ALABAMA SECURITIES
COMMISSION
770 WASHINGTON AVE, SUITE 570
MONTGOMERY, ALABAMA 36130-4700
TELEPHONE (334) 242-2984
1-800-222-1253
FAX (334) 242-0240
E-MAIL asc@asc.state.al.us
FOR IMMEDIATE RELEASE
MONTGOMERY, ALABAMA (August 7, 2001) - Joseph P. Borg,
Director of the Alabama Securities Commission, has teamed up with other state
regulators to warn investors about the #1 Securities Crime in Alabama. Affinity fraud is when someone in an
organization takes advantage of fellow members. Affinity fraud occurs in all types of organizations, but is most
common in religious groups.
Investment frauds that take
advantage of victims’ religious or spiritual beliefs are rising dramatically,
with losses in three large cases – Greater Ministries International Church, the
Baptist Foundation of Arizona and the IRM Corporation – approaching $1.5
billion.
The warning about
religious-based investment scams at a news conference at the National Press
Club coincided with the expected sentencing of Greater Ministries International
Church founder Gerald Payne in federal district court in Tampa, Florida on
fraud and conspiracy charges.
Between 1993 and 1999,
Greater Ministries took in nearly $500 million, promising tens of thousands of
investors that the church would double their money through divinely-inspired
investments in the foreign currency market and gold, silver and diamond mines
in Africa and the Caribbean.
State securities regulators
say the Greater Ministries’ fraud illustrates how large, sophisticated and
pervasive religious-based investment scams are becoming. Over the past three
years, securities regulators in 27 states have taken actions against hundreds
of companies and individuals that used religious or spiritual beliefs to gain
the trust of investors – nearly 60,000 nationwide – before swindling many of
them out of their life savings.
“When you invest you shouldn't let your guard down merely because someone
is appealing to your religion or your faith,” said Borg. “Always
do your homework. Be as skeptical and careful when you invest with someone who
shares your faith as you would with anyone else.”
In 1989, a NASAA/Council of
Better Business Bureaus survey found that 15,000 investors nationwide had lost
over $450 million to religious-based scams in the previous five years. By
comparison, the Baptist Foundation of Arizona, shut down by state regulators in
August 1999, used a maze of over 120 shell corporations to raise more than $590
million from over 13,000 investors nationwide.
The Foundation began by
managing church building funds and some retirement savings, investing much of
the money in the Arizona real estate market. When property values fell sharply
in the late 1980s, Foundation officials refused to admit the losses. Instead, regulators say, they set up a
massive and complicated web of transactions and entities to obscure their
losses. The Foundation also began aggressively soliciting additional investors,
nationally and even internationally[1],
using the new money to pay previous investors.
“That the Foundation’s senior
management could solicit hundreds of millions of dollars from investors,
knowing that what they were running was nothing but a huge Ponzi scheme, is
unconscionable,” said Mark Sendrow, director of securities for the Arizona
Corporations Commission.
In May of this year, three
officials involved with the Foundation, including treasurer Donald Deardoff,
pleaded guilty to defrauding investors. The three officials also agreed to
cooperate in the ongoing investigation of five other Foundation officials who
have been indicted on 32 counts each of theft, fraud and racketeering in
Superior Court of Maricopa County, Arizona. A trial date for the five has not
been set.
"Even
though this was terribly devastating and tested my faith - I was in deep
depression and praying a lot - it did not destroy my faith," Forrest
Bomar, an investor with the Foundation, told reporters at Tuesday’s press
conference. "I was reminded through prayer that I still had a lot to be
thankful for - my wife, my family - even if we never recovered a penny of our
investment."
Arthur Andersen LLP, the
Foundation’s auditor between 1984 and 1999, is also the target of a number of
legal actions:
·
A joint civil action by
the Arizona Attorney General and the Arizona Corporations Commission alleges
that Arthur Andersen ignored a series of red flags and tips from people close
to the Foundation, making them complicit in the fraud. Arthur Andersen has
denied the allegation, and no trial date has been set;
·
The Arizona State Board
of Accountancy has filed charges against Arthur Andersen and three members of
the audit team. A hearing is scheduled for April 2002;
·
The Foundation’s trustee
has brought an action against Arthur Andersen, alleging negligence in their
audits. The trial is scheduled for spring 2002; and
·
Two class action
lawsuits have been brought on behalf of various investors against both the
Foundation and Arthur Andersen. No trial date has been set.
The Tampa, Florida-based
Greater Ministries International Church took in $578 million before being shut
down by securities regulators in Ohio and Alabama in August 1999. Nearly 28,000
investors nationwide and internationally[2],
were persuaded by church leaders to mortgage their homes, run up large credit
card debts or cash in retirement funds.
Investors were promised
sky-high returns from foreign currency arbitrage, investments in cargo ships
and gold, platinum, silver and diamond mines in the Caribbean and Liberia.
Greater Ministries officials
claimed their program was “anointed,” and often cited Luke 6:38 – “Give, and it
shall be given unto you; good measure, pressed down, and shaken together, and
running over, shall men give into your bosom” – in their appeals. In reality,
say securities regulators in Pennsylvania, who were among the first to
investigate Greater Ministries, Payne was running a Ponzi scheme. As the scam
began to unravel, Church Founder Payne resorted to anti-government rhetoric in
his presentations and on the church website in an effort to discredit and
demonize regulators.
