Were you surprised that Salt Lake City got tangled up in an Olympics bribery scandal? If you know much about financial scams, you might have expected it.
Fraud per capita
By William P. Barrett
By William P. Barrett
Salt Lake City won the bid to host the 2002 Winter Olympics with help, it now appears, from bribery. Judging from news accounts, free-spending Utahans evidently bought votes from foreign delegates with scholarships, job offers, no-risk business deals and even paid sexual services charged to official credit cards. Are you stunned? Not if you know the place. For decades this scenic town has been a leading center of financial shenanigans.
Here's a distinction civic boosters won't talk up: Salt Lake City, with a mere 170,000 residents, is by far the country's smallest city where the scam-fighting U.S. Securities & Exchange Commission has an office. It has been there since the early 1950s. Why? "There is a lot of fraud here per capita," says local SEC boss Kenneth Israel. "There doesn't seem to be any shortage of work for us."
The dubious Salt Lake Stock and Mining Exchange closed in 1986. Promoters, meanwhile, were pumping over-the-counter "blind-pool" stock offerings. These were shell corporations ostensibly waiting for opportunities, but in fact just waiting for suckers (FORBES, June 27, 1988). Also a problem: flogging of worthless penny stocks. Now scamsters have moved on to more up-to-date and varied rip-offs.
A trustee is trying to recover $30 million taken in two related schemes alleged to be Ponzis; investors thought they were financing, among other things, trendy laser equipment for eye surgery. An appeals court just upheld the conviction of a Utahan accused of hosing German investors out of $25 million by creating companies without substance. Six locals, one a former legislator, were convicted of using something called the Professional Excellence Center to extract an estimated $6 million from dentists and others around the country seeking patient referrals. A father-son team awaits trial on charges of swindling $10 million in fees from up to 6,000 would-be authors seeking help in getting their manuscripts edited and published. According to court records, the pair gambled away much of the money in Las Vegas.
Some big-name victims pop up. Two Utahans settled their part in a still-pending SEC suit charging that Lehman Brothers and Bank Leu, the big Swiss financial institution, were bilked out of $9.5 million through various stock scams. The alleged method: borrowing shares of restricted stock in several small companies to use as collateral for loans without telling the banks the shares were borrowed.
It is curious that thinly populated Utah has a statewide Financial Crimes Task Force. The enforcers, to be sure, don't want to add to Utah's image problems: S. Anthony Taggart, who runs the respected Utah Division of Securities, insists Utah fraud is "the same here as anywhere." But he can't deny the statistics. Over the past four years total complaints to his office have risen fourfold, to 183; and criminal convictions, eightfold, to 16.
Among the alleged baits recently used to separate unwary investors from their funds: film deals, 19th-century railroad bonds, gold mines, iron mines, equipment leases, "medium-term notes," greeting card manufacturing, a board game teaching investors how to get wealthy and even Mormon church financings. One fellow went to jail for soliciting funds without mentioning he was already a convicted swindler.
Salt Lake City just finished picking up the pieces from the 1991 collapse of Bonneville Pacific, a publicly traded alternative-energy company that, it turned out, was heating up its financial statements. Five former officers were convicted of crimes related to Bonneville, and civil settlements have topped $180 million. One of the company's early backers, Deedee Corradini, has been mayor of Salt Lake City since 1992. Although not implicated criminally, she and her ex-husband paid $800,000 in settlements. She drew criticism for hitting up prominent Utahans for over $200,000 to help cover costs.
Next time you get a call pitching a sure thing, ask, before hanging up, where the caller is from. If it's Salt Lake City, you can chuckle to yourself before cradling the phone.