Dee Randall ran one of Utah's largest Ponzi schemes, raising
more than $72 million from approximately 700 investors
On June 18, 2014 Utah Attorney General Sean D. Reyes' office
filed a criminal information and affidavit of probable cause
against Randall for multiple counts of securities fraud and other
related charges. Randall, a resident of Kaysville, Utah, was
charged with 21 second degree counts of felony securities fraud,
one third-degree felony securities fraud count, and one second
degree count of pattern of unlawful activity.
At the initial hearing on his criminal case victims testified
that Randall, who was the owner of Horizon Mortgage &
Investment, sold what he called "Horizon Notes" which
were supposed to pay annual returns of 9 to 17 percent. Investors
were told that their funds would be used to finance car loans and
real estate, but in reality Randall used investor funds for other
things, such as payments to his other entities and payments to
earlier investors – a classic Ponzi scheme.
What is unique about this case is Randall argued in court that
although it may have been a Ponzi it was nevertheless legal because
he disclosed it to his investors in the Private Placement Memoranda
(or PPM). Specifically, he disclosed that he was going to use new
investor money to make payments to earlier investors, apparently
hoping such a disclosure would get around securities laws. So if
you tell someone you're going to defraud them is it still
Keith Woodwell, head of the Utah Division of Securities, says
there's no such thing as a "legal fraud" since Utah
law also says it is illegal to operate a business in way that
defrauds investors. "Using money from new investors to pay
older investors, with no way to generate profits to pay people
back, is a fraud regardless of whether you disclose it or
not." This novel argument was also rejected by the bankruptcy judge.
My question is this: did anyone ever actually read the Horizon
PPM? PPM's are required for a non-registered offerings of
securities and are definitely worth reading before you
invest. In this case potential investors who read the PPM
would have discovered that their money was going to be used to pay
off other investors and (hopefully) would have declined to
participate in this investment opportunity. But the unfortunate
reality is that hardly anyone ever reads PPM, they are long and
usually difficult to understand.
After months of legal maneuvering, this week Randall finally pleaded guilty to four counts of securities
fraud and one count of pattern of unlawful activity, each
punishable by up to 15 years in prison. Sentencing is set for Feb.
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