Watch out for these warning signs to help protect your members from financial fraud
Ephren Taylor introduced himself as a self-made millionaire. He had found the secret to success and wanted to share it with other devoted Christians throughout the United States. He promised congregations that not only would his strategy work for them, but it would help uplift others by investing in inner-city businesses. With a 20% guaranteed return, it was a win-win.
Except, the investors who trusted their money to Taylor lost everything.
After years of recruiting hundreds of investors during his “Building Wealth Tour,” Taylor’s Ponzi scheme was finally revealed, leading to his arrest and conviction of fraud. He had stolen nearly $16 million from unsuspecting churchgoers. Many had invested their entire life savings, leaving them with no choice but to file for bankruptcy.
How did Taylor manage to deceive so many?
Taylor specifically targeted Christian groups while claiming to live by their values. This is what the Security and Exchange Commission classifies as affinity fraud. Con artists like Taylor are able to infiltrate and scam communities easily because they are – or claim to be – a member. In addition, they tend to enlist the endorsements of trusted community leaders such as pastors and other clergy, making their schemes seem more credible. Like other types of financial fraud within faith communities, victims are reluctant to report, allowing criminals to continue scamming other congregations. All of these factors create a perfect storm in which CNBC estimates billions of dollars are lost each year.
While Taylor was preaching “prosperity gospel” to recruit investors in predominately Black churches, affinity fraud is not limited to evangelicals. Perhaps the most infamous affinity fraudster in recent history was Bernie Madoff. Madoff’s investors tended to be members of the Jewish community. The Church of Latter Day Saints has seen its fair share of affinity fraud schemes – so much so, Utah created a White Collar Crime Offender Registry in response.
How can you help protect your members from being a victim of affinity fraud?
Look out for these signs of a Ponzi or pyramid scheme
If you or your house of worship is approached by someone wishing to speak about an investment opportunity, keep these red flags from the SEC in mind:
The investment will deliver guaranteed income.
If the investment sounds too good to be true, it usually is. Pyramid schemes work by essentially stealing money from the bottom tier (newest investors) and giving it to those above (established investors). Eventually this becomes unsustainable and the pyramid collapses. If someone approaches claiming a guaranteed return on an investment with little or no risk, this is a red flag.
Details about the investment aren’t readily available.
Often, con artists will convince victims to not worry about the details of their investment because it is too complicated to explain. Other times they will claim that the details are trade secrets and too valuable to release to everyone.
Returns are consistent.
Returns on a legitimate investment will fluctuate with the market. Ponzi or pyramid schemes promise regularly distributed returns that are consistently the same.
The investment is not registered with the SEC.
According to the SEC, “Registration is important because it provides investors with key information on the company’s management, products, services and finances.” Always ask if the investment has been registered to the state or the SEC. Then verify it using the steps on FINRA.org.
The investment manager/broker isn’t licensed.
There are federal and state laws that require investment brokers and other financial professionals to be licensed. You can search the SEC database to see if the person claiming to be a professional has registered and is licensed. If you live in Utah, be sure to also check out the White Collar Crime Offender Registry.
Investors do not have access to official paperwork.
Fraudsters will try to hide the details of the investment by giving victims the run-around when it comes to seeing key paperwork.
Investors are asked to rollover instead of cashing out – or find that they cannot cash out.
Unfortunately, discovering this red flag only happens late in the game. An investor will want to sell and receive their owed returns, but the schemer will either make excuses as to why they can’t or try to convince them to reinvest their earnings.
Beware of these tactics used with affiliate fraud
“Bob invested and now his shares have doubled.”
Con artists love to employ peer pressure to convince others their schemes are on the up and up. Be cautious if an investment pitch turns into a call to keep up with the Joneses.
“I’m only offering this to you.”
On the flip side, when a deal has to be kept a secret because of scarcity or exclusivity, it should also raise your suspicions.
“This opportunity won’t last.”
Fraudsters prey on our fear of missing out by placing a sense of urgency on the deal. They might claim that there are only a few shares left or the investment will soon close.
“I’ll give you a break on a commission.”
This tactic relies on reciprocity, or as this FINRA video explains, the idea that if someone does you a favor, you are obligated to return in kind. Con artists will frame themselves as extremely generous to you in order to guilt you into investing into their scheme.
“Trust me. I was a top advisor for a well-known company.”
Believe it or not, even though most people’s credentials can be found using a simple Google or LinkedIn search, con artists still pretend to be things or people they are not. Always verify the identity of someone pitching you an investment.
Money changers in the temple
The best way to help safeguard your congregation is to refuse to allow “any type of investment advisors or sponsors to speak” at your house of worship, according to Cathy Lerman, the attorney who represented Taylor’s victims, speaking to CNBC. Remember, fraudsters like to recruit religious leaders to unknowingly help promote their schemes. By denying these types of presentations at your worship center, you can help reduce the likelihood of your members falling prey to affinity fraud.
Affinity fraud is not limited to religious groups. It can also target other identifiable groups such as senior citizens, ethnic communities and professional groups. Help protect your members both inside and outside of your worship center by discussing the tactics and red flags of affinity fraud.
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