Scammers often earn victims’ trust through shared hopes, dreams, beliefs


Scammers often earn victims’ trust through shared hopes, dreams, beliefs

Fred Baker was no ordinary Ponzi schemer.

He was a misguided investor who thought he could game the Ponzi system and felt bad when the plan fell apart, his lawyer said at his 2011 sentencing.

And he paid victims back to the tune of $400,000.

At the hearing, Baker was contrite.

“It’s heart-wrenching to me, too, to think that I have affected that many people, not to mention the burden on society that I have kind of done, meaning all my life I have tried to really be a good person,” Baker said.

That’s not how a few people in Utah saw him.

Ponzi payback

The $400,000 paybacks came in a series of four checks from a Utah woman named Kristine Kimball. She is married to Randy Kimball, and prosecutors said in court that neither one is a target of a criminal investigation.

But a pair of lawsuits in Utah and Idaho offer clues as to how they might have gotten that $400,000.

In May 2007, the same month Baker’s Durango scheme fell apart, he met five men in Logan, Utah – where he would soon move – and pitched a new investment to them. He told them he was worth millions of dollars and could change their lives, according to a lawsuit filed in federal court in Utah.

Baker introduced two of the men, Andrew Bentley and Jamison Potter, to Kimball, who pitched an investment in “viaticals,” an obscure way of making money from insurance settlements.

Potter and Bentley helped round up $6 million from 40 investors, according to a lawsuit against them by Idaho’s Securities Bureau.

The money went to two companies, Legacy International Group and Patriot Financial Group, according to the Idaho lawsuit. Kimball is the registered agent for both companies, according to corporate registrations in Utah and Panama.

From Panama, the money disappeared in the fall of 2007, the lawsuit said. That time frame coincides with payments from Kimball’s wife to Baker’s Durango victims.

Regulators in Idaho went after Potter, Bentley and other people and won a $5.3 million judgment in 2010. They did not prosecute Kimball or Baker. The defendants have not paid any restitution so far, according to the Idaho Department of Finance.

Bentley and other investors sued Potter and Randy Kimball, but a judge threw out the case last July when the plaintiffs failed to prosecute it.

Kimball did not return messages left at his Georgia business. In a motion filed in Bentley’s lawsuit against him, he denied guilt.

“Randall E. Kimball, a live breathing man on the land hereby denies each and every allegation set forth in the complaint,” Kimball wrote.

Bentley did not return a call and an email left at a number and address provided by his former lawyer.

Affinity fraud

According to the lawsuit against Kimball, the initial investors trusted him because he held himself out as a high councilman in the Church of Jesus Christ of Latter-day Saints.

It was a classic example of a type of scam known as affinity fraud. Affinity fraudsters prey on friends and people in the same trusted social groups.

It was at work in Baker’s Durango scheme. His scam worked like a viral infection, spreading from victim to victim through close social networks. Family members passed it to one another, and a dentist in Washington state spread it to his friends, family and employees.

Affinity fraud also has been noticeable in the Mormon community, and church leaders have made repeated warnings to their flock in recent years.

Utah loses more in fraud per person – $500 – than any other state, according to The Economist magazine.

“Church members should not let their natural trust blind them to the dangers of those who would exploit it,” said Michael Otterson, the LDS public affairs director, at a February 2012 conference on fraud.

Keeping the faith

Meanwhile, back in Durango, some of Baker’s victims were trying to keep the money flowing.

Kevin Bryden served as Baker’s bookkeeper and one of his biggest investors. Baker’s chief marketer, Mark Akins, stopped answering calls from aggrieved investors after Baker skipped town, but his brother, Peter Akins, took over as the point man.

About the same time Baker and Kimball were pitching the insurance scam in Utah, Bryden sought to reassure Durango investors after their payments from Baker’s so-called currency trading had abruptly stopped. He, too, mentioned an insurance investment.

“The currency events will be replaced by an elite insurance program that will pay a guaranteed 8 percent monthly,” Bryden wrote in a May 22 email to investors.

They kept the faith for several months after Baker’s scam collapsed.

In a Dec. 27, 2007, email, Peter Akins told Baker’s investors that their money would be refunded, and the investment program could continue.

“We have wonderful opportunities waiting for us when this is complete,” Peter Akins wrote.

But it was never complete. Their money remains lost, disappeared into an international network of financial crime.

Tuesday, the Herald takes a look at that network.

‘Scam the scammers’ plan not so rare

The judge seemed incredulous at Fred Baker’s confession that he had set up a Ponzi scheme to invest unwitting victims’ money in other Ponzi schemes in an attempt to “scam the scammers.”

Baker thought he knew how Ponzi schemes worked – luring investors with high initial paybacks until they inevitably collapse. Baker thought he could reap the rewards and get out before losing all the money.

U.S. District Judge Philip Brimmer seemed incredulous at Baker’s thought process during his sentencing hearing.

“I mean, most people who understand Ponzi schemes do so for purposes of avoiding them. Mr. Baker got involved because he understood them,” Brimmer said.

But Baker is not unusual. In fact, an online industry has grown around “post-modern Ponzi schemes” where many of the victims are aware of the fraud from the start.

The schemes bill themselves as high-yield investment programs, of HYIPs. The country’s top securities regulator, the Financial Industry Regulatory Authority, warned about them in 2010.

“The reality is virtually every HYIP we have seen bears hallmarks of fraud,” FINRA’s website says.

Investors trade tips on websites such as Money Maker Group and Talk Gold, websites like rate the “best” prospects for paybacks, and a book called “Riding the Ponzi” sought to teach people the “smart” way to invest in Ponzi schemes.

The scams use online banking tools such as Liberty Reserve, a Costa Rican company that provides financial services to many shady schemes. A disclaimer on Liberty’s website all but invites scammers to use its services by saying the company is powerless to stop them.

“Liberty Reserve is not qualified, nor does it have the investigative tools or legal permissions, to conduct criminal or civil investigations of any Liberty Reserve merchant or user,” the disclaimer says. It goes on to say that Liberty Reserve account holders must follow the policy of “buyer beware” when investing in Ponzi schemes or HYIPs.

Many of the websites operate openly, although sometimes authorities shut them down.

Federal authorities shut down Baker’s preferred Ponzi bank, a California outfit called Goldfinger. But before investigators could unravel much about Goldfinger’s involvement in financial crime, the case took a dark turn.

Goldfinger’s founder, James Fayed, hired killers to murder his wife, who was divorcing him. Fayed is now on California’s death row, and the fraud investigation took a back seat to the murder case.

In this series

Sunday: Fred Baker is serving time for his part in a Ponzi scheme, but he was just one player in a worldwide network of fraud.

Today: Four mysterious $100,000 checks to Baker’s victims coincide with another fraud case in Utah.

Tuesday: The money trail from Baker’s victims, and many others, leads to a company with ties to Panama, New Zealand and Europe.

Wednesday: Victims often fail to heed advice for spotting financial fraud.

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Scammers often earn victims’ trust through shared hopes, dreams, beliefs

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