Investing with “Friends” Does NOT Protect from Fraud

by InvestorLawyers on January 16, 2012

in SEC,Securities Fraud

Stock broker fraud attorneys are all too familiar with the idea that many people believe that investing with friends or members of their own community protects them against investment fraud. However, this is simply not the case. Investors are often swindled be fraudsters within their own community. They will swindle their family, friends, coworkers — even, as in a recent case emerging following a complaint to the Securities and Exchange Commission, members of their church congregation.

Investing With “Friends” does NOT Protect from Fraud

Wendell and Alan Jacobsen, members of the Church of Jesus Christ of Latter-Day Saints in Salt Lake City, used their membership in the church to gain the trust of around 225 investors and perpetuate a $220 million fraud. The scheme has been in operation since 2008 and was only recently halted by a SEC emergency order.

According to the SEC, victims of the fraud were offered the opportunity to participate in an investment that would receive 5 to 8 percent annual returns, with a guarantee of safety for their principal investment. The investors were told they would be investing in apartment communities that would be purchased at discounted rates and then, within 5 years, would be renovated and sold for a profit. However, the investments suffered losses, which were then covered up by the Jacobsons by using new money collected from investors to pay returns to previous investors. Furthermore, money collected from investments was used to pay personal business expenses and family expenses.

According to Ken Israel of the SEC, “Wendell and Allen Jacobson misled investors to believe they were financially supporting what was portrayed as a widespread and reputable operation to revamp apartment communities and turn a significant profit. Their promises were anything but truthful.”

If you invested with the Jacobsons or a member of your community you believed to be trustworthy because of their personal association with you, and suffered losses as a result, you may have a valid securities arbitration claim. To find out more about your legal rights and options, contact an investment attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

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