Utah: Where the con is on

Fraud squad » Despite its reputation for flimflam, the state still doesn't have a full-time mortgage-fraud prosecutor.
This is an archived article that was published on sltrib.com in 2009, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

Fraud prosecutions in Utah reached record highs last year, and for proof you only have to look as far as the Provo River Bottoms neighborhood.

Some in the affluent community lost their homes or saw them depreciate through bad investments or living beyond their means. But at least nine people have been convicted for their roles in mortgage fraud schemes that devastated the neighborhood.

"There was too much price inflation down there," said Mark Steinagel, of the Utah Division of Real Estate, who believes not all of those responsible for schemes were caught. "There wasn't just one group doing this."

Even as more white collar criminals are going to prison for fraud, Utah continues to rank high among states infected by schemes to steal identities, bilk investors and dupe lenders. Now state authorities want to educate consumers and add more fraud detectives and prosecutors to tackle the time-consuming cases.

Utah, we were No. 1

Utah gained its reputation for fraud years ago.

In the 1980s, penny-stock schemes, which originated here and had ties to organized crime, stole millions of dollars from investors. In the 1990s, Joe Waldholtz, the then-husband of Rep. Enid Greene, was convicted of checking and bank fraud. And in 2006, a Federal Trade Commission survey ranked Utah No. 1 in per capita fraud complaints, although the state fell to 11th the next year.

In Utah County alone, the FBI says it is investigating mortgage fraud cases in which losses have exceeded $150 million.

The history of fraud has motivated the U.S. Securities and Exchange Commission to maintain an office in Salt Lake City. The U.S. attorney for Utah says he recently added white-collar prosecutors, and state and federal leaders have created a mortgage-fraud task force.

But efforts by the Utah attorney general to create a new mortgage-fraud prosecutor position last year stalled when funding was eliminated by a state budget cut. Deputy Attorney General Kirk Torgensen also says police departments and county attorneys could do more. His office routinely receives requests for help from police departments -- large and small. One problem: compared to violent crimes, fraud cases are notoriously time consuming.

Investigating a bank robbery, police might only need to show the bandit waived a gun at a teller. A few seconds of camera footage can prove guilt. For crimes like mortgage fraud, investigators routinely read thousands of documents, track bank and real estate transactions, find victims or accomplices, persuade them to testify and explain to a judge and jury what all the evidence and testimony means. The cases can also require investigators and lawyers who know how to read ledgers, financial statements and banking and real estate regulations.

"Some police departments say, 'I can solve 50 other cases in the amount of time it would take me to solve a white-collar case,'" Torgensen said.

Even the Salt Lake County District Attorney's Office, the largest local prosecutor office in Utah, does not have a full-time fraud prosecutor. Those cases are divided among the office's felony-prosecution teams, said spokeswoman Alicia Cook.

Michelle Pickens, a special agent in the FBI field office in Salt Lake City, said her office has noticed an increase in local police asking for help on fraud cases since the state prosecutor position never materialized.

Pickens said the office does not turn away any cases, but must "prioritize in terms of dollar amount and impact to the public."

Fraud-case overload

In Taylorsville, police Detective Shannon Bennett said he would probably investigate a mortgage fraud case only if all the parties were in Taylorsville.

His caseload is filled with identity thefts, exploitation of the elderly and check fraud. Bennett said he is assigned about 40 fraud cases a month; he makes arrests in about one-fifth.

"It's a property crime," Bennett said of fraud. "And property crime has been around as long as prostitution."

U.S. Attorney for Utah Brett Tolman said he sees prosecuting fraud as important to restoring consumer confidence and says both federal and local prosecutors have to pursue scammers.

"We don't have all the resources to take every house-flipping or mortgage-fraud case," Tolman said. "There are literally hundreds of cases out there" -- and that leaves law enforcement trying use education as often as handcuffs. Federal and state officials gathered Tuesday at a Salt Lake City post office for national consumer protection week, providing pamphlets and educational DVDs to people picking up mail or buying stamps.

"If I interview victims, it's too late," said Randy Tuckett of the U.S. Postal Inspection Service.

The LDS Church has tried warning people, too. There have been a handful of General Conference speeches and church magazine articles over the decades telling members to stay out of debt and avoid risky investments. Then in February 2008, the church sent a letter to be read in all wards.

"Consideration should also be given to investing wisely with responsible and established financial institutions," read one passage in the letter. "We are also concerned that there are those who use relationships of trust to promote risky or even fraudulent investment and business schemes."

The reading came about three weeks after Ogden businessman Val Southwick was charged with what has been called the largest scam in Utah history. Southwick emphasized his membership in the LDS Church when persuading some victims to invest in what turned out to be a Ponzi scheme.

Bottoming out

Fraud also is blamed for staggering Utah's economy.

The River Bottoms was once thought to be immune from downturns in the market, said Provo City Councilwoman Cynthia Dayton. Now for-sale signs or signs announcing public auctions dot the community.

"A lot of people [in the River Bottoms] are transplants," Dayton said. "They come here and look for some kind of housing where they can do better."

Federal prosecutors allege the River Bottoms defendants used lies and false appraisals to increase the prices of homes. The inflated prices were then used as collateral to obtain loans that exceeded the true value of the homes.

KUTV sports anchor Dave Fox was a "straw buyer" in the scheme -- someone who's name and credit are used to purchase the home without telling the lender that other parties are involved in the transaction. Fox entered a plea in abeyance -- where the defendant pleads guilty in exchange for the charges being dismissed -- in September 2007 to one count of felony communications fraud in state court. He also agreed to testify against other defendants.

Steinagel says the fraud helped fuel a price inflation on homes bought legitimately. When the fraud schemes unraveled and the national housing market declined, those honest buyers saw their homes' value decline, perhaps by hundreds of thousands of dollars.

Steinagel said market corrections will not solve Utah's fraud problem.

"Fraudsters don't go away when this happens," he said. "They just look for new opportunities."


Tribune data analyst Tony Semerad contributed to this report.