Morons Become Victims in $50 Million Scam to Sell Gold Bullion

Discussion in 'Wall St. News' started by 2cents, Sep 1, 2009.

  1. 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.’s investors: The gold
    deal the company had been working on for years was about to pay
    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 investors’ 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 “safe-passage letter” 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 “commission account.”
    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 Madoff’s $65 billion Ponzi scheme, which initially
    snared wealthy Jews, to an alleged $4.4 million fraud aimed at
    deaf people -- Tri Energy’s 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 “investment
    instrument,” 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 Madoff’s, 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.
    Theodule’s 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 he’s trying to
    make restitution. Son pleaded not guilty to criminal fraud
    charges in federal court in Oakland in July.
    “Affinity can be a powerful element,” says Mitchell
    Zuckoff, a professor of journalism at Boston University and
    author of “Ponzi’s Scheme: The True Story of a Financial
    Legend,” a 2005 book about Charles Ponzi’s 1920 fraud. “That’s
    what gets people to lower their inhibitions. There’s this
    attitude, ‘He’s like me. I can trust him.’ It’s almost hard-
    wired into our DNA.”

    ‘Totally Outlandish’

    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
    “These deals sounded totally outlandish to me,” says
    Stephen Cohen, an SEC lawyer in Washington who worked on the
    case. “But 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.”
    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.
  2. ‘Like a Cult’

    “It was almost like a cult,” Flanigan says. “There were
    prayers at the end of most of the calls. That element was key.
    There was a real sense of camaraderie, a sense of community, and
    everything we were going to do involved humanitarian efforts to
    change the world. That’s why you felt like you didn’t dare
    disrupt it. God’s behind us, and you shouldn’t betray him.”
    Ned Hill, a professor of business management and a former
    dean of the Marriott School of Management at Brigham Young
    University in Provo, Utah, says Mormons have a history of being
    victimized by financial scams. The church, an offshoot of
    Christianity founded by Joseph Smith in 1830, teaches its 13.5
    million members they can get into heaven by following a
    prescribed path of good works.
    Hill says he confronted the power of belief over reason
    when he learned about 12DailyPro, an Internet advertising
    business being pitched to students at the Mormon-affiliated
    university that promised returns of 44 percent in 12 days.

    ‘Community of Trust’

    When he sent an e-mail warning students it was a pyramid
    scheme, he says he received death threats from some investors,
    which he reported to university security officials. The SEC
    obtained a permanent injunction and shut it down in 2006.
    “What you have in a Mormon community or any religious
    community is a community of trust, and it can be very strong,”
    says Hill, who is a Mormon. “If you can break into that trust,
    then the things that make this so supportive can make people
    really vulnerable. Mormons can be especially vulnerable because
    they’re committed to doing good.”
    Jones, Jennings and Simburg, none of whom is a Mormon,
    exploited this vulnerability for at least four years, offering a
    cocktail of spirituality, exclusivity and the promise of high
    “The guys who did this were geniuses in a way,” says Dana
    Carney, an assistant professor of management at the Columbia
    University Graduate School of Business in New York, who has
    written about investor psychology. “This has the flavor of a
    cult. They hit all these vulnerabilities. There was religion; we
    trust like people, especially religiously like people. With the
    nightly calls, there was an illusion of transparency. They took
    advantage of the sunk-costs phenomenon: The more people invest
    in something, the more connected they feel.”

    Congolese Uranium

    The three didn’t appear to be geniuses. Their company had
    no office, they rarely met with investors and they spun a series
    of deals that never materialized, according to prosecutors,
    including a plan to ship Congolese uranium via diplomatic pouch,
    a venture to produce 99.3 percent emissions-free coal at a
    Kentucky mine and a project to develop hydroelectric power in
    Sierra Leone.
    “Some of their stuff sounded ridiculous, but it worked for
    years,” says Ruth Pinkel, an assistant U.S. attorney in Los
    Angeles and a prosecutor on the case. “The more ridiculous it
    sounded, the more people seemed to love it.”

