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Thursday, September 16, 2010

Affinity Fraud: "Tears of a Temple Thief"


He has often heard victims say, "'I heard him in church cry when he expressed his beliefs.'"
But they were the tears of a Temple thief.
In an unusually insightful article on affinity fraud, John L. Smith in the Las Vegas Review-Journal entitled, "Thieves in the temple: How 'affinity fraud' hurts LDS church members" details how Church members are taken in by fraudsters. He interviewed several white-collar crime investigators who are Mormons themselves. This collection of quotes illustrates the approach fraudsters take in separating people from their money.

"He was a religious man, so he says, and he really put on the, 'I am just so guided by the spirit and I know I'm here to help you,'
Fraudsters commonly start veiled sales meetings with prayers, sometimes spending as much as 90 percent of a pitch discussing Scripture before turning to the business at hand: separating squares from their savings by promising them, for instance, up to 10 percent monthly returns on their "risk-free" investments. In one case, a law enforcement source reports watching a rain of tears flow from one fraudster's eyes as he described the profits investors might put to good use in their lives and their religion.
Not surprisingly, it is the extensive cohesive network structure of Mormons that aids them.

"Affinity fraud's really not a type of fraud," Utah Division of Securities Director Keith Woodwell says. "It's more a way to market your fraud. … Think of it more in terms of friends and family fraud."Adds Malpede, 


"Once they can get themselves into that [LDS] community, they have kind of a built-in marketing network already. In many communities throughout the country, you can live in a place for five years and know two or three of your neighbors. That's not the case in Utah.
Affinity fraud can be compounded by whether Church leaders are involved or even if they just give their tacit approval by allowing things to occur.

"no matter how outrageous the investment or the claims, if you have somebody that's a church leader that's involved, or just attend a seminar and make comments, they legitimize it."
The articles does point out that anyone of any faith or affiliation can be taken in by affinity fraud approaches but Mormons seem especially vulnerable. Instead of automatically trusting people, we should be cautious.

Anyone who carries his religion in one hand and an investment pitch in the other should generate suspicion, not confidence,
Former Bishop Shawn Merriman was sentenced this week. So was Frank Castaldi. They are linked by their crimes but not their religions. Merriman cheated his Mormon connections, Castaldi his Italian-American ones. Both ran Ponzi Schemes.

Affinity fraud is bad enough in Mormondom that top Church Leaders have taken steps to warn members against falling victim to it.

Suicide is often the concluding chapter to these sad tales.

"We have had a number of people who, once they realize they've lost their entire investment, have committed suicide," Malpede says. "That's not an uncommon event for us. 
"Some individuals commit suicide," he says. "For elderly people, there isn't another lifetime to make the money back. They've lost their dignity."

My Ph.D. dissertation covered the savings and loan disaster of the 1980s-90s amongst other things. Suicide was a common conclusion to many of those sad tales too.

What puzzled me so much was how the perpetrators of so much misery could defend themselves even after their crimes were totally exposed. Dr. W. Steve Albrecht finally gave the answer. People judge themselves by their intentions. We judge them by their actions.

(Dr. Albrecht is in accounting professor who specializes in ethics. This PowerPoint show is a source for this idea but I don't remember the original source.)

Merriman has lost everything now, his wife, children his Church membership, his possessions, his credibility, everything. So have his victims. Merriman has claimed he didn't have bad "intent." His "intent" makes little difference to his victims. His victims' "intent" in investing with him makes little difference now too.

I read multiple accounts of fraudsters in the S&L disaster claiming their intent was good. Nearly all of them protested their innocence and insisted they had done nothing wrong. This perplexed me until I think I finally made the connection. Think of a gambler who has lost everything at the gaming tables. If you pull him away from the table he won't thank you for it. Usually the response is, "If you hadn't stopped me I would have won it all back." They really believe it too.

Sadly, I think we will see more affinity fraud in the future. Human nature just doesn't change that much.

2 comments:

  1. Affinity fraud is used especially by the Republican Party to elect Members of Congress. Senator Elect Mike Lee was elected after someone posted a Youtube Video of LDS Church Founder, Joseph Smith Jr., morphing into Mike Lee. The music, "The Spirit of God Like a Fire is Burning" was playing in the background. Then Lee's campaign (or someone else) mailed each Republican delegate a campaign flying showing Mike Lee against a backdrop of the LDS Temple and current Senator Bob Bennett in front of the U.S. Capitol. Many Mormons voted for Lee, insisting that this was a sign from God that Bennett must go and Lee must be elected. The Republicans even choose a convicted gun felon to be a delegate and vote against Bennett.
    Now, this may not be financial fraud, but seriously, does anyone actually believe that God selects and calls our public leaders? To imply that God has chosen one candidate over the other is fraud, civic and spiritual fraud.
    Things will not change until the LDS Church begins to excommunicate those involved in both civic and financial fraud.

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  2. "Affinity fraud is used especially by the Republican Party to elect Members of Congress."

    I think it would be difficult to attribute affinity fraud wholly to one party or another. The parties are both made up of individuals who often act on their own individual initiative.

    "Senator Elect Mike Lee was elected after someone posted a Youtube Video of LDS Church Founder, Joseph Smith Jr., morphing into Mike Lee. The music, "The Spirit of God Like a Fire is Burning" was playing in the background."

    Because Mike Lee was elected after the YouTube was posted, you cannot automatically conclude that the one event caused the other.

    If the video is as you describe then clearly the intent of the video was to play on people’s emotions rather than their reason. I would agree that this is not a good approach. Reason should be engaged rather than emotion.

    "Then Lee's campaign (or someone else) mailed each Republican delegate a campaign flying showing Mike Lee against a backdrop of the LDS Temple and current Senator Bob Bennett in front of the U.S. Capitol. Many Mormons voted for Lee, insisting that this was a sign from God that Bennett must go and Lee must be elected."

    I won’t counter your assertion that the flyer was mailed to delegates. I don’t personally know. Right now, unintended effects of campaign finance laws make it possible for people to launch these type of attacks without disclosing who they are and who, or what, is financing them. Mormons are an educated lot and I find it hard to believe that most Mormons would take this as a sign from God.

    "The Republicans even choose a convicted gun felon to be a delegate and vote against Bennett."

    I don’t know who you are referring to. But, I’m dismayed that both parties seem to embrace people with questionable ethics and morals including Bill Clinton and Newt Gingrich amongst many others.

    "Now, this may not be financial fraud, but seriously, does anyone actually believe that God selects and calls our public leaders? To imply that God has chosen one candidate over the other is fraud, civic and spiritual fraud."

    God may choose some of them but it doesn’t automatically follow that He would tell political parties or particular individuals about his choices. It is presumptuous of people to presume they know the will of God especially concerning political candidates.

    "Things will not change until the LDS Church begins to excommunicate those involved in both civic and financial fraud."

    I don’t think the Church can police people on these issues, nor should it. Nor do I think excommunication would solve the problems you’ve highlighted. Civic education and becoming more informed voters would do a lot.

    However, I do think you are on to something by suggesting we ought to cast the net for “affinity fraud” a bit wider. Also, spiritual and civic fraud are intriguing ideas. I’ll give these issues some thought and may post on them in the future.

    Thanks for commenting.

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