SEC charges Utah security company investors with Ponzi scheme

AMERICAN FORK, Utah—Wendell Jacobson, a Utah real estate magnate who with his son provided the primary startup capital for Platinum Protection, is now facing charges from the U.S. Securities and Exchange Commission that he and his son have been running a $220 million real-estate Ponzi scheme—using their membership in the Mormon church to make connections and win the trust of potential investors.

Wendell and Allen Jacobson no longer have any involvement in Platinum Protection, based here and one of the major summer-sales-model companies, company CEO Jared Hallows told Security Systems News.

The company, which began in 2006, announced in July that its four main founders had bought out the Jacobson family's interest. Wendell Jacobson was chairman of Platinum's board of managers prior to the buyout, the company has said.

Hallows, one of Platinum's founders, said the timing of that buyout about six months ago had nothing to do with the SEC's allegations, which he said Platinum only learned about last week when the SEC filed a lawsuit in federal court in Utah, charging the Jacobsons with fraud.

“We were completely unaware,” Hallows told SSN. “We were as surprised as anybody. It caught us off guard.”

He said the SEC action creates “an unfair association” between the Jacobsons and Platinum. “It associates us with this, but we're not associated,” he said. “Wendell has no ownership in Platinum anymore.”

Hallows said Platinum won't be affected by the case, however. “We're confident it will have little or no impact,” he said. “We're fine and we're set to have a good year in 2012.”

The lawsuit, filed Dec. 15 in U.S. District Court in Utah, alleges that the Jacobson father and son, operating from Fountain Green, Utah, “since at least Jan. 1, 2008,” have run “a wide-scale Ponzi scheme.” The Jacobsons misled about 225 investors who staked them $220 million, the SEC claims in the suit.

The Jacobsons told investors that they buy apartment complexes around the country with low-occupancy rates for bargain-basement prices, renovate and improve them, and then sell them for higher profits within five years, the SEC says. However, the SEC contends, the limited liability companies the Jacobsons created for the investors' money “are suffering significant losses and the Jacobsons are merely pooling the money raised from investors into large bank accounts from which they are siphoning money to pay family expenses and the operating expenses of their various companies. They also are paying earlier investors with funds received from new investors in classic Ponzi-scheme fashion.”

The SEC says that the Jacobsons “solicit investors personally and through word of mouth, and appear to be using their memberships in The [Mormon] Church of Jesus Christ of Latter-day Saints to make connections and win over the trust of prospective investors.”

A judge on Dec. 15 ordered the freezing of the assets of the Jacobsons and the companies they control and has put a receiver in charge of those companies.

Calls to Wendell Jacobson and the lawyer representing the family, Mark Pugsley, chairman of the securities litigation group of the Utah firm Ray Quinney & Nebeker, were not returned by SSN's deadline. The Jacobsons have until Feb. 5 to respond to the charges in court, Thomas Melton, an attorney with the SEC, told SSN.

Hallows described Wendell and Allen Jacobson as “the primary investors” to start up Platinum.

Hallows declined to say how much of Platinum the Jacobsons previously owned, saying that as a private company, Platinum doesn't reveal such information.

However, as SSN reported in the summer of 2010, the Jacobsons—who already had an ownership stake in the company—bought an additional 17 percent at a public auction Platinum held to sell the stake to settle a dispute with one of its original founders.

At that time, the Jacobson family was the holder of a $12 million note for Platinum.

Hallows declined to say how much the note is now but said “we've made some significant payment on it.”

“We are creditors to Wendell,” he said. “We do have a note to him and are current on our obligations. We see this as having little or no impact on Platinum.”

The lawsuit seeks civil penalties and recovery of the “ill-gotten gains.”

Could some of the money the Jacobsons invested in Platinum be the result of any of their allegedly fraudulent activity?

“Definitely not to our knowledge,” Hallows said.

Platinum was originally listed in court documents as among Jacobson-controlled companies that would have their assets frozen and be under the control of the receiver. However, Melton, the SEC attorney, said, “we stipulated with Platinum Protection's lawyer to take them back out [of the list, because Platinum] had made a preliminary demonstration they weren't controlled by Allen or Wendell Jacobson.”

In another development at Platinum, there has been a shift in executive management. Andrew Kindfuller, the former COO of Guthy-Renker International, a billion-dollar infomercial and direct-response company, left the company last summer shortly after the buyout of the Jacobsons, Hallows said. Kindfuller was hired by Platinum in 2010 to be its CEO.
“Andy came in and did a great job,” Hallows told SSN. However, he said, the founders had run the company prior to Kindfuller's arrival and decided to do so again. Hallows took over Kindfuller's job.

Platinum, which has customers in 43 states, announced earlier this year that it was “breaking the mold” by recruiting two-thirds of its sales reps from places outside the Utah Valley, where summer-model door-knocking companies traditionally have recruited many sales reps.