Trio of Ponzi schemes highlight the dangers of affinity fraud

Editor’s note: This segment originally aired in Nov. 2010

Not a day goes by that I don’t hear about another Ponzi scheme somewhere in America. The latest roundup includes busted schemes in Texas, California and Indiana.

In the Texas case, one particular scheme had been in operation for five years and stole $16 million from the elderly. The operator, who claimed investors would earn 10 percent each month, targeted elders who were observant Christians, telling them their money would be part of a ministry furthering God’s will.

In the California case, the operator was promising 60 percent annually among the Spanish-speaking community. This scheme netted $20 million and its operator may get 232 years in prison. And where did all the money go? It was used to buy a Lamborghini, a limo, a $3 million home and cocaine, among other things.

Finally, the Indiana-based Alanar Inc. promised an investment opportunity “where Christians would be investing in the work of other Christians.” But the operator allegedly stole $120 million from some 11,000 people. All of those people were promised the chance to make big money on church bonds. Instead, the operator bought a sports car, two airplanes, enjoyed luxurious vacations and more.

Two of these were church related, one was not. So what’s the common thread here? Affinity fraud. Affinity fraud can happen when you’re dealing with people who are “like you,” hence the name.

Human nature dictates that we let our guard down when we’re approached by someone of the same religion, race, profession, etc. We suspend the normal skepticism that we might have when hearing a pitch from a stranger.

So beware of any “can’t lose” opportunities you learn about from your fellow congregants, fellow professionals, fellow country club members or what have you.

Remember that when most saving accounts are only paying one percent annually on your money, there’s no way you’ll be able to safely and legally get 10 percent or more every month.