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Daughter turns mom in for Ponzi scheme

Would you have the courage to turn your own mother in to authorities in order to stop a Ponzi scheme?That wasn’t a rhetorical question for Kim Flanigan, who faced just such a dilemma when it became apparent that her widowed mother was involved as both a participant and a recruiter for a classic get-rich-quick scheme that had already ensnared 100 or more people. When Flanigan heard her mother try
/ Source: TODAY contributor

Would you have the courage to turn your own mother in to authorities in order to stop a Ponzi scheme?

That wasn’t a rhetorical question for Kim Flanigan, who faced just such a dilemma when it became apparent that her widowed mother was involved as both a participant and a recruiter for a classic get-rich-quick scheme that had already ensnared 100 or more people.

When Flanigan heard her mother trying to convince a widow with nine children to invest her life savings in the scheme, she knew she had no choice.

“That was my breaking point,” Flanigan told TODAY’s Ann Curry Friday in New York. Rather than watch a widow lose money she desperately needed, Flanigan called state and federal officials. Her courageous act would bring down a $50 million Ponzi scheme and put its three ringleaders in federal prison. For a time, Flanigan’s mother as well as an aunt were also under investigation, but authorities eventually decided they were more victims than victimizers and filed no charges.

One reason the scam worked so well is because it preyed on churchgoing people. The widow Flanigan’s mom was trying to recruit was a member of her church. One of the three ringleaders of the investment scheme was an associate pastor of a church in California.

Many of the participants wanted to use some of the 50 to 300 percent profits they were promised to donate to charitable projects.

“You have just normal people who want to do good — and make money at the same time,” Flanigan told NBC News, which will tell the full story on Dateline at 9 (8 CT) tonight.

Preying on friends, family

Such frauds are called “affinity schemes” because they prey on people with natural affinities. In that, the scam was similar to that pulled off by Bernie Madoff, who used his shared Jewish heritage to sucker the bulk of his victims.

The participants were pulled along by nightly conference calls that could last an hour or more and involved 100 people. During the calls, Henry Uliomereyon Jones, described as the mastermind of the scam, would keep everyone updated on the latest developments.

Kim Flanigan’s aunt — her mother’s sister — was the first to get ensnared. She had attended a “Millionaire Mind” seminar put on by Peak Potentials Training in her home state of Washington. The Flanigans, who now own a furniture store in Casper, Wyo., were living in Kalispell, Mont., at the time and Kim’s mother was living with them. Peak Potentials was not involved in the scam, but the aunt met people who were during networking sessions that were part of the seminar.

Two investments were involved, both phony. One was an outfit called Tri Energy, Inc., which claimed to own four coal mines in Kentucky. The company needed investments to put the mines on line, when huge profits would start pouring in. In reality, there were only two mines, and neither was profitable. This accounted for $32 million of the scheme.

The other deal, and this one really was too good to be true, involved 20,000 metric tons of gold bullion. That’s twice as much gold as the entire U.S. reserves. The bullion had to be moved, and there were huge profits to be made for helping to finance that move.

‘It became an obsession’

Kim and David realized early on that it was all a scam, but they couldn’t convince her mother or aunt of that. To build a case, Kim started taping the nightly conference calls.

“It became an obsession for months and months. I just laid on my bed with a speakerphone on and a little tape recorder in my hand and recorded phone calls,” she said, likening the sessions to a soap opera.

“It seems like there was always something that was happening, progress that was being made,” Kim continued. “Then setbacks would happen, where more money was needed to be able to complete it. It was a daily powwow to keep people enrolled involved, to make it feel like it was being moved forward, that there was progress that was being made.”

David Flanigan said that once people had invested their belief and their money in the scam, it was hard for them to back away and admit they’d been taken.

“They had a lot invested. No one wants to feel that they were made a fool of, that they were taken advantage of,” David said. “The people that were running it, Henry Jones and others, were very convincing. They were very good. When you asked questions, they would just make it more complicated, and you’d feel like, ‘I don’t want to be the only one that doesn’t understand this. Henry seems to know what he’s talking about.’ ”

But the lack of clear answers convinced Kim and David that they had gotten involved in a scam. Kim called her brother, an accountant in Washington state, who agreed that the investors were being defrauded. When Kim's mother refused to believe them and kept trying to drag in other friends and family members, the brother contacted authorities in Washington while Kim called securities regulators in Montana. Evenually, the SEC and FBI would also become involved.

Tough call

It wasn’t easy turning her own mother and aunt in to authorities, Kim said.

“It was difficult,” she told Curry. But it was also necessary. “We knew that she wasn’t going to listen to us, that the pull of this group and their mentality was so strong that she would listen to them before she would listen to concerned family members, when we knew she wasn’t going to pull away from it, that the next step had to happen and where I knew something had to be done.”

The Flanigans had gotten involved in 2003. In the fall of 2004 the Montana commissioner of securities, acting on Kim’s information, ordered her mother to stop recruiting more investors. In early 2005, Washington state officials and the SEC ordered participants in those states to cease and desist. In May, the SEC initiated legal proceedings against the scammers in California.

The case continued until 2007, when Kim’s recordings and testimony helped send the three ringleaders to prison for terms ranging from nine to 20 years.

Along with Henry, they are Arthur Simburg, a former Puma shoe marketer, and Robert Jennings, associate pastor of New Life Fellowship Church in Perris, Calif.

One investor committed suicide on learning that he’d lost his life savings in the scam.

Kim and her mother were estranged for about a year, but have begun the healing process as her mother comes to grips with how she was defrauded. Meanwhile, they’ve decided to go public with their story because there are many similar scams going on, particularly in these hard economic times. They want others to know that if it sounds too good to be true, it probably is.

“This type of scheme — Tri Energy — wasn’t the only one that exists out there,” Kim said. “It’s very prevalent in our society right now. This is not the only scam.”

For more on this story watch Dateline Friday, April 2, at 9 p.m. ET.