Last month, Utah became the first state in the U.S. to have an online registry for white-collar crime offenders. The registry, which was approved by Utah legislature last year and has been online since mid-February, includes a recent photo of criminals convicted of second-degree felonies involving fraud in the last 10 years in Utah, similar to other criminal registries.* Although this information is already publicly available, Utah’s Attorney General Sean Reyes said that the user-friendly nature of the database is an important tool for consumer protection, especially in light of the state’s financial vulnerability to a certain types of fraud known as affinity fraud.
Why is Utah so particularly vulnerable to these sorts of schemes? The perpetrators of affinity fraud pray on groups with strong social ties, such as religious and ethnic communities. Usually, it involves a fraudster being, or pretending to be, a member of the group, and subsequently exploiting the trust of that community to run a Ponzi scheme. As Lisa Fairfax, a law professor at George Washington University, wrote, the scam is based on the premise that “You can trust me because I’m like you.” It works—well. The most famous affinity-fraud case in recent years is that of Bernie Madoff, who scammed his (mainly Jewish) clients of nearly $50 billion dollars.
Although affinity-fraud cases in Utah aren’t on the scale of Madoff’s, they’re not small-time either. Reyes says that estimated losses from affinity fraud in Utah adds up to hundreds of millions annually. Sixty percent of Utah’s population is Mormon, which has made the state a prime target for religious-based affinity fraud. According to Reyes, “This dynamic exists in Utah and people in our state are very trusting of each other. Trust is a positive characteristic that makes our communities in Utah very family and business friendly. But the downside of trust manifests itself when you trust the wrong people.”
Just last year, an insurance agent who belonged to the Church of Jesus Christ of Latter-day Saints was charged with organizing a Ponzi scheme that allegedly cheated 700 people of $72 million. In 2010, fraud-victim losses in Utah topped $1 billion, with popular Ponzi schemes involving foreign currency trading, and commodities and real-estate investments. At the time, the FBI named Salt Lake City as one of the top five “Ponzi hotspots” in the country. The state has also been deemed one of the top places in the country for affinity fraud.
Currently, the database has about 100 listings and is expected to grow to over 200 in the coming months. And since, according to one study, around half of white-collar criminals in the U.S. are repeat offenders, the registry is expected to help Utah residents identify previous offenders. It’s also the state’s hope that the registry will provide an incentive for convicted fraudsters to comply with court orders and pay restitution in full, since those who do comply won’t appear in the registry. But that hope might be in vain: According to The Wall Street Journal, the SEC has yet to collect more than half of the nearly $18 billion in sanctions from the last five years. “Restitution (repayment of lost funds) is almost non-existent,” Reyes explained over email. “If we could raise restitution from less than one percent to even ten percent, it would represent millions of dollars back to citizens and the economy.”
* This article originally misstated the launch date of Utah's white collar-crime registry. We regret the error.