Affinity Fraud Investment Scams
Everyone, in some way or another, is connected to a group, association
or community-based organization. Our interests, backgrounds, and
other factors will naturally lead us to those affiliations that
best serve our needs. Race, culture, and religious beliefs also
play a role in identifying us as members of unique groups that
we often come to trust —sometimes to our detriment.
Affinity fraud is when one person gains the trust of others because
they share the same religion, race, ethnicity, career or other
social characteristic and then deceives them in some kind of financial
transaction.
The deception may be intentional, as in the case of an investment
scam infiltrator, but could just as easily be the result of an
enthusiastic, but misguided, participant in a local
gifting club or international
pyramid scheme.
In a world of increasing complexity, many people feel the need
for a shorthand way of knowing who to trust. This is especially
true when it comes to investing money. Unfamiliar with how our
financial markets work, too many people don't know how to thoroughly
research an investment and its salesperson.
Affinity fraud poses a danger since it undercuts the usual warnings
about investment schemes promoted by strangers. In these cases,
the fraud may come to a your attention as the result of a contact
from a friend, colleague or someone who inspires a bond of trust.
"You can trust me," says the scammer, "because
I'm like you. We share the same background and interests. And I
can help you make money." The normal process of cautious
skepticism is replaced by social banter.
Start At The Top
Another equally effective technique, if the con artist is not
a member of the group, is to lull members into a misplaced trust
by selling first to a few prominent members, then pitching the
scam to the rest by using the names of those previously sold.
The effect is the same. Once the connection to the group is understood,
the natural skepticism of the individual member is overcome, and
one more group name is added to the sales presentation.
With the hierarchy of leaders and followers already established,
the investment becomes merely an extension of our desire to belong
and be accepted.
Beware of the use of names or testimonials from other group members.
Because scam artists frequently pay out high
returns to early investors using money from later arrivals the
early investors may be wildly enthusiastic about a scheme that
may be set to collapse entirely once you've invested.
Once an affinity fraud victim realizes that he or she has been
scammed, too often the response is not to notify the authorities
but instead to try to solve problems within the group. This usually
just ensures that the fraud continues without anyone reporting
it to the authorities until it is too late to recover funds.
Con artists recognize that the tight-knit structure of many groups
makes it less likely that a scam will be detected by regulators
and law enforcement officials, and that victims will be more forgiving
of one of their own members.
Minority Groups
With immigration at levels not seen since early this century,
many new arrivals to our country are seen by financial swindlers
as ripe for the picking.
Immigrant groups are particularly vulnerable to this type of fraud
because they are sometimes isolated from the larger community and
their flow of information may be limited because of language and
other barriers.
Some members of long-established minority groups have accumulated
savings and achieved a certain standard of living through years
of hard work. Often, they want to "give back to the community" in
order to help others like themselves.
However, such inclinations often make these group members sitting
ducks for deceitful con artists who, despite sharing the same ethnicity
or culture, are really motivated solely by greed. Swindlers who
prey on minority groups will play the loyalty angle for all it's
worth.
Religious Affiliation Scams
Religious affinity fraud also continues to be a widespread problem.
And swindlers who prey upon people of their own religion come in
all denominations. Some elderly investors were duped into buying
bogus promissory notes by three men, two insurance agents and an
investment adviser, who often got on their knees and prayed with
their victims to gain their trust.
"I've known him all my life." "I trusted her as
if she were a member of my family." "He was such a nice
young man." "We had the same values and beliefs."
The last of these statements was made by a complainant who had
lost $100,000 by investing with a member of her church group who
was going to produce a film supporting the political positions
and beliefs of the group. The film was not made and the scammer
disappeared.
The Internet missionary church Greater
Ministries International Church GMI took
in over $550 million dollars from over 27,000 believers and although
it promised great returns from heaven over one half of the
money has not been accounted for.
Many of the investors were fundamentalist Christians, including
Mennonites in rural Pennsylvania, Ohio and Virginia. They were
told their money would double in installment payments made over
17 months or less. Investors were quoted Luke 6:38: "Give,
and it shall be given unto you."
With such high yield returns, promoters will suggest that much
of the bounty can be used by the investor to benefit the church
or organization. Prime bank schemes will
often attach a charitable aspect to them so as to offset any guilt
resulting from suppressed greed.
