The "railroad bonds" scam
(updated Aug. 18, 2017)
Many gullible people almost two decades ago succumbed to the "railroad bond" scam and lost tons of money. This scam involved the contention that the bonds of some old, bankrupt railroad companies organized back in the 19th century were still valuable today. The promoter of this scam has in the past been actively involved with the tax movement. This promoter got Sheriff Richard Mack to move from Arizona to Provo, Utah, so that he could run for sheriff of Utah County. Richard did this, only to suffer on the eve of the election a raid by the feds against this promoter of this railroad bond scam. Sheriff Mack was greatly harmed by his association with the promoter, Al Carter. Below is an article which appeared in the local Utah papers:
PROVO — Controversial Utah County sheriff candidate Richard Mack — a self-proclaimed opponent of the federal government — contends that the FBI, CIA and local politicians may be conspiring to help incumbent David Bateman defeat him at the polls in Tuesday's Republican primary. But another scenario is that a search warrant served at American Institute for Research, the company where Mack has worked since August, was connected to a Securities and Exchange Commission lawsuit filed Thursday in federal court.
The suit alleges three Utah bond dealers — Albert E. Carter of Provo, Eunice Polatis of South Jordan and her son, Kelly Polatis of St. George — reaped millions of dollars selling allegedly worthless bonds over the past several years. Carter operates American Institute for Research, which is also known as American Institute of Reboundology.
Mack, whose 1994 lawsuit challenged the background check requirements of the Brady gun law all the way to the Supreme Court, said a dozen FBI and CIA agents Thursday served a search warrant at his company. Mack has worked as a consultant, primarily selling mini-trampolines and asset-protecting trusts, at the company since he moved to Provo from Arizona in August. "When you go around, as I have, slamming the federal government, you're going to offend some people in high places," Mack said Thursday night at a hastily called news conference.
Mack said the agents arrived at the Provo business Thursday at 10 a.m., while he was in Springville putting up campaign signs. They stayed for approximately six hours, including an hour long interview with Mack, and confiscated files and computer hard drives, Mack said. He alleged that the serving of the search warrant was motivated by a desire on the part of federal officials to see him lose to Bateman Tuesday. Mack also said that Utah County sheriff's detective Jeff Robinson and Utah County Attorney Kay Bryson somehow were involved in a conspiracy against him. Bryson called the charge ridiculous. "He apparently has a very active imagination," Bryson said. "It's not something we have done. We know nothing about it."
Sheriff's Lt. Doug Witney, a former candidate for Utah County sheriff who lost to Mack and Bateman at the Republican nominating convention several weeks ago, said that neither he nor Robinson — both of whom are assigned to the white-collar crime investigative division of the Utah County Attorney's Office — is involved in an investigation of Mack. "Where does he get the idea that we've got the power to orchestrate this?" asked Witney. "The guy is delusional."
Mack did not offer details about his relationship with Carter, although both apparently were named on the search warrant. Mack said he has not been charged with any crimes in connection with his work at American Institute for Research.
Carter is a ardent tax protester. In the early 1990s, he ran a business called the American Institute for the Republic, a company that helped people research the IRS and the Federal Reserve to "protect your rights as sovereign citizen." Carter compiled an 88-page resource book titled "The Internal Revenue Service Investigated," which urges people to declare themselves "nontaxpayers" and be prepared to defend their position. Carter also ran an unsuccessful campaign for Provo mayor in 1993. Attempts to reach him Friday were unsuccessful.
Mack said federal agents questioned him about details of the company and about federal income tax evasion. "I said, 'How could that possibly involve me?'" Mack said. Mack told the Deseret News several weeks ago that he pays his income taxes grudgingly and does it primarily to avoid going to jail. He said the federal agents then asked him about some "worthless" bonds that were connected to American Institute of Research. When Mack told the agents he thought the raid was politically motivated and was orchestrated to thwart his bid for sheriff, they told him that was not correct. Given the fact that Carter was named in the SEC complaint filed the same day as the raid, Mack's claims of political persecution seem far-fetched.
"I just find it ludicrous that there could be a conspiracy involving all the people (Mack) has named," Bateman said. "I think all you have to do is think about it for a minute or two. It's ludicrous." Bateman said Mack's conspiracy charges are consistent with a pattern of grandstanding the former Graham County, Ariz., sheriff has exhibited in the past. Mack typically tries to deflect responsibility and place blame on others to his own benefit, Bateman said.
