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Faith-based fraud

Charity | Indiana increases penalties for con artists who use religion to target victims

Issue: "Africa, Inc.," Oct. 10, 2009

When church leaders want to raise money for building programs, they often turn to companies like Indiana-based Alanar, which trains these leaders to sell bonds to fellow church members. In Alanar's training is advice to open meetings with prayer, quote Scripture during the sales call, and "never sell the facts, sell warm stewardship and the Lord."

For Alanar, the plan worked. Thousands of investors-mostly church members thinking they were supporting church programs-forked over at least $120 million to the company. The only problem: Alanar was allegedly an elaborate-and illegal-Ponzi scheme. That's what Huntington County (Ind.) prosecutor Robert Hunley II says. He filed 10 separate felony charges against the leaders of Alanar, former pastor Vaughn Reeves and his sons, Chip, Chris, and Josh. The charges accuse the Reeveses of diverting at least $6 million for personal use.

"This is a day a long time in the making," Hunley said in a prepared statement when charges were filed on June 30. "I'm glad to hold Vaughn Reeves and his sons accountable. People trusted their life savings to these men. Investors felt they were helping to build churches, not buy the Reeves[es] expensive homes, fancy cars, airplanes and swimming pools." A Nov. 6 hearing will determine whether the statute of limitations for the charges has expired.

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No one knows how much of what Indiana Secretary of State Todd Rokita calls "faith-based fraud" takes place each year. Much of it goes undetected because victims are embarrassed to come forward. And organizations involved in the fraud can often operate for years before being detected. Indiana officials believe that Alanar operated at least five years before charges were brought against the Reeveses. The investigation that resulted in the charges took a year and a half and involved the IRS, the FBI, the Securities and Exchange Commission, and local and state officials. According to Hunley, "These cases are often hard to find, and difficult to investigate."

But Bob Webster of the North American Securities Administrators Association said the amount of faith-based fraud could easily be in the hundreds of millions annually. It has gotten so bad that Indiana has passed a first-in-the-nation law that increases the penalty for fraud that involves seniors or religious affiliation. Such crimes are now Class B felonies there, with minimum penalties of at least three years in prison. The law went into effect on July 1, and according to Webster, other states are likely to follow suit.

Jim Gavin, a spokesman for the Indiana Secretary of State's office, told WORLD, "The damage to individuals and communities is just devastating. Not only is there financial damage, but the emotional damage, what they've done to churches and communities, is very troubling." In the Alanar case alone, "thousands of investors" lost money.

Indiana has also launched an aggressive investor education program. Among the tips offered: high pressure tactics and a lack of documentation are sure signs of trouble. "Even if you're dealing with someone you know from church," Gavin said, "do the same kind of research you would do with someone you don't know."

The investors who invested in the Alanar bonds wish they had gotten that advice sooner. Some of those investors were present at the courthouse when the charges were announced against the Reeveses, offering boisterous applause.

An old con game

What is a Ponzi scheme? In the simplest terms, it's "robbing Peter to pay Paul." Victims are promised tantalizing returns on investment or-in the case of schemes involving church bonds-promised their money will do good things, such as build churches. When the early investors ask for their money back, they are often paid back with money from later investors.

Ponzi schemes are named after Charles Ponzi, an Italian immigrant with big dreams. His first victims were fellow countrymen from the Italian-American community, thus beginning a tradition of exploiting common cultural and religious ties. But one thing about Ponzi schemes: They can't last. Ponzi became a celebrity in post-World War I America, was jailed twice, was deported back to Italy, and ended up fleeing to Brazil. Among his last words: "I guess the only news that most people want to hear about me is my death." They got that news in 1949, when Ponzi died in a charity hospital in Rio de Janeiro.

Warren Cole Smith
Warren Cole Smith

Warren, who lives in Charlotte, N.C., is vice president of WORLD News Group and the host of the radio program Listening In. Follow Warren on Twitter @WarrenColeSmith.

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