Greater Ministries officials told investors that state and federal
securities laws did not apply to them because the investments were "gifts" to
the Church and the payments from the church to investors, called "blessings," were
not subject to taxes.
You should ignore claims that religiously-based investments are
unregulated because virtually all investment opportunities, including
church bonds, come under the scope of federal and state securities
or commodities laws.
Scams using religion as a lure to get people to invest money have
taken in about $1.8 billion over the last three years, according
to the Washington-based North American Securities Administrators
Association.
The Lesson Learned
A former Sunday school teacher swindled at least thirty-three
people, many of them church members, and like him, immigrants from
India, out of more than $1 million. He got money from investors
to supposedly buy nationally known stocks but then just stashed
the cash in his personal bank and brokerage accounts.
Razor Sharp Learning Curve
In California, commodity dealers targeted various Asian communities
in the Los Angeles area. One company advertised in the "China
Daily News" for executive positions at a new bank in Shanghai,
China. Victims were told the company was looking for people without
any experience in the banking business, so they could be trained
from scratch.
All fifteen people attending the subsequent seminar were originally
from China. After three days of training, the marketing manager
said that every person expecting to get a job from the "bank" in
Shanghai had to put in practice what they had learned about foreign
currency exchange transactions by putting up money as a test to
see if they were qualified.
The investments were touted as "no-risk" moneymaking
opportunities and ranged from $15,000 to $300,000. The investors
lost over 90% of their money in these foreign currency and precious
metals investments —supposedly being made on their behalf
on the Hong Kong exchange.
He Needs New Glasses
One promoter targeted Christians by claiming he had built a device
to find oil based on "visions" he had received from God.
About 150 investors are believed to have lost more than $1 million
in the oil and gas investment scheme.
Non-Believers
A former financial consultant who was charismatic and had "Christian
values", was sentenced to 30 years for bilking thirty
retirement-age investors out of nearly $6 million. At the sentencing
hearing, he was greeted with jeers and boos as he tried to apologize
to his victims.
In Pennsylvania, several small Catholic churches were defrauded
of about $1 million by an investment adviser-parishioner who had
won the trust of parish priests. Unfortunately, there is no shortage
of potential victims. Securities regulators point out that since
many people feel like they've lost out on the historic bull market
on Wall Street, they need to catch up.
A Fraud By
Any Name
One affinity fraud which targeted members of Christian churches
in rural Kansas, Nebraska and Missouri towns raised $7.4 million
in funds from at least 125 investors, supposedly to trade in high-yield
foreign bank instruments in a secret "prime bank" trading
market. The promoters said investors would receive a monthly return
of 20% for 12 to 18 months, and that the return of principal was
fully guaranteed.
To establish credibility within the church-minded communities,
they gave the investments various names with Biblical connotations,
such as Jubilee Trust Fund, Oracle Trust Fund and Elkosh Trust
Fund. They also proclaimed their status as "born-again Christians" and
suggested that the investment would fulfill a religious "duty" or "prophecy." They
even informally enlisted members of various church communities
to praise and promote the investment funds.
Consequently, the churchgoers, most of whom were unsophisticated
investors, invested in the trading programs based on trust and
faith, rather than adequate information. The prime bank trading
program did not actually exist and all funds have been transferred
to several offshore entities. By making principal and interest
payments to early investors, with funds raised from later investors,
they gave the false illusion that the investment was successful.
When confronted by authorities they attempted to persuade investors
not to cooperate by referring to previously signed confidentiality
agreements and by falsely telling them that cooperation with the
government would forfeit any return on their investment.
continue
QuickTour
A Bad Choice of Investment
Through the use of church membership lists, a man in Utah preyed
upon fellow members of the Assembly of God Church . Through his
company, Making Good Choices Inc., he sold bogus "royalty
interest" in such inventions as a "Mess Free Bird Feeder" and
the "Vice Script" automobile theft-prevention engraving
system.
Victims were promised returns of "25% to 100% for years to
come." In most cases, no products were ever sold and losses
by church members were approximately $200,000. He, in turn, was
sentenced to 15 years in the Utah State Prison.
Blame God!
