Mormon Fraud

This is the place to Ponzi

The Salt Lake Tribune

Rebecca Walsh


Val Southwick and Bernie Madoff moved in very different circles.

Southwick drove a Ferrari and lived in an Ogden manse. Madoff collected vintage watches and barbecued for hundreds at his Montauk beach house. Southwick is sitting in a prison cell in Gunnison. Madoff is under house arrest in his $7 million New York apartment.

But the men -- one convicted and the other accused of being a con artist -- had one thing in common. They recruited those they knew.

It's the predictable stuff of a Ponzi scheme. What's unexpected are the social and psychological similarities between their bicoastal marks -- Utah Mormons and East Coast Jews. A sense of being special led both groups to fall for the oldest trick in the book.

Madoff found investors at the exclusive Palm Beach Country Club. Southwick found his at church. Madoff's victims paid the club's pricey fees for the chance to brush with the investment whiz and his proxies. Southwick used current and former Mormon bishops and kept a photo of his family with LDS Church President Thomas S. Monson in his office.

"It's a given that [the Ponzi schemer] goes to people he knows. Religious affiliations let them do their thing," says Craig Orrock, who represented a handful of Southwick's victims.

More than taking advantage of proximity, Madoff and Southwick plied a unique knowledge of their clients' culture and armchair psychology to get greed to kick in. Madoff's felt lucky. Southwick's subscribed to Utah's twist on Calvinism: Riches must be proof of righteousness.

There's a reason the Ponzi scheme keeps working.

Utah's insular culture is particularly vulnerable to so-called "affinity crime." After a rash of Ponzi schemes in the 1990s, prosecutors and regulators started calling the state the white-collar crime capital of the country.

Utah Department of Commerce Director Francine Giani says Utah's reputation is slightly exaggerated. Ponzi schemes work on Baptists and dentists and co-workers as well. But with the economy in decline, she worries about future con games.

"There will be scams out there, people figuring out a way to make their next buck," she says. "Do your homework. Call us. We are only as good as you allow us to be if you make the phone call and ask the question."

Southwick's scheme forced The Church of Jesus Christ of Latter-day Saints to issue yet another statement urging members to be careful when they invest. The church has returned about $200,000 of Southwick's tithing payments.

Mark Pugsley, a Salt Lake attorney, wrote an op-ed in The Salt Lake Tribune before Christmas, a warning of sorts.

"If someone casually mentions that they used to be the elders quorum president [or some other position] in the context of an investment presentation, don't walk, run for the exit! Church affiliation is not relevant to investment decisions," he wrote. "In fact, I would recommend investing with people you do not know."

The Board of Pardons denied Southwick's petition for parole last month. He'll stay in prison for at least another 17 years. A virtual tour of his French provincial home -- with sauna and pool -- is set to Muzak online. Price tag: $875,000. A scratch in the $150 million swath he cut.

Orrock isn't sure we've learned anything. An active Mormon, he is frustrated with all the institutions involved -- his church, the FBI, the Securities and Exchange Commission, the state. One of Southwick's partners, former Las Vegas bishop Bill Hammons, seems unfazed by the wreckage.

"There's no repentance. He still goes to church. He's still got his temple recommend -- as if he didn't do a damn thing wrong," Orrock says.

"I don't think it will ever change."


Former All Black jailed for fraud

21 October 2005


Former All Black Steve Pokere is in jail for his part in a $4 million fraud that preyed on fellow Mormons.

The representative midfield back remembered as much for his religious beliefs as his silky skills was sentenced in Auckland District Court on September 30 to 2 years' jail.

Details of the sentence and his earlier guilty plea were suppressed while his co-accused were dealt with by the courts.

The suppression was lifted yesterday when an Auckland District Court jury found Tina Marie West and Phyllis Erena Mareroa guilty of conspiracy to commit fraud.

A fourth accused, Donna-Marie Hera Frost, earlier pleaded guilty. The three women will be sentenced on November 25.

Pokere, 47, and the women all Mormons were directors of the failed investment company FF Traders, which was struck off and placed in liquidation in 2003, about three years after it was formed.