    Scam Victims

    Jennings, the son of a postal worker, and Simburg, who grew
    up in Berkeley, California, were themselves victims of a scam.
    The two met in the late 1960s when Simburg, who was working for
    Puma, gave a pair of sneakers to Jennings, then a 6-foot-6-inch
    basketball player at California Polytechnic State University in
    San Luis Obispo, according to Jennings’s pre-sentencing
    They reconnected in 1995 and, in the late 1990s, were
    trying to raise money for a clean-coal company called H&J Energy
    Co., Simburg told prosecutors.
    An Orange County investment firm, Morgan Weinstein & Co.,
    promised to loan them $100 million in exchange for a $100,000
    fee -- a fee they paid even after getting two calls from a
    Federal Bureau of Investigation agent warning them it was a con,
    according to FBI memos obtained by the prosecutors. The loan
    never materialized, and six principals in the firm were
    convicted of fraud in 2003.
    Simburg told prosecutors he was introduced to Jones in 2001
    by a mutual acquaintance who thought the Nigerian might use his
    international connections to help Tri Energy raise capital. Tri
    Energy, founded that year by Simburg, Jennings and Jennings’s
    father-in-law, Thomas Avery, was registered in Nevada and had
    leases on two low-producing Kentucky coal mines.

    ‘Paradigm Pioneer’

    Jones failed to find any investors, according to Simburg’s
    account. He did offer something else, Simburg testified: a
    chance to take part in a Middle East gold transaction and use
    $200 million of the expected profits to finance the coal
    operation. Asked at his trial to explain his own involvement
    with Tri Energy, Jones called Simburg “a paradigm pioneer who
    had a project that was likely to contribute to ascendant
    Jones was more flamboyant than either Simburg, who lived in
    a bungalow near the Los Angeles airport, or Jennings, who had a
    small house in Perris, 70 miles east of the city. He used
    investor money to buy a $1.5 million home in Marina del Rey and
    a $277,000 Ferrari Spider for his wife, according to court-
    appointed receiver Richard Weissman.
    He showed up for meetings in a chauffeur-driven limousine
    wearing loud, custom-made suits and a bowler hat, at times
    bringing his wife, Yekaterina Jones, an aspiring singer and
    Russian model, says a person who met with him on several

    Gold Deal

    Once Jones was onboard and taking part in the nightly
    conference calls, the gold deal took center stage, prosecutors
    Jones, Simburg and Jennings each had a role on the nightly
    calls, according to prosecutors and a review of tapes,
    transcripts and summaries of 267 sessions conducted from early
    2004 to early 2005. Simburg led the meetings, Jennings spoke
    about the coal mine and Jones offered updates on the gold
    transaction. The three also talked about the common beliefs that
    held the group together.
    “Faith -- if you have it the size of a mustard seed,
    you’ll move mountains,” Jones said during a call with investors
    in February 2004.
    To Roger Sohn, 67, a dentist in San Bernardino, California,
    who invested and lost $210,000, the strong spiritual
    undercurrent made the three promoters more credible.
    “That was one of the things that deceived me more than
    anything else,” says Sohn, who describes himself as not
  3. Keep on Believing

    Even when they were caught lying, the promoters managed to
    convince investors to keep on believing.
    Several of them, angry about the repeated delays,
    confronted Simburg and Jones in Los Angeles on Super Bowl
    Sunday, Feb. 1, 2004, according to Craig Mason, the lead FBI
    agent on the case. Jones had told them he couldn’t meet because
    he was in Europe, Mason says. When they went to the office of
    his music company, Marina Investors Group Inc., they found him
    hiding under a desk.
    Three days later, Jones said on a conference call,
    according to a transcript of the meeting, that he had concealed
    his whereabouts because he was being shadowed by “men in white
    trousers circling the building in odd hours of the night.” If
    investors gave him a little more time, Jones said on the call,
    he would provide proof that the gold deal was about to succeed.
    “So we only have to wait another few hours for the
    documentation?” asked one investor, who wasn’t identified. “I
    think it’s worth our while to do that.”