Not knowing what to do with the money, after receiving $300,000
from a life insurance policy on her husband, a 31-year-old mother
of three in Scottsdale, Arizona, invested it with a Lay Minister
in the Eagle's Nest Christian Embassy, where she was a member.
A pamphlet written by the church pastor described the scammer's "Vision
Plan" for funding a new $2 million church building:
"For the past year I have prayerfully sought the Lord for
the plan and direction he would have us take in regards to the
financing costs of the construction and improvements of the new
building.… The plan and direction God has given us is strategic,
sound and safe!..."
Today, she and her family, as well as many other former Eagle's
Nest parishioners, are still devastated after he pled guilty to
operating a Ponzi scheme which took in $11.4 million.
Plastic Profits
A Baptist minister from Texas is accused by the SEC of robbing
$3.5 million from more than 150 investors in a religious affinity
fraud scam in which he exclusively targeted African-American Baptists
and promised them returns of between 7 and 30 percent.
Ronald Randolph is accused of selling investment contracts for
his fake plastics company, International Polymers Works which he
claimed was profitable and had several contracts with major companies,
including Exxon Mobil Corp., DuPont and Dow Chemical. He also said
the investments were insured by Lloyds of London.
There were in fact no contracts and no guarantees. To keep the ponzi
scheme alive from 1997 through 2000 he used the money of new investors
to pay back prior investors.
Warfare Has No Place In The Church
09/02 Marcus D. Dukes, 33,
and Teresa Hodge, 39, owners of Financial
Warfare Club Inc. are accused of convincing black parishioners
in 18 states to buy stock in nonpublic companies and to pay for
investor education courses.
The SEC said the pair used the money for other purposes and that
none of the 1000 investors have made a return on their investments,
which exceeded $1 million..
Going to churches from Maryland to Alabama they held presentations
full of prayers and quotes from the Bible, selling their ideas
by claiming blacks had been left out of the lucrative market for
initial public offerings of stocks.
They then offered parishioners unregistered securities, claiming
they were investments that would help black-owned companies soon
to go public through different entities, including Financial Warfare
Inc., the Financial Warfare Club and Covenant EcoNet Inc.
The pair offered three types of membership: "Founders" paid
$2,500 and $50 a year for 2,000 shares of stock in one of three
companies that were purportedly poised to launch IPOs; "warriors" paid
$1,000 and $50 a year for 500 shares of stock in the three companies; "believers" paid
$500 with an annual fee of $50.
Financial Warfare Club's toll-free phone number greeted callers
with: "We're excited that you are joining the war against
financial apartheid and plan to ensure that we have the same economic
and financial freedoms as every other American."
The money collected was spent instead on other things, including
$300,000 on salaries for Dukes and Hodge, $600,000 in transfers
between the defendants, $42,000 in payments to hotels and more
than $92,000 in cash withdrawals.
Dukes, who was a stockbroker in the early 1990s, had been censured
and fined $25,000 by the National Association of Securities Dealers,
while Hodge had petitioned for bankruptcy relief four times between
1996 and 1999.
In Alabama, nine people have been charged with cheating church
members at the Daystar Assembly of God church out of more than
$3 million by telling them the money would be used to buy retirement
properties in Florida, the income of which would be used to pay
off the mortgage of the Prattville church and build a religious
theme park.
The money went instead to pay off investors in a previous scam
and to purchase equipment for unrelated businesses.
Such appeals to race, religion or another commonality in selling
fraudulent investments are referred to as affinity fraud. Such
solicitations often try to equate faith in God with faith in the
financial scheme.
God Works in Mysterious Ways, Scammers
Don't
01/05 - AP - ROME, Ga. - A man accused of taking more than $8
million from churches and nonprofit organizations across the United
States is defending himself during his federal trial.
Abraham Kennard - charged with mail fraud, money laundering, conspiracy
to commit money laundering and income-tax evasion - delivered his own
opening arguments, telling jurors that federal prosecutors charging him
with fraud mistook "a dream for a scheme."
Prosecutors contend that Kennard headed up a multimillion-dollar advance
fee fraud scheme from 2001 to 2002 that eventually involved 1,600 churches
and other organizations in 41 states.
U.S. District Judge Harold Murphy ruled Monday that Kennard could represent
himself, although the judge had a court-appointed attorney remain as "standby
counsel."
