The Cold War drove America’s demand for uranium — which drove Utahns’ demand for uranium stocks.
And that “feeding frenzy” led the U.S. Securities and Exchange Commission to open its first office in Salt Lake City in 1954. Then a branch of the Denver SEC office, the office in Utah’s capital city was a response to “unscrupulous” uranium stock brokers, according to the SEC Historical Society.
The federal financial watchdog announced Tuesday that it will shutter its Utah outpost later this year. The closure means a state with a long-held reputation as a “fraud capital” and a population considered uniquely vulnerable to swindlers will see its federal securities cases handled out of Denver.
The move follows a recent high-profile success for the Salt Lake office — a settlement with The Church of Jesus Christ of Latter-day Saints in connection with its billions in investments — and a major failure. Two agency attorneys resigned in April after they were sanctioned by a federal judge for presenting misleading evidence against cryptocurrency company DEBT Box, and the agency was ordered to pay $1.8 million to the former defendants as a judge dismissed the case.
From uranium mining in the 1950s to crypto mining today, here’s a look at Utah schemes that kept the Salt Lake office busy.
Selling uranium, silver — and beavers
“I’ve been told that promoters in Salt Lake City and in Denver were actually selling uranium stock on the street corners,” Robert Davenport, who worked for the SEC in Denver until he retired as the head of the Central Regional Office in 1996, said in an interview with the historical society.
“Cadillacs were everywhere. The promoters were riding high. It was just a frenzy — a feeding frenzy — people trying to buy uranium stock, and the promoters selling uranium stock,” he said. “…There were literally thousands of these companies that were incorporated in Salt Lake City under Utah law.”
Most companies did “punch some holes,” Davenport said, “and some of them found uranium; most of them didn’t.”
Then the late ‘60s and early ‘70s saw the rise of “exotic securities,” including silver investments, Davenport said.
“A gentleman in Salt Lake City … promoted silver investments with what he called delayed delivery. In other words, you would buy X ounces of silver, and he would be kind enough to store it in his vaults for you; you could sell it at a later date,” he said.
“The only problem was that he really didn’t have any silver mines, and he really didn’t have any silver; and it was just a massive rip-off of the public.”
In a case that “caused quite a stir” for the SEC in the 1960s, Davenport remembered, “a fellow in the Salt Lake area started a company called Weavers’ Beaver Association. … There was going to be a tremendous demand for beaver pelts in coats, beaver hats, and everything — it’s coming back.”
For a fee, the association would care for the purported domestic beaver couple purchased by investors, raising and then selling the generations of lucrative offspring at their “beaver ranches all through the West.” Davenport described the pitch: “We have little pens for each pair of beaver, they have nesting boxes, they have little swimming pools, and they’re fed a special diet.”
But in reality, he said, “the Association was too busy selling their own beaver to take time to sell your beaver. So these people ended up with a large number of beaver, and they’re paying all these ranching fees. It was just a disaster.”
The company was buying its beavers “from trappers in Canada at approximately twenty dollars a beaver. They’d fly them into Salt Lake, put tattoos in their back foot, in the web, and start selling them,” he said. The association’s prices “ranged between $2,000 and $6,000,” according to a ruling in the case.
The SEC’s position — which was upheld by courts — “was that it was an investment contract,” he explained. “You put your money in, you bought the beaver, they kept the beaver; they raised the beaver, they were to sell the beaver, and all the profits were supposed to come from a third person.”
The shell game
Many defunct uranium and other mining companies in Utah were resurrected in the 1970s for new schemes.
In a 1973 speech, then-SEC Commissioner John Evans referred to Salt Lake City — his home town — as the “shell capital of the world,” explaining that “so many companies, silver, lead, zinc, gold, oil, uranium, and other companies have been organized and abandoned over the years and these company shells can be activated rather easily for the promotion of unworthy ventures.”
“There are those right here in Salt Lake City who would promise most anything for a buck,” he observed.
New owners would “purportedly infuse assets into these companies,” Davenport explained in his interview, “then they would put out false and misleading press releases.” Brokers in New York and in Salt Lake City would get the company included on “pink sheets” of stocks sold outside major exchanges, promote it to raise the price, “and then they would dump it.”