    Suicide in Utah

    The investors hung on for almost two more years.
    “There was a core group that thoroughly defended them,
    even after they were shut down, and said that if you just wait,
    the gold deal will close,” Mason says. “They blamed the
    government for their losses, for stopping the deal when it was
    about to come through.”
    When Wesley Montierth, a financial planner in Ogden, Utah,
    who had invested in Tri Energy, committed suicide in October
    2004, Simburg attended the funeral and helped pay for it.
    Montierth, a Mormon and a retired schoolteacher, grew
    despondent after realizing he had been conned and had lost
    $136,000 of his own money as well as funds of family members and
    clients, according to a deposition given by his widow, Kathy,
    and statements made in court by Douglas Axel, a prosecutor in
    the case.

    Aunt Millie

    That didn’t prevent Simburg from reaching out at the
    funeral to Montierth’s brother David, a California cable TV
    executive. David, who had already invested $100,000 at his
    brother’s urging, testified that he put in another $65,000 at
    Simburg’s request. He didn’t return phone messages left at his
    home in Laguna Niguel, California.
    Not long after Wesley Montierth’s death, the scheme began
    to unravel.
    “This all started when Aunt Millie called me and said she
    had a great investment deal,” says Sean Pearson, 36, an
    accountant in Seattle and the brother of Kim Flanigan, the
    Wyoming furniture store owner.
    Pearson says he first heard about Tri Energy in early 2004
    when his aunt, Mildred Stultz, asked whether he might be
    interested in a gold deal. He says he later realized it might
    have been connected with a coal business in which his mother,
    Debbie Loveless, had invested about $50,000.

    Taped Calls

    “I finally linked it with the coal conversation I’d had
    with my mom, and I thought, ‘My god, is this the same scam?’”
    Pearson says. “I immediately called Kim and asked if Millie had
    contacted her and if she’d invested. She said, ‘Yeah, we’re one
    of them.’”
    Prodded by her brother, Flanigan grew skeptical and started
    recording the nightly conference calls. Pearson joined a call in
    late 2004 and threatened to expose the scheme if Simburg didn’t
    return his sister’s $10,000.
    After Simburg complied, Pearson informed Washington state
    securities regulators. The Department of Financial Institutions
    issued a cease-and-desist order on Feb. 28, 2005. Two months
    later, on May 3, the SEC got its order.
    Simburg told investigators that Tri Energy’s lawyer advised
    him and Jennings to go to the FBI and inform the agency that
    Jones’s gold deal was a hoax. Instead, they continued to raise
    money into 2006, prosecutors say. The three were indicted on
    Sept. 27, 2007.

    Simburg, Jennings

    Some friends and family members of Simburg’s and Jennings’s
    say they were conned by Jones.
    Arthur Simburg’s brother, Melvyn, a lawyer in Seattle who
    didn’t invest in Tri Energy, says Arthur wanted to prove he
    could succeed in business so badly he ignored the warning signs.
    Ted Norton, pastor at the New Life Fellowship Church in Perris,
    where Jennings was associate pastor, says his colleague was so
    motivated by Christian zeal to help others he allowed himself to
    be duped by Jones.
    “He never seemed to get anything out of this,” says
    Norton, who invested and lost about $14,000 in Tri Energy and
    says he isn’t bitter about losing the money. “He never showed
    that he got any benefit.”
    Prosecutors say Simburg and Jennings together took about $1
    million of the $32.6 million raised from February 2002 to
    January 2006, less than one-twentieth of what went to Jones.