"There is no law against praying and trusting God," Kennard told jurors Tuesday. "God
is the biggest financial backer you can ever have. And that's who these people
and Dr. Kennard put their trust in."
Prosecutors opened their case against Kennard and his brother, Laboyce
- who also faces charges related to the scheme - with testimony of several
bank officials who verified records to be used as evidence in the case.
Prosecutors allege that members paid to join the Network International
Investment Corporation Inc. "Church Funding Project," which promised
a forgivable loan or non-refundable grant of $500,000 for every $3,000
paid in membership fees.
They said that Kennard told members that a group of investors would fund
the project, when in fact he had no investors and never intended to find
any.
But Kennard told jurors he always intended to pay back members.
Giles Jones, attorney for Laboyce Kennard, tried unsuccessfully to have
his client's case separated from Kennard's proceedings because of how
the jury might react to Kennard representing himself in the trial.
Two others - Alvin Jasper, Kennard's half-brother and Jannie Trammel
- pleaded guilty before the case went to court. They have agreed to testify
for the prosecution against the Kennard brothers.
Co-defendant R. Scott Cunningham, the Dalton attorney accused of laundering
Kennards money, will face charges at his own, yet-unscheduled trial.
Preacher accused in $9M church affinity
pyramid scam
By ERRIN HAINES - ASSOCIATED PRESS WRITER
02/05 - ROME, Ga. -- The Rev. Abraham Kennard shared his dream
of a string of Christian resorts with a few of his fellow black
ministers. They told a few more. And the few more told a few more.
And they all told their flocks.
Soon, congregations nationwide - many with only a few dozen members -
were holding fish fries, sponsoring cake walks and throwing carnivals
to raise the $3,000 they needed to invest in Kennard's company.
For their small investment, the faithful were assured, they would eventually
get their money back more than 100 times over - up to $500,000 in a grant
or a forgivable loan. What they actually got, prosecutors say, is duped.
Kennard, 46, was charged with bilking nearly $9 million from 1,600 churches
in 41 states in just over a year. His month-long trial on 132 counts
- from money laundering to tax evasion to mail fraud - ended Thursday
and his fate now lies with a jury, which was scheduled to begin deliberations
Friday.
The government argued that the charismatic Kennard took advantage of
the nation's tight network of black churches to launch a fast-growing
pyramid scheme.
"I know you can see clearly it was a scheme, all right. And for some 1,600 churches,
it was a nightmare," prosecutor David McClernan told jurors during closing arguments.
Kennard, who represented himself, countered he's not guilty of anything.
"It's not a law against riding in a Cadillac if you don't want to ride in a Volkswagen," Kennard
said in his opening remarks.
Kennard, prosecutors say, represented his Network International Investment
Corp., based in Wildwood near the Georgia-Tennessee border, as a $25
million business with more than $100 million in investments.
About three-quarters of the investments would be used to build resorts
and the rest would go back to the churches that paid the $3,000 fee.
But the resorts were never built and, in most cases, the money was never
paid out. The churches saw their big plans - for expansions, outreach
programs, drug rehabilitation classes - dashed.
A sharply dressed Kennard criss-crossed the country on private jets and
in limousines with a flashy promotional video in hand. But it was faith
that sold Kennard's brethren on the deal. They in turn told their friends,
nephews, cousins, brothers and, most importantly, fellow pastors.
"It wasn't about ignorance. It was about trust," said the Rev. James Cane of
Victory Worship Center in Birmingham, Ala., one of several pastors who testified
against Kennard.
"It was like a domino effect," added the Rev. Willie Robbins of the Greater Cathedral
Worship Center in Nashville, Tenn., who helped spread the word to Cane and other
pastors. "I had preachers telling me, 'I don't trust him, but I trust you.'"
Much of the money went to Kennard and his family. It bought cruises and
more than a dozen cars, including several Cadillacs and Mercedes-Benzes,
prosecutors said.
The vehicles, along with Kennard's assets, were seized by the government.
Kennard also used the money to pay for the jets and limos he used during
his trips to promote his program, according to prosecutors.
Kennard was tried along with his brother, Laboyce, who was charged with
conspiracy to launder money. Prosecutors said he received more than $360,000
from his brother.
