Ponzi County

[statman]

A former member of our HP Group is spending some time in the federal slammer for a Ponzi scheme that hooked local members, among others. His partner, the ringleader of the scheme, was sentenced last month, but they only promised a 36% return. I'm working with a few members whom the court-appointed receiver has demanded that they return some or all of the money the wrongdoers gave them while the scheme was running.

People who are tempted by these kinds of deals need to know that even if they happen to be one of the early investors and they see some profits, they'll be required to return the money they were lucky enough to have received.

Clawback is a bitch!

[statman]

I kept telling my neighbor that 40% was absolute proof that it was a fraud and that he should step back and not have anything to do with it. He got pretty upset with me.

The steely-eyed stare of Truth is a bitch too...

The dude deserves to lose all his money!

Just how do people think that loans are going to return that much money? In the heyday of flipping houses, a 'hard money' loan would get you 5% every couple weeks. Those with money to throw around could make ridiculous annualized returns. But back then such a person could also count on a hard money borrower being able to eventually get a loan from SOMEONE that would ensure he'd be paid on such a loan.

But that was then and this is now.

Profitable flipping isn't nearly as easy now as then. Final financing that would ultimately ensure that the hard money investor would get paid is also much more difficult now. Back then, big loans were easy to get done within a few weeks. Now a simple refinance takes 3 or 4 months. The very short-term flip using hard money as a bridge for a couple weeks simply isn't around like it once was. And with those increased timelines are increased risks.

So - back in the day, I'd say yeah, if you had the right connections, a chunk of money big enough to be meaningful to a real estate investor, an attorney who could provide you with cheap legal representation, all the documentation you needed and all the right filings, etc - you could make ridiculous annualized returns if you had a couple hundred grand to throw around. Put up $200K, and you could get someone desperate for short-term cash who would pay you $10K to use your money for 2 weeks. And if he didn't pay, your note was tied to his house. He flipped it or got financing, paid you your $10K, and you used your connections two weeks later to get another $10K for the next 2-week loan. Add those all up, assuming your money was 'in the game' for two weeks a month, and you grossed $120K on $200K liquid cash that loaned a dozen times in the year. No matter how good your friends are, you've got SOME expenses in there, but still, when real estate prices did nothing but go up and easy financing was everywhere, hard money bridge loans COULD get you a ridiculous return.

But if someone tells you they can do the same thing today? They're full o' the brown-stuff. With demand way down from where it was, a quick sale is a lot less likely. With financing a lot less certain and a lot less speedy, you simply can't count on the guy being able to get financing elsewhere in the event he needs to pay you off - and if he does, your money is tied up a lot longer. And with foreclosure rates so high, you can't really count on being able to recoup your investment should it come to you foreclosing on the note.

Anyone who lent & made money that way back in the day will know that conditions do not allow it today - not at the same rate anyway. It's likely that anyone who believes those returns are still possible is someone who HEARD about people doing it back in 2002 - 2006, but didn't get to take part in the game back then. They don't understand that it's just not possible anymore. Not in the long run. And not without taking on risks that no one took back then...

While on the HP Group thing - a guy who was in my HPG in our previous ward is a real estate guy and had money in the Hard Money game during the salad days of Utah County investing. He was a young guy who made a TON of $$$ with little effort. But one by one his hard money partners started doing more and more desperate things to try to keep the gravy train going. Of his group of 10 (or so?) partners who pooled their money for hard money loans to flippers, he's the only one who hasn't declared bankruptcy. That's kind of amazing given that these guys each had a couple hundred thousand bucks out there making 50-60%+ a year. They just got greedy - pushed it too long after things were obviously crashing down. They'd saved nothing, and then lost income they'd gotten used to. So they threw more $$$ into it to try to keep it going. And eventually it got them. The guy I know didn't spend his earnings, however. Initially he just grew his principal and lent more and more. Then when things looked like they were slowing down, he took out his money and started buying real estate as prices dropped. Some of the purchases weren't exactly timed right, but he owned the properties he bought outright - and all were purchased with rental income in mind. He made a ton of $$$ from 2002 - 2006, and turned most of it into real estate that might not be worth as much as it once was, but they all provide cash flow. And through all of it, he never quit his day job...

[Uncle Ted]

Former Mormon leader pleads guilty in fraud on ex-Ute football coach

Two men who swindled investors, including a prominent University of Utah football coach, out of thousands of dollars over the course of four years — one while serving as a counselor in an LDS stake presidency — pleaded guilty Monday to orchestrating a fraudulent furniture-financing scheme.


