American Greed

Religious-based financial fraud is rampant. Here's how to fight it

Beware of false prophets offering insider investment deals
Beware of false prophets offering insider investment deals
Beware of false prophets offering insider investment deals
Beware of false prophets offering insider investment deals

Of all the ways scammers can steal your money, experts agree the most difficult frauds to combat are the ones that seek to turn your own faith against you.

Law enforcement officials call them affinity frauds — targeting victims through a common bond, most often religion. While nationwide statistics are hard to come by because the scams are so widespread, it's fair to say that affinity fraud losses run into the billions of dollars per year.

"People want to trust," Jenice Malecki, a New York securities lawyer who specializes in affinity fraud cases, said in an interview with CNBC's "American Greed." "Especially in affinity situations, where people feel more comfortable for one reason or another, be it a church or an ethnic community, they tend to not look as hard as they should at what's in front of them."

Few were better at targeting people of faith than Ephren Taylor, who fleeced some $16 million from members of church flocks in 43 states by preaching so-called "prosperity gospel."

"Biblical principles (are) investing wisely, responsibly, and for the purpose of furthering the kingdom. But also, God wants us to be prosperous," said Anita Dorio, who, along with her husband, Gary, heard Taylor's pitch at the giant Lakewood Church in Houston.

The Dorios invested their life's savings of $1.3 million with Taylor, who professed to be a self-made multimillionaire, having created a video game as a teenager. Appearing at churches across the country, often at the behest of the pastor, Taylor sold promissory notes that he claimed were backed by socially responsible ventures like small businesses and affordable housing projects.

But it was all a Ponzi scheme. The Dorios and hundreds of other investors lost everything. Taylor is serving a 19-year federal prison sentence after pleading guilty to a single count of fraud.

"So many people were just devastated by this," Gary Dorio told "American Greed." "Families destroyed, dreams destroyed."

Holy war

Affinity frauds persist despite a widespread crackdown in recent years that intensified after Bernard Madoff's epic Ponzi scheme blew up nearly a decade ago. Madoff's fraud, in which investors lost nearly $20 billion, focused on the Jewish communities in New York and Florida.

The FBI says it is investigating $2 billion worth of affinity fraud in Utah alone, where an estimated 60 percent of the population belongs to the Mormon church. The church itself has issued warnings to the faithful, the Utah Legislature has increased penalties for financial fraud and the state attorney general is making it easier for residents to check out prospective investment advisors and business partners.

The Utah White Collar Crime Offender Registry, a first-of-its kind program launched by the attorney general's office in 2016, is a searchable database of people convicted of a range of financial crimes in the previous 10 years. Just enter the person's name, and if he or she is in the registry, you will find the nature of the offense, and when and where it occurred. You will even get a picture of the offender.

For now, the registry lists only Utah offenders convicted of state crimes. Officials there say it could be a model nationwide.

"I think any time you can give investors more information, that is a very good idea," Malecki said.

Experts agree that government efforts like the registry, stepped up enforcement and investor education programs are important weapons in the fight against affinity fraud. But investors themselves need to take up arms as well.

Articles of faith

Affinity scams are so powerful because they harness the same thing that draws us to religion — faith. Malecki says one of the keys to not being taken in by a religious-based affinity fraud is to separate your faith in a higher power from your faith in an investment advisor who shows up at your place of worship.

"First of all, you have to ask yourself, 'Why am I being solicited to invest by someone whom I have a different type of relationship with,'" she said. "If you're getting information about investments at a church, that should be the first red flag that something isn't right."

But if you are still considering an investment pitch that comes through your place of worship, be at least as skeptical as you would be of a pitch you got someplace else.

"What are this person or these people's credentials to actually make this investment successful?" Malecki said. "I always tell my clients, 'You're a squirrel in the woods with your nuts, and if you don't keep them close to you someone will take them.'"

Just as you would for any investment advisor, run the person's name through the proper database to check them out. While the Utah registry only includes those convicted of state crimes, investors elsewhere can use the Financial Industry Regulatory Authority (FINRA)'s Broker Check to learn a broker's employment and disciplinary history. In addition, the Securities and Exchange Commission's Investment Advisor Public Disclosure site will search federal and state registrations to help determine if the advisor you are considering is legitimate. Do not forget to search the advisor's firm as well.

"Those brokerage firms, especially the large ones, will likely be there, and you can actually do due diligence on the broker dealers as well," Malecki said. "Are they small companies and underfunded?"

If your prospective advisor or their firm does not come up in your search, that could be a warning sign as well.

"You shouldn't be in a faith-based belief system institution getting investment advice about hard dollars that you've earned your whole life," Malecki said.

Wise teachings

Another reason affinity fraud is so hard to beat is that, like any predator, an affinity fraudster targets the weakest of the flock — those who are the most trusting, and in many cases, the most naive. The best defense is knowledge.

"People need to be more educated about Ponzi schemes and affinity fraud," Malecki said. "The problem is that most people who are victims to a Ponzi scheme or affinity fraud generally realize that after the fact."

That means understanding the investment you are considering. How does it work? What are the risks? Seek out independent advice. Consult your family, and run the investment past independent professionals.

"Do your own homework and due diligence on the investments. Seek out the advice of your accountant. Look for a securities lawyer," Malecki said. "A penny upfront will save you a pound on the back end."

Florida attorney Cathy Lerman, who represented victims of Taylor's scam, says churches bear some responsibility as well.

"I believe all churches should have a tenet that says, 'We do not allow any type of investment advisors or sponsors to speak in our pulpit or to make presentations to our flock,'" she told "American Greed." If we had that, this religious affinity fraud would stop."

See how ungodly scammer Ephren Taylor fleeces the flocks, and how his devilish scam finally blows up. Watch an ALL NEW episode of "American Greed", Monday, Sept. 10 at 10 pm ET/PT only on CNBC.