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Wednesday, August 20, 2014 Volume 67, Issue 49 universe.byu.edu152 BRMB, BYU, Provo, Utah 84602

EDITOR

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Affinity fraud continues to plague Utahns and MormonsB y D O N O V A N C B A L T I C H

The case of a Davis County man wanted for an alleged scheme that officials say took the life savings of Utah residents and brought in tens of millions of dollars shows the vulnerabil-ity of Utahns to financial scams. The 63-year-old suspect, who approved for an initial court hearing in July in Salt Lake City, is alleged to have used the cachet of two Utah institutions — the LDS Church and the Boy Scouts of America — to bilk his victims.

Confidence between mem-bers of a religious group has its drawbacks when used by confi-dence-men, or “conmen.” When a fellow member of a ward, cul-tural group, neighborhood or school builds affinity and then exploits that trust to profit from it, it’s known as affinity fraud.

The state with the highest rate of affinity fraud is Utah, where more than 60 percent of the population belongs to the LDS Church. The FBI calculates that there were more than 4,400 victims in 2012 with a net loss of $1.4 billion. It’s not that LDS Church members and Utahns haven’t been warned. In 1982, then BYU President Jeffrey R. Holland warned students about such schemes. Leaders have given numerous warnings over the years in conferences and church publications with a simi-lar theme — if it sounds to good

to be true, it probably is.“I was working … on the

BYU—Hawaii Campus only to open the Sunday edition of the Honolulu Advertiser to read this headline: ‘Mormon Utah called a test market for scams,’” Elder Holland said. “‘Utah’s large Mor-mon population has become a prime target for con artists and swindlers.’”

Many cases of fraud surfaced in the 1980s because of economic decline. Fraud skyrockets when the economy booms, but it is exposed in downturns. The high-est case profile of affinity fraud in history was exposed during the great recession of 2008. This was the case of Bernie Madoff, who used his affiliation as a Jew to target the Jewish community.

“Madoff would still be going right now probably if it wasn’t for the great recession,” said Mark Zimbelman, of BYU’s School of Accountancy. “War-ren Buffet once said, ‘When the tide goes out, that’s when you see who’s swimming naked.’”

Zimbelman is BYU’s expert on financial statement fraud. He discussed the reason why mem-bers of the LDS Church often fall prey to con artists.

“There’s also a mentality … that if we’re righteous we’re going to get wealthy … so when we hear about somebody in the community, our friend or some church leader who has some great investment we think, ‘Well that’s a blessing for us, and we’ve paid our tithing and so forth,’” Zimbelman said. “They

decide they don’t need to do their homework because someone else is in it that they trust.”

Affinity fraud affects victims on a large scale but also has local applications. Travis Hardin, a BYU student, lived at the Riviera Apartments during Fall 2010 semester. One of his roommates was charismatic and claimed to be a BYU basketball player. He was popular within his apart-ment complex and the Hela-man Halls community, but his fame came crashing down when another roommate exposed him.

“You just didn’t realize that his real life was showing through the whole time,” Har-din said. “Everything was a lie; he even lied about what his last name was.”

Hardin’s fraudulent room-mate had previously served time in prison for committing check fraud. He invited Hardin and others to move into a house with him. He even collected down payments from them, but the house didn’t exist.

Fasi Filiaga Jr., a member of the LDS Church, ran a company called Spread Trade Systems, an organization that taught indi-viduals how to invest in stocks and options. He ran his semi-nars via the Internet, bringing in students from all over the nation and from various reli-gious denominations.

Over a series of years, a rela-tionship of trust f lourished between Filiaga and his stu-dents. He then invited them to take part in his investment

management group. They would give him money, and he would invest it for them.

One particular student, Eric Nelson of Utah County, remained skeptical of Filiaga’s investment group even though their commonality as Mormons helped Nelson relate with him. Nelson studied the company and attended the investment meet-ings for a full year before he and his wife decided to invest.

“It was a fraud from the begin-ning. The money given to Fasi was never invested; it went to him and his company,” Nelson said.

Over the duration of his investment group, Filiaga swin-dled $2 million out of his stu-dents. Filiaga was not charged for his crimes until Nelson and other victims filed a class-action lawsuit against him. As a result, Filiaga is serving time in prison. Con artists often say their investments will bring returns of more than 20 percent in a quarter and that one should act fast.

“If you know where the trea-sure is, you’re not selling maps to show people how to find the treasure; you’re digging up the treasure yourself,” Zimbelman said. “Any kind of return like that, any kind of outrageous interest rate (20 percent), is … virtually guaranteed that it’s a ponzi scheme.”

