According to the Federal Trade Commission’s “FTC Fraud Survey,” there is an estimated 10.8 percent of adults (25.6 million people) in the U.S. who were victims of fraud.1 It is hard to fathom an individual handing over their life savings to someone based solely on blind trust and the smooth words of a con artist. But therein lies the heart of the problem: We are hardwired as humans to be loyal to members of our tribe. Perpetrators are well aware of this problem and have become sophisticated in capitalizing on this blind trust, appealing to the emotions of those in houses of worship. This typical scam is defined as affinity fraud. According to the Securities and Exchange Commission (SEC), affinity fraud is a scam that is purported amongst specific members of a group, such as a religious group, community, the elderly, a specific ethnic group, etc.
Affinity fraud revolves around the sole mission of defrauding honest citizens. The component of trust allows criminals to take advantage of their congregants, investors, shareholders, and those who believed in the honesty of savvy business men looking to defraud them. Con men and women can take advantage of the most honest folk precisely because they can make themselves appear to be individuals with whom people can have confidence.
This article focuses on the topic of affinity fraud, particularly as it affects members of a faith community. By examining the fraudsters and the countless victims who have invested their life savings or simply donated well beyond their tithes and offerings. Each case presented will show forth what persons tend to use when rationalizing fraud, how our society has become numb to the insidious shortcomings of fraud and how we as a culture have allowed these “bad” practices to take reign in the way we do business.
Many affinity scams are often in the nature of Ponzi schemes and pyramid schemes where money is given by new investors to pay old investors. This scheme creates an illusion of a legitimate investment with potential financial success. For instance, enlisting a respected community or religious leader(s) and convincing persons of the investment rewards. However, in a not so perfect world they all become destitute. Because the victims generally are not financially sophisticated, making them easy prey. Victims of fraud tend to trust and fall prey to criminals who have or hold their same interest(s) and background(s), including race, ethnicity, and cultural and religious beliefs.
The scary part is that there is no clear profile of today’s fraud perpetrator. Several studies indicate that many perpetrators are of low social status who indulge themselves in fake websites, ransomware and counterfeit goods.2 It is interesting to note that a few years ago, a study by Marquet International, a strategic intelligence consulting firm, identified that affinity fraud had global losses up to $50 billion.3 There are many layers of affinity fraud; however, affinity “religion” fraud is the most common because so many congregants hold their pastors on a pedestal or trust other members of the congregation.
The majority of victims who experience affinity fraud endure the risk of being targeted because of personality and character traits that entail compassion and a respect of leaders in authority.
In the religious sector the perpetrator that defrauds is a member of the group. They portray themselves as trustworthy and looking out for the best interest of the investor; yet, they are wolves in sheep’s clothing. For the most part some of the schemers are highly intelligent and extremely creative. The perpetrators capitalize on their victims’ trust by creating a well-conceived façade. People fall victim to affinity fraud (white-collar crime) because of trust and friendship. For example, the pastor of a congregation may easily be able to convince the parishioners that it is a well worth the investment or taint scripture to justify the prosperity gospel.
In addition, younger victims are targeted due to their lack of maturity or lack of financial savviness and the elderly are easy targets due to their willingness to listen to a sales pitch.
In a recent article featured in the Chicago Tribune in August 2016, Nicholas Chervyatiuk, an Orthodox priest, scammed a former elderly church secretary who suffers from dementia out of $500,000. The plight is all too familiar as to why he defrauded this elderly woman. The Chicago Tribune reports that the priest allegedly used the money for two restaurants that he operated in partnership with a convicted drug dealer, for a hair salon and for his rental properties that he owned in Chicago. Another interesting fact is that a judge overseeing this case ordered a freeze on $170,000 from the priest’s personal account.4 This, in and of itself, is a red flag. The priest did not seem to have any remorse regarding his actions; instead he continued to decry that this is what the elderly woman would have wanted. What is most challenging is that he has not come to terms with the fact that “religious” fraud is particularly insidious because of the cruel betrayal of the faithful.
To date, there has yet to be any official charges filed; the Ukranian Orthodox associates have barred Chervyatiuk from serving as priest and have since removed him as a clergy from the church’s list. Suffice it to say he took advantage of the elderly and many would argue that the priest should be convicted.
