Avoiding Affinity Fraud: 10 Steps to Protect Your Ministry
By Robert Lovret, CPA, CIA
(Originally published as an article within ECCU’s former e-publication, Ministry Banking Today.)
Targeting members of their own religious affiliation, ethnic group, or nationality, con artists are taking advantage of their membership status to solicit investments in fraudulent schemes. Affinity fraud is so widespread; it’s included in the California Department of Corporations' top 10 listing of investment fraud scams.
Your ministry can avoid affinity fraud by implementing these practical steps:
1. Be cautious if an investment solicitor tries to capitalize on connections or leadership within your church or denomination. A common affinity fraud tactic is to lull a church into 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 uses later investors' money to pay earlier investors. These early investors are often unsuspecting—and enthusiastic—promoters of the scheme.
3. Adopt an investment policy. Include specific investment objectives, such as safety and liquidity, and the criteria for evaluating potential investments. (To learn more about liquidity, check out the ECCU white paper Liquidity: How Much Is Enough?) Your policy should also identify the investment types and level of risk that are acceptable to your ministry.
4. Always get an offer in writing. A legitimate investment promoter is always willing to provide a detailed summary outlining the nature of the investment, the risks involved, current financial statements, and procedures for getting your money out.
5. Make sure you understand the investment. You should be able to explain to anyone in your ministry how it works.
6. Don't rush into making an investment decision. If the solicitor is requiring you to make a hasty decision, the investment is likely a scam.
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 North American Securities Administrators Association website. Your local Better Business Bureau® may also have records of complaints about the promoter.
8. Think with your head and your heart. Promoters of religious affinity frauds frequently cloak their investments with the mantle of "good stewardship." Make the effort to verify any claims made by promoters regarding their giving.
9. Ask for professional advice from a neutral party. An accountant, attorney, or financial planner can help you thoroughly evaluate the investment opportunity. Be wary of any solicitor that discourages you from doing this.
10. If you’ve been the victim of an affinity fraud, don't give the swindler a break. Con artists recognize that the close-knit nature of churches make it less likely for a scam to be detected, and that victims will be more likely to forgive one of their own. Don't allow others to be victimized by letting a 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 that is said. Hold on to what is good" (1Thessalonians 5:21, NASB).
Robert Lovret, CPA, CIA, practices in Santa Ana, California. He can be reached via e-mail at email@example.com.