Michael Kay Smith, 66, and his son, Quintin Fullmer Smith, 33, each pleaded guilty to two counts of third-degree felony attempted securities fraud as part of a plea deal with prosecutors in which four second-degree felony counts of securities fraud and one count of pattern of unlawful activity were dismissed.

The two men each face up to 10 years in prison when they are sentenced in 3rd District Court in September. Had they been convicted of any one of the second-degree felonies they were initially charged with, the Smiths could have faced up to 15 years behind bars.


The two allegedly promised an 18 percent return on investment to clients and attracted at least $1.8 million from 18 victims beginning in 2005. Their biggest investor was Norm Chow, the former Utes’ offensive coordinator, who invested $500,000.
[...]

http://www.sltrib.com/sltrib/news/56659584-78/smith-smiths-michael-least.html.csp

Yeah, a former BYU coach would have known better than to make an investment with these guys.

The scheme allegedly lasted from September 2005 through August 2009.


During that time, Michael Smith served as first counselor in the Salt Lake University LDS 2nd Stake presidency, which was dissolved in April 2011 during organizational changes. Several of the victims met the Smiths through relatives, but at least one attended church with Michael Smith, investigators said.

Wait... President Smith was doing scamming while in he was in the stake presidency. This is why I tell my bishop/stake president that my tithing is none of their damn business.

[Coach McGuirk]

Byron Frisch charged with $50M fraud.

http://www.utsandiego.com/news/2013/aug/01/former-nfl-player-frisch-fraud-scheme/

[Uncle Ted]

Byron Frisch charged with $50M fraud.

http://www.utsandiego.com/news/2013/aug/01/former-nfl-player-frisch-fraud-scheme/

Good hell... Frisch played for the Dallas Cowboys.

[Katy Lied]

Former Mormon leader pleads guilty in fraud on ex-Ute football coach

http://www.sltrib.com/sltrib/news/56659584-78/smith-smiths-michael-least.html.csp

Yeah, a former BYU coach would have known better than to make an investment with these guys.




Wait... President Smith was doing scamming while in he was in the stake presidency. This is why I tell my bishop/stake president that my tithing is none of their damn business.

The promise of 18% return... Now that's pretty slick. Low enough that it doesn't set off ponzi alarm bells.

[Color Me Badd Fan]

Former Mormon leader pleads guilty in fraud on ex-Ute football coach

http://www.sltrib.com/sltrib/news/56659584-78/smith-smiths-michael-least.html.csp

Yeah, a former BYU coach would have known better than to make an investment with these guys.




Wait... President Smith was doing scamming while in he was in the stake presidency. This is why I tell my bishop/stake president that my tithing is none of their damn business.

To be fair to Chow (and not saying I would ever touch something like this), an 18% return isn't totally and completely outside the realm of possibility.

[Uncle Ted]

To be fair to Chow (and not saying I would ever touch something like this), an 18% return isn't totally and completely outside the realm of possibility.

Especially when the promise of the high interest rate is coming from the mouth of a stake president.

[CardiacCoug]

Former Mormon leader pleads guilty in fraud on ex-Ute football coach

http://www.sltrib.com/sltrib/news/56659584-78/smith-smiths-michael-least.html.csp

Yeah, a former BYU coach would have known better than to make an investment with these guys.




Wait... President Smith was doing scamming while in he was in the stake presidency. This is why I tell my bishop/stake president that my tithing is none of their damn business.

I honestly will never understand how on earth anybody could ever hand over $500K to people running these transparently shady schemes.

I'm just way too suspicious of other people. And if a person asking me for money has a significant Church leadership position, that makes me even more suspicious of their sincerity/honesty/intelligence. Sorry, just being honest.

[Uncle Ted]

I honestly will never understand how on earth anybody could ever hand over $500K to people running these transparently shady schemes.

I'm just way too suspicious of other people. And if a person asking me for money has a significant Church leadership position, that makes me even more suspicious of their sincerity/honesty/intelligence. Sorry, just being honest.

But what if it is your bishop/stake president? You know, the same guy you completely trust confessing all you sins to.

I wonder why we can't just skip the middle-man and go straight to Jesus when it comes to confessing one's sins.

[Coach McGuirk]

But what if it is your bishop/stake president? You know, the same guy you completely trust confessing all you sins to.

I wonder why we can't just skip the middle-man and go straight to Jesus when it comes to confessing one's sins.

You can. It's awesome.

[mtnbiker]

Wow, I was blown away by the lead story on KSL news tonight about another Ponzi scheme. Years ago I lived 2 doors down from this guy and his family. As far as I knew, he was a run-of-the-mill insurance salesman for Northwestern Mutual. Looks like he branched out a bit.