    Muddy Hole

    The SEC says the scam went back to the 1990s and brought in
    at least $50 million. During the four-year period covered by the
    federal indictment, almost $8 million was paid out to investors,
    including some who received commissions for bringing in new
    money, prosecutors say.
    Simburg took $588,854 for his own use, including salary and
    expenses. Jennings, who owned a 1992 Honda Accord and a 1993
    Mazda Protege, according to sentencing documents, took $385,681,
    which he shared with his father-in-law.
    Another $3.39 million was spent on the coal mine, described
    by Weissman as a muddy hole in the ground with broken equipment,
    about two dozen employees and output that generated just
    $117,825 in revenue over 2 1/2 years.
    About two-thirds of the money raised by Tri Energy went to
    Jones, prosecutors say. In addition to the house in Marina del
    Rey, he purchased a town house in Culver City later valued at
    $725,000. He also bought a 2005 Porsche Cayenne for $108,000 and
    spent more than $800,000 supporting his wife and child. And $21
    million went to his two entertainment companies, Global Village
    Records and Marina Investors Group.

    Fantasy Twins

    He built a recording studio, financed concert tours, shot
    music videos and paid clubs to let his artists sing. The revenue
    from Jones’s entertainment businesses during the four years was
    about $7,800, according to Weissman. The last album he released,
    for a Korean duo called the Fantasy Twins, earned only $20.33 in
    online sales, Weissman says.
    “He just blew the money, totally blew it on the company,”
    says Weissman, who has been unable to account for about $13
    million of the money Jones took.
    He has recovered only $1 million of Tri Energy’s assets,
    which will be returned to investors.
    Jones wrote in his letter that his entertainment company
    was a long-term investment with valuable assets.
    “My case, unfortunately, is a reminder that there are
    times when the abstraction of the soul from the bondage of the
    bottom line is worthy of serious contemplation,” he wrote.
    While the theft angers Pearson, the Seattle accountant who
    blew the whistle on Tri Energy, he’s bothered even more by the
    investor behavior that made the scam possible.
    “It angered me because I’d lost my Mom; I mean, there was
    no reaching her,” Pearson says. “I showed her clear evidence
    why this had to be a scam. But after a while it wasn’t about the
    money anymore. It was her identity. If people have a certain
    personality trait or emotional need, they won’t let go.”

    For more Bloomberg Markets magazine stories, see

    For Related News and Information:
    Stories on investment fraud: NI INVFRAUD <GO>
    Stories on Madoff: STNI Madoff <GO>
    Madoff-related litigation tracker: BBLS DD X2L7RG8 <GO>

    (Published in the October issue of Bloomberg Markets magazine.
    MAG <GO>)

    --Editors: Robert Friedman, Ron Henkoff

    To contact the reporter on this story:
    James Sterngold in Los Angeles at +1-323-782-4251 or

    To contact the editor responsible for this story:
    Alec D.B. McCabe at +1-212-617-4175 or
  4. Anybody that is ignorant enough to believe a person from (of all places....Nigeria! ) deserves to lose there money.

    .......what a bunch of brainless asses. LOL...LOL
  5. Stupidity doesn't discriminate. :cool:
  6. there is a reason the religious so often fall for these scams by fast talking scammers. they are taught to use faith over reason as their belief system.
  7. imho I believe 'prison' terms for individuals who abuse the trust of people in this manner, as the only form of punishment, is way too benevolent.

    a ball, a hand......would do wonders....
  8. You can not fool a Honest man

    The fact is most of these religious funny-mentalists have a crooked bend themselves. I've done enough business with these types to know to watch my back.

    They'll hold hands before meal time to pray to the Lord then turn around and stab you in the back.

    A few are plain "joe-the-plumber" type stupid fools. That's why crooked politicians like Palin love them.

  9. ....a kidney, another kidney, bone marrow, a lung, one gallon of blood.......:eek:
  10. FB123


    Is there some reason why the title of your post is "Morons" instead of "Mormons"? :)
    #10     Sep 1, 2009