[Editor's Note: The following guest post was submitted by Mark Pugsley, a lawyer who specializes in recovering losses for victims of investment fraud, unsuitable recommendations, and Ponzi schemes. He is a local attorney here in Utah. We met over lunch one day and lamented the prevalence of financial scams in the world, the epicenter of which seems to be right here in Utah. Mark is now an advertiser here at WCI and can be found at www.stockbrokerloss.com.]

I have represented a number of doctors and dentists over the years in disputes with their stockbrokers and in Ponzi schemes and investment fraud cases.

My medical professional clients are typically intelligent and savvy with respect to managing their money, but because they are often too busy to dig into the details they can often be taken advantage of by unscrupulous investment advisors, and in some cases, they fall victim to fraud.

Below are a couple of war stories.  Of course, most investment professionals are good and well-qualified – but not all of them.  A keen intellect cannot substitute for taking the time to read the documents carefully.  The devil may really be in the details

Some basic tips on how to avoid fraud are at the end of this article.

Scam #1: The Falls Event Centers

Utah-based entrepreneur Steve Down had been pitching investments in The Falls Event Centers since 2011.  He raised approximately $120 million from more than 300 investors – the majority of whom are dentists throughout the United States.

On May 11, 2018 Down and his event centers were sued by the Securities and Exchange Commission for defrauding investors.

So why did so many dentists fall for this scheme?  How did he do it?

Steve Down is a gregarious 61-year-old promoter who billed himself as an “an innovative entrepreneur and successful business owner, is passionate about creating companies and providing jobs.”

One of Mr. Down’s companies was called CE Select, a continuing education provider for dentists.  According to the detailed complaint filed by the SEC, dentists attending CE Select seminars were pitched an investment in The Falls during their lunch break.

I honestly cannot figure out how he managed to make a pitch for a wedding reception center investment seem like a normal part of a dental continuing education seminar.  But I digress.

The investment was basically a hard-money loan to fund the purchase and construction of more event centers and was supposed to pay returns of 10 to 14% per year to investors.

Down’s investment pitch remained essentially the same for years. The SEC alleged that Down made the following representations to his captive audience of unsuspecting dentists:

  • The Falls had 8 profitable locations and was growing at a rapid pace,
  • The Falls would have 200 event centers by 2022
  • After The Falls had 12 centers, it would be able to obtain institutional loans to replace the hard money loans,
  • Many of the event centers were profitable even before they opened, because they were accepting event bookings before they opened, and continued to be profitable after they opened,
  • Each event center would earn gross revenues of $1 million per year and cover expenses of approximately $650,000, leaving a profit of approximately $350,000, or 35% of revenue, per year.
  • The 200 projected centers would bring in net income of $70 million per year
  • The Falls would be worth $2.8 billion by the time it had 200 centers in 2022.

The problem, according to the SEC, is that many of these representations were false, and Down knew it.

The Falls’ own accounting records showed that the event centers had never been profitable.  Down also allegedly knew that his business model was unsustainable because of crippling debts owed to investors and mortgage holders.  But he nevertheless kept on pitching this “profitable” investment to dentists and other investors until the SEC finally shut him down.

Down did not admit or deny the allegations in the SEC’s complaint, but he and The Falls did consent to the entry of a final judgment permanently enjoining them from future violations of securities laws and Down paid a civil penalty of $150,000.  A final judgment was entered against Down and The Falls on May 11, 2018, by United States District Court Judge Jill Parrish.

Despite all this, according to an article in the local paper, Down planned to continue building his wedding center empire, and “The Falls will continue to conduct business as usual.”

But that won’t happen; The Falls filed for bankruptcy soon thereafter.

Scam #2: A Bad Broker and His Fake Investments



Tom Andrews was a respected member of the small community of Nephi, Utah (population 5,784) where he was born and raised.  His father Earl had prepared tax returns for many of the residents of Nephi for many years. When his father retired Tom took over his father’s role as tax preparer and began preparing tax returns for his father’s clients, including several local dentists and veterinarians.

At about the same time he took over his father’s tax practice, Tom obtained a securities license which permitted him to act as a stockbroker. He realized that he could solicit investments from the people whose tax returns he was preparing, and over time many Nephi residents began to rely on Tom for investment and retirement advice, as well as for their taxes.  They opened investment accounts with LPL through Tom Andrews and placed some or all of their retirement funds into his hands.

But beginning in 2011 Tom Andrews began to make other plans for their money.

Andrews formed a fake trust which he called the “Jackson Living Trust” and made himself Trustee. Andrews then opened a bank account at a local credit union under the name of the “Jackson” or the “The Jackson Living Trust.” It is unclear what paperwork he presented to the credit union, but they nevertheless opened up an account for this fake trust and gave Tom the full signatory authority as the trustee. This meant that he could cash or deposit checks that were made out to the “Jackson Trust.”