In 2011, Utah’s governor signed an affinity fraud bill into law. Its aim is to exact harsher penalties on those who exploit

confidence against vulnerable adults, like the elderly or men-tally handicapped. As fraud is usually exposed in times of economic downturn, data is unavailable to show the effects of the law.

“It’s too early to tell if the law deters affinity fraud; we don’t have a large enough sample size yet,” said Keith Woodwell, director of the Utah Division of Securities. “The bill doesn’t work retroactively, but we’ve had a handful of cases since 2011

that have had harsher penalties applied.”

As measures are taken to deter fraudulent activities, it is ultimately up to individuals to steer clear. Zimbelman advised people to do their homework, to diversify their portfolios and, when propositioned with an investment opportunity, to think, “Why do they want me?” and “How do they make their money?” When investment opportunities sound to good to be true, they usually are.

Refurbished BYU London Centre fosters familial environment for studentsB y J O S E P H M O X O N

BY U ’s L ondon C ent r e opened its doors in June to students again after a year of extensive remodeling.

Since 1978, 27 Palace Court in London has served as a school and home to thousands of BYU students, faculty mem-bers and their families. The Victorian-era townhouse bore this burden well, but 35 years of hard living took its toll. So inspiring of 2013, the London Centre’s doors closed and the extensive remodel began.

Even during the remodeling stages, when students lived in flats near Hyde Park, hundreds of students flocked to London to study and live in one of the most important historical and cultural cities in the world. But actually living and learning in the London Centre has special meaning to the students. Aside from BYU’s Jerusalem Center for Near Eastern Studies, the London Centre is BYU’s only study abroad location where students and professors live together under the same roof.

Anna Thurston, a BY U graduate from Sandy who attended the London Centre in 2008, especially remembers

mealtime with professors.“The best part of the meals

together in the London Cen-tre was also the most terri-fying. I think we all had the pleasure of showing up for a quick breakfast in our paja-mas, only to have one of our professors come sit across from us as at the table,” Thur-ston said. “Despite that hor-rific sinking in my stomach, those moments became ones where my professors became real. We all learned to be com-fortable around each other and to respect everyone in every setting. So, bed head during breakfast chats with your pro-fessor? Worth every moment.”

Students who participated in the London Study Abroad this spring had an opportunity to compare the experiences of life in London flats and life in the London Centre.

Rachel Stott, a dietetics major from Meridian, Idaho, remembers the two different experiences.

“Arriving in London we settled into the f lats, and of course we were all very excited to be there. Unfortunately, the rooms were very spread apart, and since hardly any of us had phones, it made it hard to coor-dinate plans with each other,” Stott said. “But after moving

into the London Centre, the study abroad all of the sudden became more than a trip to

explore London; it became an opportunity to make lifelong friends. Unlike the f lats, the centre was very homey, with eight or more students in each room, a dining room where we all ate together and a living room where we could all gather easily. I will always cherish the

London Centre, where some of my most unforgettable memo-ries were made.”

One of Stott’s classmates in London, Chunie Johnson, had similar feelings.

“Before going on the study abroad, people had told me that the London Centre is a magical

place, and I just nodded my head in agreement. But it’s really something you … (don’t) understand until you expe-rience it; now I can say with confidence it is a magical place — not just because the building is absolutely beauti-ful (both inside and out) — but also because of the spirit fos-tered there,” Johnson said. “I could feel the difference as we moved from the flats to the London Centre. The spirit the centre hosts is one where peo-ple can grow individually and as a group. I didn’t feel like the centre was a temporary home or a youth hostel; I felt like it was a community.”

Now t hat t he L ondon Centre’s doors are open again — this time with a fully refu rbished, 21st- centu r y interior — BYU students in London can once again experi-ence the special “community” atmosphere that has made this study abroad so unique.

As James Faulconer, direc-tor of the BYU London Centre, told the students in London this spring, the expensive decision to refurbish the Lon-don Centre was not made lightly — it was made for the benefit of the students who live together there.

The familial setting the Lon-don Centre provides is an inte-gral part of the London study abroad program; it has blessed the lives of BYU students for decades, and it will continue to do so for decades to come.

Mark A. Philbrick/BYU Photo

The renovated Kennedy Center for International Studies London Centre reopens its doors to students..

Donovan C Baltich illustration

Affinity fraud affects Utah more than any other state, with more than $1.4 billion in losses.

2 The Universe, August 20, 2014