Mormons victims in $50 million scam to sell gold bullion

by James Sterngold – Sept. 2, 2009 09:11 AM

Bloomberg News .

Henry Jones delivered the good news in a conference call with Tri Energy Inc.’s investors: The gold deal the company had been working on for years was about to pay off.

Jones, 55, a record producer in Marina del Rey, Calif., and his two partners had raised more than $50 million from 735 investors, which they said they were using to broker the sale to Arab buyers of 20,000 tons of Israeli gold. They promised to triple investors’ money, if only Tri Energy could overcome some glitches.

All the company needed to close the deal, Jones said on the conference call, recorded by a participant, was a safe-passage letter that would cost $450,000. A few days later, he said Tri Energy had to come up with $100,000 to open a commission account. Then, on Jan. 15, 2005, a new request: The bank handling the deal wanted $125,000 to conduct an audit.

Like those caught up in other get-rich scams such as Bernard Madoffs $65 billion Ponzi scheme, Tri Energy’s investors had something in common. Many were Mormons and born- again Christians who shared prayers on nightly conference calls.

In May 2005, the U.S. Securities and Exchange Commission obtained a temporary restraining order against Jones and his partners, Robert Jennings, an associate pastor at the New Life Fellowship Church in Perris, California, and Arthur Simburg, a former marketing representative for sporting-goods manufacturer Puma AG.

Jones, a native of Nigeria, and Jennings, 59, were convicted on federal charges of mail, wire and securities fraud. Jennings was sentenced to 12 years in prison, and Jones got 20 years. Both men have filed notices that they intend to appeal. Simburg, 64, who pleaded guilty, received a nine-year sentence.

Neither Simburg nor Jennings responded to letters sent to them in prison seeking comment. Jones wrote that he had been asked by an Arab group to broker deals in gold, crude oil and bank securities, and that, though the prosecutors could find no records, the gold deal was genuine.

Their scam had much in common with other so-called affinity frauds. Such cons prey on like-minded or culturally connected investors whose trust blinds them to the implausible.

While some Tri Energy claims were implausible – the 20,000 tons of gold was more than twice the total U.S. bullion reserve, the largest in the world – investors rarely wavered in their loyalty.

For Kim Flanigan, 37, a Mormon who owns a furniture store with her husband in Casper, Wyom., being part of a spiritual mission was addictive.

It was almost like a cult, Flanigan says. There were prayers at the end of most of the calls. That element was key. There was a real sense of camaraderie, a sense of community, and everything involved humanitarian efforts to change the world.

Ned Hill, a professor of business management at Brigham Young University in Provo, Utah, says Mormons have a history of being victimized by financial scams.

What you have in a Mormon community or any religious community is a community of trust, and it can be very strong, says Hill. If you can break into that trust, then the things that make this so supportive can make people really vulnerable.

Jones, Jennings and Simburg, none of whom is a Mormon, exploited this vulnerability for at least four years. They spun a series of deals that never materialized, according to prosecutors, including a plan to ship Congolese uranium via diplomatic pouch and a venture to produce 99.3 percent emissions-free coal.

They each had a role on the nightly calls they held for investors, according to prosecutors and a review of tapes, transcripts and summaries. Simburg led the meetings, Jennings spoke about the coal mine and Jones offered updates on the gold transaction. The three also talked about the common beliefs that held the group together.

The investors hung on for years and kept contributing even with the delays and personal tragedies.

When Wesley Montierth, a financial planner in Ogden, Utah, who had invested in Tri Energy, committed suicide in October 2004, Simburg attended the funeral.

Montierth, a Mormon and a retired schoolteacher, grew despondent after realizing he had lost $136,000 of his own money as well as funds of family members and clients, according to a deposition given by his widow, Kathy, and statements made in court by Douglas Axel, a prosecutor in the case.

That didn’t prevent Simburg from reaching out at the funeral to Montierth’s brother David, a California cable TV executive. David, who had already invested $100,000 at his brothers’ urging, testified that he put in another $65,000 at Simburg’s request. He didn’t return phone messages left at his home in Laguna Niguel, Calif.

Not long after Wesley Montierth’s death, the scheme began to unravel.

When Sean Pearson, 36, an accountant in Seattle and the brother of Kim Flanigan, the Wyoming furniture store owner, heard about Tri Energy from an aunt, he realized there were problems and told his sister she had to get out.

Flanigan started recording the nightly conference calls. Pearson joined a call in late 2004 and threatened to expose the scheme if Simburg didn’t return his sisters $10,000. After Simburg complied, Pearson informed Washington state securities regulators.

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