Affinity scammers bilk the faithful in the name of Greed
By Laura Bruce • Bankrate.com

It was the perfect fit.

Forrest Bomar was tired of the ups and downs of the stock market. His investment account with Salomon Smith Barney was doing well, but Bomar was 68 years old. He and his wife wanted fixed income investments so they'd be sure not to lose any retirement money in a volatile stock market.

Almost like magic, a solution arose. An attorney, drawing up a trust for the Bomars, mentioned the Baptist Foundation of Arizona -- a nonprofit organization founded in 1948 to raise money for the Southern Baptist Convention.

The BFA was offering fixed investments at good interest rates.

"We thought here's the best of two worlds," says Bomar, a Baptist. "A good fixed rate and our money would be used for Christian things."

That was 1996. Bomar and his wife Lee, who both retired from AT&T, began rolling over their IRAs into BFA investments.

It was a mistake.

The Bomars were victims of what investigators describe as an affinity scam. These frauds target people who have a similar interest.

In this case it was a Baptist organization urging Baptists to invest in Baptist causes. Affinity scams also target union members, people of the same ethnic background, etc. But religion-based affinity scams are the biggest.

Federal officials say over the past three years religion-based scams have swindled at least 90,000 victims for a total of $2.2 billion.

The Bomars' account manager at Salomon Smith Barney cautioned them about investing with an organization that wasn't a professional, registered investment business, but admitted he couldn't match the rates BFA was promising.

Falling to temptation
Bomar deeply regrets not taking the account manager's advice.

"Oh, how I wish I'd listened to him. It was a blind leap of faith. I had no reason to suspect what those people were doing. BFA had not failed to pay back investors in their 50 years of existence."

By 1998 the Bomars had rolled over all of their IRA money -- $235,000 -- into BFA investments. It was money that represented 65 years of hard work by Lee and Forrest Bomar.

The money is gone. Forrest Bomar is now 73 years old. He and his wife will have to rely on small pensions, Social Security and whatever the lawyers can squeeze out of BFA assets that are being liquidated through bankruptcy proceedings.

BFA, headquartered in Phoenix, Ariz., appears to have been a legitimate operation for part of its existence. To raise money for Southern Baptist causes, such as building churches, it invested heavily in the Arizona real estate market.

Investigators say, when property values tanked in the late 1980s, BFA officials tried to keep a good thing going and looked for a way to cover their losses. They began a massive campaign to line up new investors -- mostly fellow Baptists who thought their money would be safe and would benefit Baptist causes.

BFA sold different types of investments, some, supposedly, backed by collateral. According to investigators, investors were told the accounts paid interest greater than most banks. In fact, BFA stayed in business by getting new investors to help meet its financial obligations -- a classic Ponzi scheme.

In August 1999, Arizona officials ordered BFA to stop selling investments. A short time later BFA declared bankruptcy. Investigators say 13,000 investors were swindled out of $550 million dollars during the scam, which lasted about 10 years.

Deborah Bortner, president of the Washington, D.C.-based North American Securities Administrators Association, says because of their nature, affinity scams can go on for years.

"Church members are the most likely victims of an affinity scam. They get together quite often, and there's a high level of trust. Because of that trust, there's sometimes a tendency to not fully investigate the investment before putting money into it.

"Some scams aren't discovered because people decide their connection with God and the people in their parish, church or synagogue are more important than reporting to authorities.'

Under cover of darkness
Deeann Griebel, a certified public accountant in Mesa, Ariz., says the BFA scam had more than affinity going for it -- she says it was able to go on for so long because one of the country's top accounting firms kept giving BFA a clean bill of health.

Chicago-headquartered accounting firm Arthur Andersen had been the BFA's independent auditor since 1984. Arizona officials say Arthur Andersen committed fraud by issuing "clean" audit opinions on BFA's financial statements even after receiving notice that senior management at BFA was perpetrating a financial fraud upon investors.

The Arizona State Board of Accountancy is suing Arthur Andersen for $600 million in restitution for BFA victims.

Officials from the firm did not return repeated calls for comment.

Griebel, who isn't associated with Arthur Andersen, alerted the firm to problems with BFA's financial statements in August 1998. She was checking into BFA for an investor when she noticed BFA had major financial problems.

"I called Arthur Andersen, told them BFA was bankrupt and they needed to pull their audit. I called the local branch two or three times and their Chicago headquarters once," Griebel says.

"They never returned my calls. The reason this scheme didn't collapse was because of the blanket of snow Arthur Andersen was providing for them."

Griebel says it's easy to see how investors believed their money was safe.

"BFA would say, 'We have one of the largest CPA firms in the world auditing us. They've given us a clean bill of health.'"

Five of BFA's key officials have been indicted on charges of fraud, theft and illegally conducting an enterprise. Three people who represented BFA or one of its subsidiaries have pleaded guilty to felony charges and will testify for the prosecution.

Joseph Borg, director of the Alabama Securities Commission, investigated another affinity scam that targeted church members.

Tampa, Fla.-based Greater Ministries International was a massive pyramid scheme that bilked some 23,000 people, in almost every state and more than a dozen countries, out of about $570 million. Five of the church's leaders have been convicted on federal conspiracy and fraud charges.

Borg calls these religion-based affinity schemes "pennies on earth and credit in heaven.

"Affinity scams are very popular. When the stock market is out of favor and interest rates are low, people look for better investments," Borg says. "Along comes a faith-based, guaranteed, God's plan for Christians. It appears to be a good investment -- with the blessings of the church.

Beware the forked-tongue sales pitch
"Most pitches by affinity groups are two-pronged -- you can make a profit and you can do good in the world, helping food banks, building churches, alcohol and drug rehabilitation.

"It only takes a few people to scam millions. The same names pop up time and time again."

The effect on victims is devastating -- financially, emotionally, and even physically.

"My blood pressure went up, I have insomnia and I went into a deep, deep depression from which I haven't fully recovered," says Forrest Bomar.

"I grew up in the Depression. I was taught to save, save, save for a rainy day. I did that, and now it's gone."

Don't get taken by scammers. The U.S. Securities and Exchange Commission and the North American Securities Administrators Association have tips to help investors steer clear of affinity scams -- or any financial scam, for that matter.

• Are the seller and the investment registered and licensed in your state? Call your state securities regulator to find out. If they are not, they might be operating illegally. To get the name and number of your state securities regulators, visit North American Securities Administrators Association.
• Check out everything, no matter how trustworthy the person is who brings the investment to your attention. Never make an investment based solely on the recommendation of a member of an organization, or religious or ethnic group to which you belong. Investigate the investment thoroughly, and check the truth of every statement you are told about the investment. Be aware that the person telling you about the investment may have been fooled into believing that the investment is legitimate when it is not.
• Do not fall for investments that promise spectacular profits or "guaranteed" returns. If an investment seems too good to be true, it probably is. Be extremely leery of any investment that is represented to have no risks; very few investments are risk-free. Generally, the greater the potential return an investment offers, the greater the risks of losing money on the investment.
• Be skeptical of any investment that isn't fully documented in writing. You should also be suspicious if you are told to keep the investment opportunity confidential.
• Don't be pressured or rushed into buying an investment before you have a chance to think about -- or investigate -- the "opportunity." Just because someone you know made money, or claims to have made money, doesn't mean you will too. Watch out for investments that are pitched as "once-in-a-lifetime" opportunities, especially when the promoter bases the recommendation on "inside" or confidential information.

-- Posted: Aug. 8, 2001