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“If we lack confidence in each other, and be jealous of each other, our peace will be destroyed. If we cultivate the principles of unshaken confidence in each other, our joy will be full.”

— Brigham Young

The Latter-Day Saints of Crypto gather in the city of trust

Just outside Salt Lake City is the scene of the infamous Nikola promotional video, in which Nikola founder Trevor Milton rolled an engine-less truck down a slight decline and told investors it was a finished product.  

It was the first incontrovertible evidence that Nikola was the fraud it turned out to be and the location is not entirely coincidental — Trevor Milton’s early investors were mostly from Utah and mostly Mormons.

Milton, himself a Utah-born Mormon, was a master salesman perpetually recruiting friends and friends of friends to invest in whatever his latest venture was.

One early investor invested his life savings of $40,000 with Milton and then moved out of his apartment and into a storage unit to save on rent.

Milton’s ability to engender that level of trust with investors is both a feature and a flaw of the community he grew up in. 

In 2010, the FBI named its Salt Lake City office one of top five hot spots for Ponzi schemes — an impressive accomplishment for the 115th largest city in the US with a population of just 215,000 people. 

On a per-capita basis, Utah led the nation with 1.35 Ponzi schemes per 100,000 people over a ten-year period, according to one study — two-thirds higher than the number-two state (target-rich Florida).

Ponzis and other “affinity schemes” that “exploit the trust and friendship that exist in groups of people who have something in common,” as the SEC defines them, cost the citizens of Utah an estimated $2 billion over the ten years of the study.

Regulators were so concerned about the goings on in Utah that Salt Lake City had long been the only SEC office to have jurisdiction over just one state. 

In 2008, the First Presidency of The Church of Jesus Christ of Latter-day Saints issued a letter to be read to all its US congregations expressing its concern “that there are those who use relationships of trust to promote risky or even fraudulent investment and business schemes.”

The letter does not seem to have the desired effect — in 2019, the state Attorney General issued a statement declaring Utah the “fraud capital of the US.”

What makes Utah such a hotbed of fraud? 

“Utahns are simply too trusting,” the Utah-based Ponzi hunter Mark Pugsley told the Desert Times, “particularly when the person soliciting an investment is in their Latter-day Saint ward or shares their religious affiliation.”

In short, a tight-knit social structure and trusting population make Utah’s Mormon community a target for home-grown Ponzi schemes.

Nevertheless, I hope they don’t change, because tight-knit and trusting are good things to be — especially in business.

In Utah, for example, there are approximately six startups for every thousand private-sector business employees, which “far exceeds the national average,” according to one report.

Another report finds that 1 out of every 61 companies in Utah are billion-dollar “unicorns,” almost 70% above the national average.

Utah also boasts a disproportionate number of corporate success stories like Marriott International, JetBlue, and the Huntsman Corporation, all of which had founders raised in Mormon households.

It’s of course impossible to prove that Utah's outsized economic successes are a function of trust, but the scale of these successes suggests that the benefits of trust far outweigh the disbenefits.

It’s not just Utah: A country-level meta-analysis of the economic literature on trust found that a ten-percentage-point increase in trust within a country correlated to a 0.5% increase in annual GDP growth — a huge amount in today’s low-growth world.

“When trust is high,” the study finds, “businesses may be more willing to engage with new partners and less reliant on costly legal safeguards.”

Some of those businesses will turn out to be Trevor-Milton-esque frauds — but many more will be legitimate efforts at creating the next start-up unicorn, Marriott International, or JetBlue.

A few of them might even be crypto startups.

It takes a village

The (unofficial) reason that the SEC closed its Salt Lake City office in June is that the enforcement staff there was found to have hounded a crypto company out of business. 

That was an unneeded reminder that we can't trust regulators to keep our investments safe.

Instead, we have to trust each other — even in trustless crypto.

Contrary to its branding, there’s still a lot of trust involved in crypto.

Bitcoiners have to trust the community will honor Bitcoin’s 21-million coin cap, Ethereum users have to trust that the many participants building Ethereum blocks will build them as expected, holders of governance tokens have to trust that their implicit claim on revenue will someday be honored.... and that's before getting into venture-capital investing, vesting schedules, altcoins controlled by multi-sigs, and centralized exchanges.

In short, the industry won't get very far without trust.

Crypto, which started out as “money for enemies,” will have to first succeed as money for friends.

Salt Lake City is as good a place as any — and maybe even the best place — to make them.

— Byron Gilliam

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