United States: The Shocking Story Of A Small Town Fraud

I typically write about lawsuits filed by the SEC, but this time I wanted to write about a civil case that was filed by a number of the victims of a Nephi man named Thomas E. Andrews. The information in this story comes primarily from allegations that were made in a civil complaint by my friends over at Parr Brown, who filed their case in Juab County in November of 2015 (Civil Case No. 150600025). I will be filing a separate lawsuit involving these same facts shortly as discussed at the bottom of this post.

Tom Andrews grew up in Juab County, Utah, and was known to most of the victims in the case since he was a small kid. Most of the victims in this case are residents of Nephi, Utah and knew Andrews and his family through their community and their common membership in the LDS Church.

The victims are not sophisticated in financial matters, and so they had the utmost faith and confidence in Tom and his father, Earl Andrews, who was a respected CPA in the community. Earl prepared tax returns for the victims and assisted them with their financial matter for many years before he was sentenced to prison in approximately 2005 for an unrelated reason. When his father went to prison Tom took over his father's role as tax preparer for the victims and began preparing tax returns for them, although it turns out he was never licensed by the State of Utah to do so.

At about the same time he took over his father's tax practice, Tom obtained his license to sell financial products and joined LPL Financial as a stock broker, and Gary York. he then began to solicit investments from the people whose tax returns he was preparing. Over time the victims began to rely on Tom for investment and retirement advice, as well as for their tax preparation. They opened investment accounts with LPL through Tom Andrews and placed some or all of the 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 named which he called the "Jackson Living Trust" and made himself as Trustee. Andrews then opened a bank account at Cyprus 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 "Franklin 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 held at LPL, or wherever else, and to put the money into this annuity. This was terrible investment advice; it reduced their diversification and in some cases exposed them to early termination fees and/or tax penalties, but the victims trusted Tom and did what he advised.

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.

He 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 the money. How much money did he steal? Over $9 million.

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.

Discovery of the Fraud

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.

Andrews apparently got wind of the problem and disappeared, but has now hired an attorney and is defending the case. The location of the $9 million of investor money he took is unclear, but I wouldn't be surprised if he used it to trade commodities, options, currencies or some other high-risk strategy thinking he could generate big returns and the investors would never know the difference. Time will tell.

But if these allegations are true, 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. Mr. Andrews set up the bank accounts and 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. Yes, he used church and family connections to gain their trust, but the investment itself appeared legitimate.

Another troubling aspect of this story is that there are a number of financial institutions who appear to have 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, 2106 FINRA barred Tom Andrews from associating with any brokerage firm in any capacity, and I suspect the SEC and/or DOJ will be filing cases against him soon.

The Juab County lawsuit is currently pending.

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