At about the same time, Tom began counseling his clients to invest in an annuity with Jackson National (which does actually exist). He told them that this investment would pay a guaranteed rate of return between 5 percent and 8 percent annually. Critically, he advised them to liquidate most or all of their investments and put the money into this “annuity.”

Andrews provided real marketing materials from Jackson National Life and even used the company’s application forms.  The victims filled out the applications, and gave Andrews checks for their entire life savings made out to “Jackson Trust” which they believed would be invested in the Jackson National Life annuities. But the money was never sent to Jackson National Life.

Andrews deposited each of the checks into his fake account at the Cyprus Credit Union and then use the funds as he saw fit.  He basically stole $9 million from his clients.

But the victims needed to continue to believe that their money was safe and secure in the annuity they thought they had purchased so Andrews generated fake quarterly statements for them.  He pulled a Jackson logo off the internet and made up fake account statements that he mailed out to all of his clients. Of course, the fake statements showed that their investment was safe and growing as Andrews had promised.

In October of 2015, several of his clients became suspicious when they had a hard time withdrawing money from their accounts.  Several contacted Jackson National Life and learned that in fact they had no account with the firm, and the account statements they had received were fake.

After several of the investors reported his conduct to the SEC, he was sued civilly and criminally. On December 15, 2016, Tom Andrews was sentenced to 97 months in prison — the maximum under sentencing guidelines — and was ordered to pay $8.3 million in restitution. The location of the money he took is unclear, and it’s unlikely that his victims will ever see a dime of restitution.

There are several troubling aspects of this story. First, unlike many of the stories I’ve written about, this one it appears to be a deliberate fraud from the outset. Andrews set up the bank accounts with a name that was deliberately similar to the name of a well-known annuity company. He used marketing materials and account applications for a real investment, and his investors would not have known that their money was going into a personal bank account as opposed to a licensed, verifiable company.

Another troubling aspect of this story is that the financial institutions involved dropped the ball and did not implement oversight and compliance procedures that could have protected the interests of the victims in this case. Banks, brokerage firms and others should be watching for red flags and alerting state and federal authorities when they see suspicious activity. In this case, that oversight never happened, and millions of dollars were lost as a result.

On February 12, 2016, FINRA barred Tom Andrews from associating with any brokerage firm in any capacity.

7 Tips to Avoid Being Scammed

I have been helping people recover losses from investment fraud for 25 years, so I often get asked how to avoid one. Here are a few things you can do to avoid getting scammed:

investment scam

1. Do your homework.

Run a simple Google search on the company and its managers, or the individual pitching the investment. Steve Down had a prior settlement with securities regulators that should have been a red flag, among others.

2. Hire an attorney.

An experienced lawyer can help you perform due diligence into the company and individuals offering a private investment.  You need to carefully evaluate the risks and determine whether the offering complies with state and federal statutes.  It is far cheaper to hire an attorney on the front end of an investment like this – when your money is gone it gets very expensive.

3. Scrutinize the financials.

In this case, the company’s financial statements were not prepared in accordance with generally accepted accounting principles (GAAP).  Sophisticated investors (and good accountants) would have discovered this problem and seen it as a huge red flag.  According to the SEC, proper accounting would have shown that The Falls was losing money and likely insolvent.

4. Get it in writing.

I am amazed at how often people will give hundreds of thousands of dollars to someone on nothing more than a handshake.  The terms of your deal should always be put in writing, and those terms should be reviewed by the competent attorney you hired.

5. Read the Paperwork.

Investors in a private investment opportunity should receive a detailed lengthy disclosure document called a private placement memorandum (PPM).  Take the time to review it before you invest. Like a prospectus, a PPM contains detailed information about all aspects of the business including the business model, financial history, risk factors, biographical information on the managers, and the terms and conditions of the private investment, among other things.

6. Work through licensed stockbrokers or investment advisors.

Even private (unregistered) investments generally need to be sold by licensed stock brokers. Every investor should look at the employment and disciplinary history of their broker or investment adviser, which is available on FINRA’s BrokerCheck website.

7. If it sounds too good to be true it probably is.

If you are thinking about putting money into an alternative, unregistered, or unusual investment that promises abnormally high returns (like, ahem, 10 to 14%), watch out.  And if someone promises you a “guaranteed” return on any investment that ought to be a red flag — investments are rarely guaranteed and investments that offer unusually high returns are more risky, not less.

What do you think? Have you been a victim of investment fraud? Why do you think doctors often fall prey to fraudulent investments? Comment below!