“Gerald Payne and his
associates made faith in God synonymous with faith in their investment
program,” said Joseph Borg, director of Alabama’s Securities Commission and
incoming NASAA president. “Sadly, while Payne was telling people to put every
penny they could get their hands on – equity, assets and loans – into his scam,
he also told them they lacked faith if they tried to get even the most basic
information on their investment.”
The IRM Corporation raised
approximately $400 million from investors in at least five states through the
sale of bogus promissory notes and limited partnerships supposedly tied to the
California real estate market. Before being shut down by Michigan regulators in
May 1999, over 2,400 victims in Michigan alone – recruited either in-person
through church-based organizations or through religious television or radio
programs such as the “Back to God Hour” – lost over $80 million.
According to regulators, the
IRM Corporation, which coordinated its activities through a labyrinth of over
120 affiliates, was a classic Ponzi scheme, continually soliciting new
investors in order to make interest payments to previous investors.
In Tennessee, regulators shut
down Capital Plus Worldwide Financial Services after more than 100 investors,
most of them recruited from African American churches, sunk $3.9 million into
the scam. Investors were lured by promises that the money would be used to both
rebuild war-torn African nations and return between 96 percent and 120 percent
annually from joint venture partnerships and non-existent “bank debentures”
issued by European banks.
According to Tennessee
regulators, $2.3 million of investor funds were used by company founder Ricardo
Gant to take trips to casinos, go on vacations and buy antiques, expensive
clothing, horses and horse racing facilities.
In
Washington state, securities regulators shut down Island Mortgage
Company/Northwestern Investment Company, which raised more than $14 million by
selling bogus promissory notes. Island
also targeted members of the Society of Friends (Quakers), collecting over $26
million in “premiums” for non-existent health insurance.
Along
with his son, company founder Philip Harmon led a lavish lifestyle that
included waterfront homes, car collections and condos in Hawaii. Harmon was
sentenced to eight years in prison and ordered to pay restitution of
approximately $14 million to investors; his son Steve was sentenced to 15
months for tax evasion.
In Indiana, three men stand
accused of selling virtually worthless promissory notes in two companies they
operated. Often kneeling to pray with their victims, the men bilked 19 elderly
investors out of as much as $1.4 million. Among the victims are a 57-year-old
woman who invested all of her inheritance, a 92-year-old retired widow and a
woman in her late 80s who invested her entire retirement savings of $324,000.
“Cloaking an investment with
religion can give it a false aura of safety,” said Brad Skolnik, Indiana
securities commissioner. “It’s one thing to tithe or give an offering so that
your money is used for good works, it’s another thing if you’re led to believe
you’ll get a monetary return. It’s when people are promised earthly returns
that we see a lot of fraud.”
State securities regulators
say con artists who use religion to promote their scams often:
·
Predict imminent
financial or social crisis;
·
Claim they will reinvest
a portion of the profits in a worthy cause; and
·
Equate faith in their
scam to religious faith.
The scams regulators focused
on did not include sale of church bonds.
These bonds are regulated in most states and are subject to state and
federal securities laws, including substantial disclosure of how the proceeds
will be used.
Before making any investment,
state securities regulators urge investors to ask the following questions:
·
Are the seller and
investment licensed and registered in your state? Call your state securities
regulator to find out. If they are not, they may be operating illegally. Has the seller given you written information
that fully explains the investment? Make sure you get proper written
information, such as a prospectus or offering circular, before you buy. The
documentation should contain enough clear and accurate information to allow you
or your financial adviser to evaluate and verify the particulars of the
investment.
·
Are claims made for the
investment realistic? Some things really are too good to be true. Use common
sense and get a professional, third party opinion when presented with
investment opportunities that seem to offer unusually high returns in
comparison to other investment options. Pie-in-the-sky promises often signal
investment fraud;
·
Does the investment meet
your personal investment goals? Whether you are investing for long-term growth,
investment income or other reasons, an investment should match your own
investment goals.
The Director of the Alabama
Securities Commission (ASC) cautions potential investors to thoroughly check
out any investment opportunity. Contact
ASC for inquiries regarding securities broker-dealers, agents, investment
advisors, and investment advisor representatives, the registration status of securities, to report suspected fraud, or
obtain consumer information:
Call: 1-800-222-1253.
Fax: 1-334-242-0240.
Email: asc@asc.state.al.us.
Write:
Alabama Securities Commission,
770 Washington Ave., Suite 570,
Montgomery, Alabama 36130-4700
The internet is a great
source of free investment
information. A good starting point is
the NASAA website at: http://www.nasaa.org/).
###
FOR
ADDITIONAL INFORMATION CONTACT:
Joseph P. Borg Daniel
G. Lord
Director Education
and Public Affairs Manager
[1] Foreign investors with Baptist Foundation of Arizona: Canada, 4; Hungary, 1; Mexico, 4; Singapore, 1; Taiwan, 3; Thailand, 1; Tunisia, 1; and United Kingdom, 1.
[2] Foreign investors in Greater Ministries International Church: Australia, 18; Bahamas, 78; Belize, 1; Bermuda, 5; Brazil, 1; Canada, 62; Cayman Islands, 3; Chile, 1; England, 12; Fiji, 2; France, 2; Guam, 1; Hong Kong, 1; Hungary, 2; India, 2; Israel, 2; Jamaica, 8; Japan, 1; Mexico, 3; New Zealand, 5; Norway, 1; Saudi Arabia, 1; Sierra Leone, 1; South Africa, 1; Virgin Islands, 1; and Zambia, 1.