Laboyce Kennard's attorney, Giles Jones, said Thursday his client was
only trying to start his own business and had no knowledge of his brother's
church enterprise.
"They want to make a big deal that he stuck his head in the sand," Jones said.
The Kennards' cousin, Jannie Trammel, and stepbrother Alvin Jasper also
were indicted but pleaded guilty and testified at Kennard's trial. Lawyer
R. Scott Cunningham is charged with money laundering, but will be tried
later.
Michael Trost, who was appointed as Kennard's lawyer but became standby
counsel when Kennard chose to represent himself, said he believes Kennard
intended to help the churches.
"In hindsight, mistakes were made and things weren't done as correctly as they
could have been, but that's not a crime," Trost said.
Trammel, who served as Kennard's right-hand and often helped sell the
program to preachers, said she was willfully blinded by her charismatic
cousin.
"Because of my relation with him, I didn't see those red flags," she testified. "There's
no question people were misled."
Religion-Related Fraud Getting Worse
By RACHEL ZOLL - AP - 08/06
Randall W. Harding sang in the choir at Crossroads Christian Church
in Corona, Calif., and donated part of his conspicuous wealth to
its ministries. In his business dealings, he underscored his faith
by naming his investment firm JTL, or "Just the Lord." Pastors
and churchgoers alike entrusted their money to him.
By the time Harding was unmasked as a fraud, he and his partners
had stolen more than $50 million from their clients, and Crossroads
became yet another cautionary tale in what investigators say is
a worsening problem plaguing the nation's churches.
Billions of dollars has been stolen in religion-related fraud
in recent years, according to the North American Securities Administrators
Association, a group of state officials who work to protect investors.
Between 1984 and 1989, about $450 million was stolen in religion-related
scams, the association says. In its latest count - from 1998 to
2001 - the toll had risen to $2 billion. Rip-offs have only become
more common since.
"The size and the scope of the fraud is getting larger," said
Patricia Struck, president of the securities association and administrator
of the Wisconsin Department of Financial Institutions, Division
of Securities. "The scammers are getting smarter and the investors
don't ask enough questions because of the feeling that they can
be safe in church."
Cases in recent years show just how vulnerable religious communities
are.
Lambert Vander Tuig, a member of Saddleback Church in Lake Forest
Calif., ran a real estate scam that bilked investors out of $50
million, the Securities and Exchange Commission says. His salesmen
presented themselves as faithful Christians and distributed copies
of "The Purpose Driven Life," by Saddleback pastor Rick
Warren, according to the SEC. Warren and his church had no knowledge
of Vander Tuig's activities, says the SEC.
At Daystar Assembly of God Church in Prattville, Ala., a congregant
persuaded church leaders and others to invest about $3 million
in real estate a few years ago, promising some profits would go
toward building a megachurch. The Daystar Assembly was swindled
and lost its building.
And in a dramatically broader scam, leaders of Greater Ministries
International, based in Tampa, Fla., defrauded thousands of people
of half a billion dollars by promising to double money on investments
that ministry officials said were blessed by God. Several of the
con men were sentenced in 2001 to more than a decade each in prison.
"Many of these frauds are, on their face, very credible and
legitimate appearing," said Randall Lee, director of the Pacific
regional office of the SEC. "You really have to dig below
the surface to understand what's going on."
Typically, a con artist will target the pastor first, by making
a generous donation and appealing to the minister's desire to expand
the church or its programs, according to Joseph Borg, director
of the Alabama Securities Commission, who played a key role in
breaking up the Greater Ministries scam.
If the pastor invests, churchgoers view it as a tacit endorsement.
The con man, often promising double digit returns, will chip away
at resistance among church members by suggesting they can donate
part of their earnings to the congregation, Borg says.
British fraudster gets 20 years for US
church scam
07/07 - (Guardian Unlimited) British con
artist Howard Welsh toured US cities like a modern-day snake oil
salesman, targeting Christians with bogus investment plans and
scamming his way to some £16m.
But his face ended up on the FBI's Most Wanted website and despite
crisscrossing continents while on the run, he was today starting
a 20-year stretch in a US jail.
Most of the 900-odd victims of Liverpool-born Welsh, 63, had one
thing in common: they fell victim to his callous manipulation of
their religious faith.
