Mormons Become Victims in $50 Million Scam to Sell Gold Bullion 2009-09-01 04:01:00.0 GMT By James Sterngold Sept. 1 (Bloomberg) -- Henry Jones delivered the good news in a conference call with Tri Energy Inc.âs investors: The gold deal the company had been working on for years was about to pay off. Jones, 55, a record producer in Marina del Rey, California, and his two partners had raised more than $50 million from 735 investors, which they said they were using to broker the sale to Arab buyers of 20,000 tons of gold owned by a group of Israelis. They promised to triple investorsâ money -- if only Tri Energy could overcome some last-minute glitches. All the company needed to close the deal, Jones said on the Dec. 20, 2004, conference call, taped by one of the participants, was a âsafe-passage letterâ that would cost $450,000. A few days later, on another call, he said Tri Energy had to come up with $100,000 to open a âcommission account.â Then, on Jan. 15, 2005, a new request: The bank handling the deal wanted $125,000 to conduct an audit. Like those caught up in other get-rich scams -- from Bernard Madoffâs $65 billion Ponzi scheme, which initially snared wealthy Jews, to an alleged $4.4 million fraud aimed at deaf people -- Tri Energyâs investors had something in common. Many were Mormons and born-again Christians who shared dreams and prayers on nightly conference calls. They vowed to use the profits for charitable works and kept raising funds, at times taking out second mortgages, draining retirement accounts and recruiting relatives. While the delays and pleas for more money never stopped, the charade did. Restraining Order In May 2005, the U.S. Securities and Exchange Commission obtained a temporary restraining order against Jones and his partners, Robert Jennings, an associate pastor at the New Life Fellowship Church in Perris, California, and Arthur Simburg, a former marketing representative for sporting-goods manufacturer Puma AG. Jones, a native of Nigeria, and Jennings, 59, were later convicted in federal court in Los Angeles on charges of mail, wire and securities fraud. Jennings was sentenced last November to 12 years in prison, and Jones got 20 years in April. Both men have filed notices that they intend to appeal. Simburg, 64, who pleaded guilty and cooperated with prosecutors, received a nine- year sentence. Neither Simburg nor Jennings responded to letters sent to them in prison seeking comment. Jones replied in a hand-written note that he had been asked by an Arab group to broker deals in gold, crude oil and bank securities. He said the gold deal had not closed because it was structured as an âinvestment instrument,â not a one-time deal, and that, though the prosecutors could find no records, it was genuine. Affinity Fraud While their scam was puny compared with Madoffâs, which netted him 150 years in prison, it had much in common with the largest Ponzi scheme in history and other so-called affinity frauds. Such cons prey on like-minded or culturally connected investors whose trust blinds them to the implausible in the pursuit of profit. The SEC has filed 86 enforcement actions involving Ponzi schemes since the beginning of 2006, according to data compiled by NERA Economic Consulting, a New York-based research firm. The number more than tripled to 36 in the first six months of this year from 11 in 2006. Many of the scams, in which money from new investors is used to repay others or siphoned off by the promoters, targeted religious or ethnic groups. Haitian Ponzi In December, the SEC accused George Theodule of running a $23 million Ponzi scheme aimed at fellow Haitian immigrants, whose money he promised to double in 90 days. In April, it obtained an injunction against Marvin Cooper, who is deaf and who the SEC said was running a $4.4 million fraud based in Hawaii that recruited deaf investors in the U.S. and Japan. In June, it got a cease-and-desist order against Peter Son, a Korean-American, who it said bilked Asian investors, mostly Korean immigrants, out of $80 million. Theoduleâs lawyer, Russell Weigel, says his client is seeking a dismissal of the SEC case. Cooper consented to the injunction, and his lawyer, Michael Glenn, says heâs trying to make restitution. Son pleaded not guilty to criminal fraud charges in federal court in Oakland in July. âAffinity can be a powerful element,â says Mitchell Zuckoff, a professor of journalism at Boston University and author of âPonziâs Scheme: The True Story of a Financial Legend,â a 2005 book about Charles Ponziâs 1920 fraud. âThatâs what gets people to lower their inhibitions. Thereâs this attitude, âHeâs like me. I can trust him.â Itâs almost hard- wired into our DNA.â âTotally Outlandishâ While some Tri Energy claims were implausible -- the 20,000 tons of gold was more than twice the total U.S. bullion reserve, the largest in the world -- investors rarely wavered in their loyalty. One even invested more money after his brother, despondent about being conned, committed suicide, prosecutors say. âThese deals sounded totally outlandish to me,â says Stephen Cohen, an SEC lawyer in Washington who worked on the case. âBut it was obvious that the people on their conference calls were very sincere. They really cared about each other. They prayed for each other. They talked about their families. They just wanted to believe.â For Kim Flanigan, 37, a Mormon who owns a furniture store with her husband in Casper, Wyoming, being part of a spiritual mission was addictive. She says she invested $10,000 in Tri Energy at the suggestion of her mother and an aunt.