PROTECT YOUR POCKETS: FRAUD IN THE NAME OF THE LORD

Just days after Bernie Madoff was sentenced to 150 years in prison for running one of the biggest investment fraud scams in history, Indiana resident and former pastor Vaughn Reeves and his three sons, Chip, Chris and Josh, were each charged with 10 separate felony counts for allegedly defrauding thousands of investors in a multimillion dollar scam. My office worked with the Indiana State Police and the Sullivan County Prosecutor to investigate the case and file charges. It’s a case that illustrates one of the most devastating types of investment fraud — faith-based affinity fraud.

According to documents filed in court, Vaughn Reeves and his sons sold bonds through their company, Alanar, Inc. However, they did not use all of the money for the stated purpose — to finance church construction and expansion — instead, they allegedly shuffled it among various accounts to cover for churches that had defaulted and in the process, took some of the money for themselves.

Churches were encouraged to develop teams of members who were charged with selling bonds to other church members. Alanar allegedly supplied training materials to these teams of church members which suggested, among other things, that the church members open sales calls with a prayer, quote Bible scripture during sales calls and to “never sell the facts, sell only stewardship and the Lord.”

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Most people don’t think they need to be suspicious of a family member, a neighbor or a fellow church member. But in cases of affinity fraud, the perpetrator is typically someone the victim knows and trusts, or someone with a common bond. With faith-based affinity fraud, the fraudster abuses the inherent trust that comes from sharing a set of beliefs and belonging to the same religious community.

Just this year, my office was able to work with the Indiana General Assembly to change the law to reflect the severity of this crime. Now, if a charge of securities fraud involves the use of the victim’s faith, the violation is a class B felony, rather than a class C felony. This change increases the maximum penalty for securities fraud where faith plays a part to 20 years in prison. Indiana is the first state to pass legislation specific to faith-related securities fraud.

Word of mouth plays a big role in affinity fraud scams, with victims sometimes recruiting other victims. Never rely solely on reputation of the person selling an investment or the testimony of others. Remember, just because someone else made money doesn’t mean you will or that the investment is legitimate. Even an investment tip from your best friend should be researched and explored with a trusted, licensed financial adviser.

Use the searchable databases on www.IndianaInvestmentWatch.com or call 1-800-223-8791 to make sure a broker-dealer firm is registered with either the Indiana Securities Division or the Financial Industry Regulatory Authority. You can also contact the Securities Division to make sure an investment product is registered.

Finally, while it can be difficult to turn in a once-trusted friend or church member, it is one of the most effective ways to combat affinity fraud. In most cases, the fraudster has likely taken advantage of people beyond just one group or community. Reporting the person to my office will help protect future potential investors.

The charges described in this article are merely an accusation. The defendants are presumed innocent until and unless proven guilty. For more information on avoiding faith-based affinity fraud, visit www.IndianaInvestmentWatch.com.