 100 percent returns per month while reserving 85 percent to 90 percent of the available funds. Mowen promised Fry a monthly return of 33 percent of any funds that Fry provided for trade. Fry personally invested $100,000 with Mowen. In the following months, Fry agreed to provide Mowen with additional capital he'd obtained from others. (See the SEC complaint, case 2:09cv00786, filed Sept. 2, 2009.)

In a complicated web of transactions, Fry solicited funds from other investors under the guise that he was using them to secure parcels of real estate while developers obtained permanent funding. Fry didn't disclose to them that he would give the funds to Mowen who would store them in an offshore account.

Although Mowen assured Fry that he'd reinvest any excess earnings, he instead used the funds to pay for an extravagant lifestyle including a collection of more than 200 cars. Fry recruited other promoters who pitched Fry's "leveraged escrow account program opportunity" in which investors would receive 4 percent to 5 percent per month on their funds.

When Fry learned in June of 2007 that Mowen recently had been convicted of securities fraud, he ceased investing funds with him. However, he didn't tell the other promoters who didn't know that Mowen was involved with the transactions. He also kept collecting funds from the promoters and received more than $16 million, which he largely invested in projects that were outside the scope of those described to investors.

Without Fry providing new funds to Mowen, Mowen couldn't fulfill the promised monthly payments. Ultimately, Fry told his "promoters" of Mowen's involvement, and they quickly discovered Mowen's criminal history.

In addition to the 2007 securities fraud, Mowen also had 2003 and 2004 convictions for securities fraud and theft convictions. The SEC eventually sued Mowen, Fry and the promoters for the part each played in the ultimate fraud. Fry and the other promoters settled with the SEC. After the investors confronted Mowen, he fled to Panama. But U.S. citizens recognized Mowen in Panama, and he was returned to Utah. He pleaded guilty to one count of wire fraud and was sentenced to 10 years in prison. (See Utah money manager pleads guilty in fraud case, by Tom Harvey, The Salt Lake Tribune, March 17, 2011.)

What will this mean internationally, and what are the limitations? 

1. The registry doesn't provide entirely new information to the public; it does make the information more accessible. Before the registry, anyone who wanted to access Utah criminal filings had to either visit the courthouse in the county where the person was convicted or access the statewide information via an internet system that charges setup and monthly access fees. So although the information was public, users didn't have easy access.
2. The registry possibly creates a false sense of security for the user. A citizen might search for an individual with whom they're considering investing, not find a registration for that person and so consider them a solid investment. However, the individual wouldn't appear in the registry if they haven't been convicted of a crime or was convicted of a similar crime in the federal system or in another jurisdiction.
3. The value to citizens is very limited until the U.S. federal government and other states and countries find the value in white-collar crime registries and pass their own legislation. Unlike a sex-offender registry, which includes registration for specific crimes or similar crimes in federal or state systems, the white-collar crime registry only includes the specified violations of the Utah code. The ability to include the "similar crimes" in the federal system or other jurisdictions with a sex-offender registry comes by virtue of federal legislation. (See Lychner Act, 42 U.S.C. §14071.) Without such legislation, the jurisdictional ability of Utah or any other state to require registration remains disputable. Convicted Utahans can travel to other states after serving their time and continue their schemes in another jurisdiction.
4. Ultimately, the applicability might be limited. Many fraudsters convicted of multiple white-collar offenses have done so serially (i.e. multiple victims in the same scheme). The WCCR provides no information unless the person has been convicted, served their time and is now back in the community. 

Utah defense attorneys have been the predominant opponents of the registry. They argue that it provides an additional level of punishment and stigma for someone who has already served their time — a scarlet letter, of sorts. Brett Tolman, a Utah defense attorney and former U.S. attorney for the district of Utah, felt that the registry was overly broad with the inclusion of communications fraud and could attach a stigma to a CEO who's "convicted of a relatively minor offense." (See Citing high levels of fraud in Utah, lawmakers pass white collar crime registry, by Tom Harvey, Salt Lake Tribune, March 11, 2015.)

The recent history of white-collar crime in Utah provided the state's lawmakers with ample reason to arm citizens with every resource possible to protect themselves from fraudsters. The registry provides an important model and first step for other states, the U.S. federal government and other nations to pass similar legislation. However, until other jurisdictions in the U.S. and around the globe establish registries the effectiveness of Utah's WCCR will be limited.

Chelsea M. Dye, J.D., is a contract attorney at G. Eric Nielson & Associates in Utah and an adjunct faculty member at Westminster College in Salt Lake City. She's a former clerk for the white-collar crime division of the U.S. attorney's office for the district of Utah. Her email address is: chelsea.dye@gmail.com.

Ronald Mano, Ph.D., CFE, CPA, is a professor of accounting in the Gore School of Business in Westminster College in Salt Lake City. His email address is: mano@westminstercollege.edu.