Wednesday, February 6, 2008
Val E. Southwick Prosecution : Posted by Robert Paisola
Val E. Southwick, a smooth-talking businessman who sometimes used his LDS faith to persuade potential investors to part with their money, was charged Wednesday with nine felonies in what federal and state authorities describe as a massive Ponzi scheme that bilked about 800 investors out of as much as $180 million.
Criminal charges filed in state court and a federal civil complaint say the Ogden businessman used a spider web of 150 or so interconnected companies to raise $445 million over 17 years of operation from banks and professional and unsophisticated investors. The latter included at least several elderly investors who, on promises of high returns and that their money was safe, invested their entire life savings with Southwick at a time when his companies were broke.
"Mr. Southwick had such enormous personal appeal that they all believed him," said Wayne Klein, the director of the state Division of Securities.
The massive fraud may be the largest in Utah history. Among creditors are several hundred Utahns and investors from 29 other states and three foreign countries.
The criminal charges and a civil complaint filed in federal court by the U.S. Securities and Exchange Commission were filed after negotiations, said Max Wheeler, Southwick's attorney. Southwick has agreed to plead guilty in the state case and reach an agreement with the SEC over the civil
complaint, though details are still pending, Wheeler said.
"Val is prepared to acknowledge mistakes were made and has agreed to cooperate with both the state and federal governments to try to get to the bottom of what happened and to make an attempt to minimize the negative impact on investors," said Wheeler. The attorney added that Southwick had been advised not to speak publicly.
Several investors said Wednesday they were happy to see the charges but were critical that it had taken state and federal regulators so long to prosecute Southwick.
"Here's one of the biggest criminals that has ever been in the history of Utah and they're treating him like he's a VIP or something," said Jonathan Horne, who invested $2.1 million after meeting personally with Southwick in January 2005.
Said Brad Hatch, of Spanish Fork, who invested $125,000 in 2002 after getting a sales pitch from Southwick: "There's a bunch of us who feel like if they hadn't been dragging their feet we wouldn't be out of our life savings."
Klein said the state has been investigating Southwick since October 2006 but has been hampered by the complexity of the case, the lack of financial records and audits of the companies, and by investors who did not cooperate. Of 817 letters sent to investors seeking information, only about a quarter responded. The majority apparently believed Southwick's promises to repay them and heeded his warning that cooperation with regulators might slow the return of their money.
Southwick lured investors with promises of high returns, competent management and promises that their money was safe, according to an investigative summary released by the Division of Securities. He also relied on his membership in the LDS Church, according to investigators and several investors.
"Southwick emphasized his membership and ecclesiastical roles in The Church of Jesus Christ of Latter-day Saints during solicitation meetings with investors," the investigative summary says. "Southwick showed his LDS Temple Recommend, or mentioned its existence, to several investors, and his office contains LDS 'memorabilia,' all of which appeared designed to breed a sense of trust between Southwick and investors."
Instead of Southwick secure investments paying as much as 24 percent a year, he "operated a massive Ponzi scheme, paying existing noteholders with funds from new investors," the SEC complaint says. The millions of dollars, much of which is not accounted for, often was used to repay earlier investors and cover living expenses for Southwick and his family.
Southwick, 62, faces up to 15 years in prison on each state felony count. The SEC is seeking unspecified fines, a return of monies obtained through fraud and to enjoin Southwick and associates from engaging in future fraudulent behavior.
Southwick filed for bankruptcy in federal court in Utah through one of his companies, VesCor Capital Inc., in May 2007, about a year after he stopped paying investors promised interest. Other related companies are in bankruptcy court in Nevada.
The state investigation is continuing and could lead to criminal, civil and administrative actions against people who sold millions of dollars worth of securities on behalf of Southwick, said Klein, who recently said he would resign his position after questions arose about the operation of the Division of State Securities and his management style.