In March 2016, a Ponzi scheme case that made headlines in North Carolina occurred when Ronald McCullough and his business partner David Mayhew were accused of bilking Christians for more than three years out of $2 million. McCullough and Mayhew formed the shell company “God’s Business Empire D/B/A GB Empire.” They used the old adage of quoting scriptures and carrying bibles to circumvent their elaborate “illegitimate” disguise. Not only did churchgoers fall prey; they also convinced several other pastors to allow them to speak to their congregations to help them build wealth. Several victims met with McCullough during Bible study. They told one victim that his return rate would be high and the promise of his investment doubling seemed like a well centered deal that he could not refuse. When it was all said and done this victim/investor lost well over $200,000.5
It is incomprehensible how someone can have the gall to use the good name of “God” for a scam. McCullough and Mayhew both lived lavish lifestyles, drove expensive cars and indulged in offshore travel.
In all, some affinity fraud victims are left penniless, others lose their homes and some even take their lives because the loss is just too hard of a burden to bear. According to the article “The Optics of Fraud,” the reason that victims are unable to face the truth is because they are embarrassed that the fraudster was able to build an emotional bond with them based on the belief that their shared characteristics created a “special trust” that only those within the group share and would not violate.6
Many victims often fail to notify law enforcement or pursue legal action and at times they attempt to work things out within the group or with the individual. This instance is a revolving door within the Christian community. In truth, the victims fall prey for a number of reasons that are at times too challenging to explain or comprehend. Instead of being wary and skeptical, the public appears to be more trusting and gullible. Persons should be leery of any type of investment solicitation pitch where promises are made on the return of the investment, be cautious of the fast-talking salesman who does not allow you as the potential investor to ask questions and where there is a lack of transparency in financial statements.
These are all clear signs of red flags.
Henceforth, it is important to remember that no matter how naïve the victim’s actions may appear, the crime cannot occur if the perpetrator does not initiate contact. In addition, conducting a solid open-source background check via public records on the individual(s) and company they represent, will never hurt. Rather, it will increase his/her awareness on the many red flags to be leery of. Investors, church parishioners and the like should have continuous education on the nuances of affinity fraud—formal education, webinars, or community outreach settings is key.
Affinity fraud will continue to increase as long as there are congregants to deceive. Is there a solution? Is all of the work in fraud prevention and compliance in vain? No. If you analyze some of our most dubious affinity fraud scandals, the common denominator is an uneducated public (even the most sophisticated investors were taken in by Madoff. Given his stature on Wall Street, however, this is almost understandable.) Look at how other affinity frauds have been perceived. All of them could have been prevented with a little attention to detail.
People tend to rely on trust, word of mouth and recommendations instead of knowledge. We are told to be cautious and seek professional advice. And yet, the scams continue. It is simple—educating the public, investors and the elderly, may make a dent in the culture of deceit and greed.
For additional information on affinity fraud:
- Federal Trade Commission (FTC), Affinity Fraud
- Securities and Exchange Commission (SEC), Affinity Fraud
- “Fleecing the Flock,” The Economist, 2012
- Stopfraud.gov (Financial Fraud Enforcement Task Force)
- Jenna Martino, “The Mormon Madoff: How Shawn Merriman Scammed Millions,” CNBC, 2012
- “Combating Fraud in African American and Latino Communities,” Federal Trade Commission, June 15, 2016, https://www.ftc.gov/system/files/documents/reports/combating-fraud-african-american-latino-communities-ftcs-comprehensive-strategic-plan-federal-trade/160615fraudreport.pdf
- National White-Collar Crime Center n.d.
- Reports Authored by Chris Marquet, http://www.marquetinternational.com/reports.htm
- David Jackson, “Chicago priest accused of taking $500,000 from parishioner with dementia,” Chicago Tribune, August 19, 2016, http://www.chicagotribune.com/news/watchdog/ct-ukrainian-priest-accused-met-20160821-story.html
- Thomasi McDonald, “Feds search for NC man accused of preying on Christians with Ponzi scheme,” The News & Observer, March 19, 2016, http://www.newsobserver.com/news/local/crime/article67147077.html
- Frank S. Perri and Richard G. Brody, “The Optics of Fraud: Affiliations that Enhance Offender Credibility,” Journal of Financial Crime, Vol. 19 Iss: 3, pp.305-320, http://www.emeraldinsight.com/doi/abs/10.1108/13590791211243147