In faith communities, fraudsters prey on trust

Published: Friday, June 14 2013 4:55 p.m. MDT

In 2010, the FBI ranked Salt Lake City in the top five “hot spots” for Ponzi scheme-related fraud.

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When Ephren Taylor stepped in front of the pulpit at more than 50 churches across the country from 2008 to 2010 to convince parishioners to invest with him, he promised opportunities beyond earthly profits.

“We’re gonna show you how to get wealth and use it for the building of his kingdom," Taylor declared to a rapt congregation at New Birth Baptist Church in Atlanta.

Kauisha Smith heard a similar pitch from Taylor in November 2008 when she saw him speak at famous pastor Joel Osteen's Lakewood Church in Houston. "He emphasized God and being a Christian and not being broke," she recalled. Smith, a 28-year-old tax auditor at the time, invested the entire $40,000 she had in retirement savings with Taylor. Now, more than three years later, Smith has yet to see a penny of that money returned. "I pray I get something back," she said. It turns out Smith was not alone. Last year, Taylor was charged by the SEC with defrauding investors, mostly African-American Christians, of more than $11 million in a Ponzi scheme. And to date, hundreds of people have come forward claiming to be victims of Taylor, some who trusted him with up to $1.3 million dollars of their money.

Like Taylor, many perpetrators of investment fraud take advantage of the bonds of trust and obligation among religious and ethnic communities to grow their pool of victims. These schemes are called “affinity fraud” by experts, and they make up a substantial portion of investment fraud cases being perpetrated around the country.

However, avoiding a fraudulent investment scheme is relatively easy if an investor keeps her eyes open and does some basic research. Experts say there are some common red flags that alert investors to a fraud as well as some simple ways to verify if an investment being offered is a legitimate opportunity.

An affinity for fraud

When Bernie Madoff scammed more than $50 billion from investors, he primarily targeted those who shared his Jewish faith and heritage, as well as Jewish charities. This kind of affinity fraud activity is not slowing down in the post-Madoff era, according to Kathy Bazoian Phelps, an attorney and co-author of "The Ponzi Book: A Legal Resource for Unraveling Ponzi Schemes."

A 2010 report on fraud cases conducted by Marquet International found that in a quarter of the cases it studied, an affinity group was targeted for victims. Among the cases of affinity fraud, 34 percent were targeted at the elderly and retired, people who generally have substantial assets to invest. Additionally, an alarming 30 percent of cases were targeted at religious groups. As Brent Baker, an attorney at Clyde Snow & Sessions in Salt Lake City who specializes in fraud and securities law, put it: “Religion is the biggest trust-based group that gets fleeced by their own flock.”

While investment fraud is occurring in communities across the country, Utah has a reputation for being home to a high concentration of these schemes. According to a 2010 report by the FBI, the state had lost more than $1.4 billion to investment fraud, and that number is likely more than $2 billion today. The same year, the FBI ranked Salt Lake City in the top five “hot spots” for Ponzi scheme-related fraud. The FBI emphasized the prevalence of affinity fraud among Utah's communities, noting that some con artists have been known to take advantage of members of the Church of Jesus Christ of Latter-day Saints.

But the pain extends beyond the victims of the fraud schemes and their faith communities. Baker said that fraud hurts legitimate small businesses’ ability to raise capital. Utah has a high number of entrepreneurs and start-ups, which fuel the state’s economic growth. However, the prevalence of fraudulent investment schemes is diverting money away from these entrepreneurs and small businesses, which not only hurts individuals who get conned, but the state's entire economy.

The ways they prey

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