Welsh and his American girlfriend, Lee Hope Thrasher, 53, were
based in the resort city of Virginia Beach, in the east coast state
of Virginia, but from 1999 took the con on the road, targeting
church networks.
They hosted euphoric, deeply religious three-day seminars in hotels
while selling "divinely inspired" investments that promised
huge returns while helping poor and disabled children abroad. "Do
you have enough faith to see this through for a year?" one
of Welsh's fliers asked.
Welsh, who styled himself as an "international businessman" and
who had earlier tried less successfully to sell a "magical
elixir", took inspiration from the infamous 1920s Chicago
conman, Charles Ponzi.
Ponzi's signature scam was devastatingly simple. You attract a
few investors and then quickly pay out high returns. This creates
a buzz, and attracts more investors. Then you disappear.
Welsh and Thrasher - who was today jailed for 15-years alongside
him at the district court in Norfolk, Virginia - disappeared from
the Virginia area in the summer of 2002. A year later, prosecutors
brought the first charges against them.
At some stage, the pair left the US, having wired millions of
dollars to 13 destinations, mainly foreign banks in places including
Lebanon, Switzerland, Nigeria, China and France. Investigators
believe they spent time in Latin America and Africa, as well as
Belgium and other continental European countries.
However, the end of the FBI hunt was not quite the stuff of Hollywood
thrillers. Welsh and Thrasher were arrested by the Metropolitan
police in November 2004 at a train station in the Shropshire market
town of Whitchurch, near his elderly mother Doris's retirement
home.
The pair appeared to have hidden or lost the money. US investigators
have only recovered around £1.25m. Both were ordered today
to pay $33, 543,153 (£16,486,990) in restitution.
It emerged this week that Welsh had told lawyers that he gave
$31m to a Nigerian man called Femi Coker, who had claimed to work
for the Nigerian Central Bank. Welsh said he met the Nigerian in
Accra, Ghana, and that the money is still in a government warehouse
and he will be able to get it back if he pays a "release tax",
the Virginia Pilot newspaper reported.
Investigators soon established nobody of that name worked at the
Nigerian Central Bank. The name Femi Coker features in a number
of websites warning about Nigerian advance fee cons, the so-called
419 scams. Letters written by a Mr. Coker variously describe him
as a "director of the ministry of agriculture" or an
official at a Nigerian oil firm.
If Welsh did have the tables turned on him by another con artist
his many victims might be forgiven for enjoying the irony.
Less than 5% of investors to Welsh's scams - some of whom were
Britons - saw returns and a number were left in financial ruins.
One elderly woman from Illinois, who has since died, lost around £4m,
thinking she was investing in a new bank called Zialogic, which
in reality was no more than a UK post office box.
"This was a massive fraud, stunning in both its length and
breadth," said US attorney Chuck Rosenburg. "We are very
pleased with their convictions."
After their arrest, the pair spent almost two years in UK prisons
while fighting extradition but were finally sent to the US in July
last year. The same month, in their first court appearance in the
US, they insisted they were innocent and wanted to "get the
truth out".
But three months into the trial they changed their pleas. Welsh
admitted four counts, including conspiracy to commit mail and wire
fraud. Thrasher pleaded guilty to three similar counts.
Before they changed their pleas, Paul Chandler, a Met officer,
told the trial that the couple had rented a flat in Birmingham,
for which Welsh had signed the lease with the name "Holmes
Golden". There was evidence of other false identities at the
flat, including a "James Bond".
The US Internal Revenue Service told the trial that Welsh had
been looking at exploring "something with diamonds" in
Ghana.
Thrasher, who previously worked as a victim-witness coordinator,
met Welsh in 1997 and her father Harold told the Virginia Pilot
that she was under the Briton's control and the family had failed
to convince her it was all a scam. But perhaps the best illustration
of Welsh's dangerous talent as a conman is the length of time that
some of the victims retained faith in him. One investor of £60,000,
Greg del Ferro, told the local newspaper, even as the trial was
underway last July, that he still did not believe it was a con.
"It was about helping other people. That's what Lee Hope
and Howard were stressing. By all means they made mistakes, but
they are not the types to deceive or take advantage," he said.
Mr. Del Ferro wondered whether the pair may have had problems after
inviting the "wrong people" to invest.
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