By Robert Lovret, CPA, CIA
members of their own religious affiliation, ethnic group or nationality,
affinity fraud con artists are taking advantage of their status as members of
the group to solicit investments in fraudulent schemes. Affinity fraud is so
widespread, it is included in the California Department of Corporations’ listing
of the top 10 investment fraud scams.
A recent example of affinity fraud is the Baptist Foundation of Arizona (BFA).
Targeting the Christian community, the BFA sold over $530 million in investments
to more than 130 churches and 13,000 individuals. Now in bankruptcy, the BFA is
under civil and criminal investigation by the State of Arizona, and investors
will likely lose a significant portion of their money.
Your church can avoid being caught up in affinity fraud by implementing these
1. Be cautious if the promoter of an investment opportunity tries to
capitalize on connections or leadership within your church or denomination.
A common affinity fraud tactic is to lull the church into a misplaced trust by
first selling to a few prominent members. Then, using their names, the con
artist pitches the scam to the church itself.
2. Be suspicious of returns that sound too good to be true. Early and
high returns on investments may be indicative of a “Ponzi” scheme,
which involves the use of later investors’ money to pay earlier investors. These
early investors often become unsuspecting–but enthusiastic–promoters of the
3. Adopt a church investment policy. Include in the policy specific
investment objectives, such as safety and liquidity, and the criteria to be used
in evaluating potential investments. The policy should identify the level of
investment risk your church is willing to take. It may identify particular types
of investments as acceptable and specifically exclude others.
4. Always get an offer in writing. A legitimate promoter is always
willing to provide detailed written materials that include the nature of the
investment, the risks involved, financial statements and the procedures for
getting your money out.
5. Make sure you understand the investment. You should be able to
explain to anyone in your congregation how it works.
6. Don’t rush into making an investment decision. If the promoter is
requiring you to make a hasty decision, it is likely that the investment is a
7. Check out the promoter and the investment through your state or
provincial securities regulation agency. You can find their address and
phone number in the government section of your phone book or on the Web page of
the North American Securities Administrators Association (www.nasaa.org).
Your local Better Business Bureau may also have records of complaints about the
8. Think with your head and your heart. Promoters of religious
affinity frauds frequently cloak the investments with the mantle of “good
stewardship.” Make the effort to verify any claims made by the promoters
regarding their giving.
9. Ask for professional advice from a neutral expert. An accountant,
attorney or financial planner can help you evaluate the investment. Be wary of
any promoter who discourages you from doing this.
10. If you have been the victim of an affinity fraud, don’t give a break
to a swindler who hides behind religion. Con artists recognize that the
close-knit nature of churches makes it less likely that a scam will be detected,
and that victims will be more likely to forgive one of their own. Don’t allow
others to be victimized by letting an investment con artist off the hook.
By exercising caution in all of your investments, you practice good
stewardship and protect your church. As Paul taught, “Test everything. Hold
on to the good” (1Thes5:21).
Robert Lovret, CPA, CIA, practices in Santa Ana, Calif. He can be reached
at (714) 750-3303 or via e-mail at [email protected]