“We could not handle all the cases that we had,” he said. “They could resurrect the shells much quicker than we could investigate and sue them.”
‘The penny stock boom’
Salt Lake City and Denver are where “the penny stock boom” began in the 1970s, Davenport said, as brokers and promoters hyped shares in small public companies — some merged with old shells — that sold for less than a dollar on local exchanges.
Some penny stocks “raised capital for legitimate businesses” but others proved worthless, former KUTV-Ch. 2 reporter and author Rod Decker wrote in a 2021 article for Utah Historical Quarterly. “Almost everyone knew penny stocks were risky and harbored fraud, but that only upped the excitement.”
During the boom, Newsweek “called Salt Lake City the sewer of the securities industry, which didn’t make the people there very happy,” Davenport remembered.
The Wall Street Journal called Salt Lake City “the stock fraud capital of the West,” Decker wrote, a title that “stuck and was used of the Salt Lake market for decades. People interviewed for this article forty-five years after the story knew of the Journal article and remembered the phrase ‘stock fraud capital.’”
During the penny stock era, the SEC Salt Lake and Denver offices, Davenport said “were, to my knowledge, the two offices who first participated in an undercover so-called sting operation,” as part of a task force led by the FBI. “Three undercover agents opened an office in Midvale, Utah, in 1988,” Decker wrote, “and spent a year pretending to be penny-stock promoters.”
The successful prosecution in the case “raised Salt Lake enforcement energy,” Decker said, leading to a Utah task force that included the SEC and met regularly for years.
Ponzi schemes and crypto dreams
In the year 2000, the Salt Lake SEC office had eight lawyers and accountants and “no shortage of work,” then-director Kenneth Israel told The Associated Press, from “a ton” of Ponzi schemes to Internet scams.”
“Some days,” reporter Paul Foy wrote, “the business pages of the Salt Lake newspapers read like a police blotter.”
Through the 2000s, The Salt Lake Tribune continued to report on SEC criminal and civil prosecutions of Ponzi schemes — from real estate to online advertising — that topped $100 million in victim losses.
Israel offered one explanation for the prevalence of fraud in Utah: close-knit and trusting members of The Church of Jesus Christ of Latter-day Saints being targeted by scammers in so-called “affinity” fraud.
In 2010, the Utah task force that included the SEC reported that it was investigating more than 100 fraud cases and estimated they involved an estimated $1.4 billion in investment fraud. It urged Utahns to watch its new video about affinity fraud and other schemes and attend an upcoming “Fraud College” session.
Church leaders and government officials have been sounding that warning in the years since then.
[Read more: Why so many Latter-day Saints fall for Ponzi schemes]
The Salt Lake SEC office more recently accused the church itself of wrongdoing, alleging it and its investment arm Ensign Peak Advisors did not properly disclose stock holdings and went to “great lengths” to “obscure” the church’s investment portfolio. The church and Ensign Peak paid $5 million in a high-profile settlement.
[Read more: Read for yourself what the SEC found in the LDS Church’s stock filings]
The flawed prosecution of DEBT Box was one of the Salt Lake SEC office’s recent forays into alleged cryptocurrency fraud, along with a case that led to SafeMoon, a Utah-based cryptocurrency company to file for bankruptcy.
The SEC alleged Utah crypto “brokers” with DEBT Box were “showering themselves” in cash in a $50M scheme, as it told investors its cloud-based cryptocurrency mining requires less energy and was “supported by royalties from real-world industries and commodities production/sale.” The SEC alleged those “real projects” were a sham.
But the SEC’s bid to freeze the company’s assets, Utah U.S. District Court Chief Judge Robert J. Shelby found, was incomplete and partially untrue. Shelby ruled the SEC attorneys presented misleading evidence to obtain the order and failed to correct the record when given the chance.
Attorneys Michael Welsh and Joseph Watkins resigned this spring, according to court documents in case, and Tracy Combs, who had directed the office since 2022, left in May, according to her LinkedIn. In Tuesday’s news release, the SEC cited recent “attrition” as one reason for the closure.
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