At the time it had taken about $4 million, mainly from family and friends fellow Mormons of which just $900,000 was actually invested. Of this, just $500,000 was returned to investors. They had been promised returns as high as 100 per cent over four months.

Almost $700,000 of the money was paid as commission to the four directors including $190,000 to Pokere while the "investments" were described as "nothing more than frauds" by Crown prosecutor Philip Morgan, QC.

They included $80,000 lost on an Internet sharemarket game, a $320,000 Chinese telecommunications "venture" and $130,000 in an Australian bond scheme.

Most of the money was lost in the early days of the company. Money from newcomers was then used to repay earlier investors. Others seeking repayment were persuaded to "roll over" their investment.

The company managed to maintain an aura of success by taking some investors on all-expenses-paid trips overseas.

The Serious Fraud Office began investigating in 2002 and charged the four directors about two years later.

Hawera-born Pokere represented Wellington, Southland and Auckland during his rugby career. He played 39 games for the All Blacks including 18 tests after making his debut in the infamous "flour bomb test" against South Africa at Eden Park in 1981. A teetotaller, his rugby career was interrupted in the late 1970s when he spent two years working for the Mormon Church.

Pokere and wife Lesley were declared bankrupt in September last year.

Meanwhile, West and two Rotorua directors of Lakeland Wealth Creators which invested about $1.5 million in FF Traders have been convicted and sentenced for their part in defrauding Lakeland investors of $15 million.

West and Lee Papple were jailed for five years in May, while Papple's husband, Bill Papple, was sentenced in Rotorua District Court last week to two years' jail.

Their victims included several high-profile Auckland businessmen, family and friends from the Mormon church, a bank manager and a policeman.

Details of the convictions were suppressed till yesterday.


Seminary, school in same building, but still separate, say educators

By Julia Lyon
The Salt Lake Tribune


A new publicly funded charter school and an LDS seminary share the same roof in Lindon, but they're entirely separate institutions, educators say.

    Housed in the same building, Karl G. Maeser Preparatory Academy occupies about 80 percent of a renovated bowling alley that also houses an LDS seminary, a place Mormon Maeser Prep students can go to study religion during release time from school. The seminary's location has raised questions about the separation of church and state, though officials emphasize each program has its own entrance and pays its own lease.
    Public tax dollars are not paying for the seminary, said Michael Westover, headmaster of Maeser Prep, which is at 531 N. State St.
    "It's not accessible from our school," he said. "You have to go outside and go around to get to it."
    But he acknowledged Maeser Prep students, who study liberal arts using the Socratic method, benefit from its location.
    "It's convenient to have it close," he said. "Students go back and forth from [seminary] time to our classes."
    Locating a seminary and public school in the same structure could cause some people to believe the school is subsidizing the church, said Carol Lear, director of school law and legislation for the Utah Office of Education. Being across the street from a public school, which is typical for an LDS seminary, gives a different appearance.
    "There certainly is an issue of perception," she said. "It does matter that they're in the same building. Does it make it illegal? I'm not sure I can say that."
    The Church of Jesus Christ of Latter-day Saints operates seminaries in separate buildings near public schools throughout Utah. Typically LDS students in grades nine through 12 are released from school about 45 to 50 minutes for religious study on a daily basis. The amount of time depends on the school schedule.
    A 1981 landmark case concluded that students could be released from school for religious programs, but the instruction needs to take place separately, funded with separate resources.
    Despite the common building, seminary officials stress just how independent the institutions in Lindon are: They even have different electrical boxes, they say.
    The decision to share a wall with Maeser came down to convenience for the students, said Scott Robley, the principal of the seminary program. On Tuesday afternoon, Robley said he was eager to have his seminary sign posted. On occasion, people have opened the seminary door thinking they were entering the school.
    As the number of charter schools grows in Utah, the LDS Church is studying how to respond to the boom, said Paul Monson, the church education area director over the seminary. Normally a school district plans years ahead for a new school allowing the church adequate time to buy land and construct a religious education building nearby. Charter schools have gone from an idea to a schoolhouse in a matter of months.
    Church officials are well aware of the laws governing their education programs.
    If Maeser owned its building, the seminary would not be located there, Monson said.
    "It's the separation of church and state," he said. "You don't find us inside of any public school in the state of Utah."