A Look at Other Affinity Fraud Schemes

In 1999, Greater Ministries International Church, of Tampa, Florida, committed “one of the worst cases of affinity fraud in the United States.” The church’s leaders ran the scam, a massive pyramid scheme, calling it “God’s social security plan for Christians,” and more than 20,000 people lost over $500 million.

In 2002, African American churches were targeted in the “Church Funding Project,” a scheme that defrauded more than 1,000 churches out of nearly $3 million. The SEC reported that the churches, believing they would receive large sums of money from their investments, committed to building projects and acquired new debt. The promised “huge financial returns” never materialized, and the money was deposited into the account of one of the defendants.

A scheme in 2006 raised over $16 million from more than 190 investors, many of them elderly Jehovah’s Witnesses. Most of the investors never received the interest or return of their principal that had been promised.

Seniors and retirees were targeted in another 2006 scheme, which raised $15 million from at least 275 investors by issuing promissory notes in various real estate investment companies. The scammers misappropriated the funds for their own use.

Christians were targeted in a 2008 scheme that prompted a warning from the Maine Office of Securities to investors there to be wary of “investment pitches for hot, new alternative energy technology companies.” At least 10 Maine residents had invested in two Nevada corporations, Almighty Wind, Inc., and Apostles, Inc., supposedly developing new technologies using windmills. The company’s owner “appears to have used his participation in a nondenominational Christian church in California to identify potential investors, who in turn recommend other investors based in part on their shared religious beliefs.” Watch a video by Maine Public Broadcasting about this scheme.

Immigrant groups are also vulnerable to this type of fraud because they are sometimes isolated from the larger community and the information they get may be limited because of language and other barriers, according to the North American Securities Administrators Association (NASAA), an international organization devoted to investor protection. In 2005, the SEC indicted the architect of a $20 million investment fraud scheme that targeted the Armenian American community in Glendale, California. Koreans in a Southern California community were targeted in a 2006 case filed with the SEC. The more than $36 million that was supposed to go into brokerage accounts for the individual investors actually went into the private checking account of the scammer.

In April 2009, the SEC charged seven leading members of a church in Queens, New York, for orchestrating a fraudulent investment scheme that targeted mostly elderly parishioners. The seven defrauded investors of more than $12 million by making numerous misrepresentations, including promises of returns as high as 75%, to encourage them to invest in two New York hedge funds. Millions of dollars were redirected for their own personal use.

And most recently, in July, a former Indianapolis pastor and his sons were charged with bilking church members nationwide out of millions of dollars in a Ponzi scheme. They’re accused of duping 11,000 people—in Indiana and four other states—into buying bonds worth $120 million, diverting money from new investments to pay off previous investors and pocketing about $6 million. In Indiana, the legislature recently increased the penalties for affinity fraud to six to 20 years in prison and a $10,000 fine. Previously, the charge had carried a prison term of two to eight years. According to an Associated Press article, Indiana is believed to be the only state with a law targeting affinity fraud.

And this isn’t all. More targeted complaints can be found at the SEC’s site specifically devoted to affinity fraud.