Federal regulators said the bonds sold by Carter and two others were issued by a railroad that went belly up last century. They say bonds issued by the Chicago, Saginaw & Canada Railroad Co., which filed for bankruptcy 122 years ago, might be worth around $30 to those who collect old certificates but not the $150,000 that some people allegedly have been paying. The same goes for notes issued in 1870 by the East Alabama & Cincinnati Railway Co. and in 1838 by Mississippi. "These bonds were being sold all over the place, not just in Utah," said Ken Israel, who heads the SEC's Salt Lake office.
Carter allegedly told investors that each Saginaw bond was worth approximately $91 million, each Alabama bond was valued at about $400 million and each Mississippi bond $79 million. According to the SEC, Carter told investors that the issuers remained obligated to pay on the bonds and the notes continued to accrue interest.
Deseret News staff writer Dennis Romboy and The Associated
Press contributed to this story.
Friday, June 19, 1998
SEC Claims Utahns Cheated Gullible Investors
BY STEVEN OBERBECK
THE SALT LAKE TRIBUNE
For those who have not heard, the Chicago, Saginaw & Canada Railroad Co. filed for bankruptcy 122 years ago. That means the bonds once issued by the defunct railroad are not worth a lot of money — as little as $30 to those who collect old stock and bond certificates. Saginaw bonds are certainly not worth the $150,000 that some people have been paying. The same goes for notes issued in 1870 by the East Alabama & Cincinnati Railway Co. and in 1838 by Mississippi.
Federal regulators Thursday cracked down on what they contend was a scheme to peddle virtually worthless old railroad bonds to gullible investors, who were told they were potentially worth millions. The Securities and Exchange Commission (SEC) in a lawsuit filed in Utah federal court said three Utah bond dealers — Albert E. Carter of Provo, Eunice Polatis of South Jordan and her son, Kelly Polatis of St. George — reaped millions of dollars selling the notes the past several years. "These bonds were being sold all over the place, not just in Utah,'' said Ken Israel, who heads the SEC's Salt Lake City office.
One of the dealers, Carter, allegedly told investors that each Saginaw bond was worth approximately $91 million, each Alabama bond was valued at about $400 million and each Mississippi bond $79 million. According to the SEC, Carter told investors that the issuers remained obligated to pay on the bonds and the notes continued to accrue interest.
Carter could not be reached for comment. Salt Lake City lawyer Max Wheeler, who is representing Eunice Polatis, said his client only sold the bonds as collectible memorabilia. "She provided an affidavit to buyers that said the bonds did not have any value other than as historical documents,'' Wheeler said.
For whatever reason, a thriving market seemed to be developing for Chicago, Saginaw bonds. An affidavit from a Texas collector, David Beach, said he bought a box of up to 800 bonds from a museum in Grand Rapids, Mich., paying about $25 each. Several years ago, Polatis bought them from him for $35 each, he said. "I have been contacted by people offering several thousands of dollars for each [bond],'' he said. "I was told by people I considered middlemen that some of the bonds were possibly being used by foreign companies to prop up their financial statements.'' About 18 months ago, said Beach, Polatis called saying she was looking for more Chicago, Saginaw bonds, and he sold her two for $12,000 each.
In another affidavit, George H. LaBarre, a New Hampshire dealer in historic and collectible stock and bond certificates, said that in 1996 he sold Eunice Polatis 10 different samples of bonds issued by old railroad and mining companies. LaBarre said he also sold her 207 "pieces'' of Chicago, Saginaw bonds for $175 each for a total of $36,225. "That is what she does,'' Wheeler said, "she buys and sells old stock and bond certificates as collectibles.'' Wheeler said Polatis sold bonds to Carter, but "we really do not know what he did with them.''
The SEC's lawsuit contends Polatis and her son made more than $3.5 million selling Saginaw bonds through a company in California that authenticated and valued the notes. Federal regulators are asking that the three defendants be barred from violating federal securities laws and return any illegal gains they realized from the sale of the bonds. Wheeler said the old certificates, despite the SEC's contention, are not securities. "Maybe the SEC should have investigated Mark Hoffman for selling securities,'' he said of the notorious historic documents dealer, turned forger and bomber serving life in prison.
1998, The Salt Lake Tribune