Affinity Fraud (prey upon members of identifiable groups such as LDS)

The U.S. Securities and Exchange Commission defines affinity fraud as follows:

Affinity fraud refers to investment scams that prey upon members of identifiable groups, such as religious or ethnic communities, the elderly, or professional groups. The fraudsters who promote affinity scams frequently are — or pretend to be — members of the group. They often enlist respected community or religious leaders from within the group to spread the word about the scheme by convincing those people that a fraudulent investment is legitimate and worthwhile. Many times, those leaders become unwitting victims of the fraudster's ruse.

These scams exploit the trust and friendship that exist in groups of people who have something in common. Because of the tight-knit structure of many groups, it can be difficult for regulators or law enforcement officials to detect an affinity scam. Victims often fail to notify authorities or pursue their legal remedies, and instead try to work things out within the group. This is particularly true where the fraudsters have used respected community or religious leaders to convince others to join the investment.

Some members of The Church of Jesus Christ of Latter-day Saints, like members of other faiths and close-knit communities, have in the past fallen victim to this type of fraud. Sometimes the perpetrators are their fellow Church members. Members of The Church of Jesus Christ of Latter-day Saints are taught to be honest in their dealings with others, and those who are guilty of carrying out these scams can be given the most serious discipline the Church can impose, including excommunication. Because some dishonest individuals have used affinity fraud to prey upon members of their own faith groups, leaders of The Church of Jesus Christ of Latter-day Saints have warned Church members plainly and frequently to beware of these types of scams.

In February of 2008 the First Presidency of The Church of Jesus Christ of Latter-day Saints issued a letter to be read in all Mormon congregations in the United States and Canada, which stated:

Reports of fraud schemes and unwise investments prompt us to again counsel members with respect to prudence in managing one’s financial affairs.

We are concerned that some Church members ignore the oft-repeated direction to prepare and live within a budget, avoid consumer debt, and to save against a time of need. Consideration should also be given to investing wisely with responsible and established financial institutions. We are also concerned that there are those who use relationships of trust to promote risky or even fraudulent investment and business schemes.

While all investments carry an element of risk, that risk can be managed by following sound and proven financial principles: first, avoid unnecessary debt, especially consumer debt; second, before investing, seek advice from a qualified and licensed financial advisor; and third, be wise.

We encourage leaders to regularly teach and reemphasize these principles.

Additionally, Church leaders in other settings, including local congregations, have continually warned Church members over the years about the dangers of risky investments and fraud. The following are a few examples of statements from Church leaders on the subject in the past:

Joseph B. Wirthlin, “Earthly Debts, Heavenly Debts,” Ensign, May 2004, 40

From time to time, we hear stories of greed and selfishness that strike us with great sorrow. We hear of fraud, defaulting on loan commitments, financial deceptions, and bankruptcies. … We are a people of integrity. We believe in honoring our debts and being honest in our dealings with our fellow men.

Joseph B. Wirthlin, “Personal Integrity,” Ensign, May 1990, 30

Having received the Spirit of Christ to know good from evil, we should always choose the good. We need not be misled, even though fraud, deception, deceit, and duplicity often seem to be acceptable in our world. Lying, stealing, and cheating are commonplace. Integrity, a firm adherence to the highest moral and ethical standards, is essential to the life of a true Latter-day Saint.

M. Russell Ballard, “Keeping Life’s Demands in Balance,” Ensign, May 1987, 13

“There are no shortcuts to financial security. Do not trust your money to others without a thorough evaluation of any proposed investment. Our people have lost far too much money by trusting their assets to others. In my judgment, we will never have balance in our lives unless our finances are securely under control"

Dallin H. Oaks, “Brother’s Keeper,” Ensign, Nov. 1986, 20

The white-collar cousin of stealing is fraud, which gets its gain by lying about an essential fact in a transaction. Scheming promoters with glib tongues and ingratiating manners deceive their neighbors into investments the promoters know to be more speculative than they dare reveal. Difficulties of proof make fraud a hard crime to enforce. But the inadequacies of the laws of man provide no license for transgression under the laws of God. Though their method of thievery may be immune from correction in this life, sophisticated thieves in white shirts and ties will ultimately be seen and punished for what they are.”

Marvin J. Ashton, “Be of Good Cheer,” Ensign, May 1986, 66

Modern-day prophets have pled in plainness for us to avoid “get-rich-quick” schemes if we would avoid the heartaches of financial bondage. Perhaps we have not said enough about the fact that too many of us, in our moments of dreaming of grandeur, plant the seeds of economic disaster. Then at a later date when much is lost, we blame those who participated with us. It is difficult to be of good cheer when self-deceit is our companion. When we willingly expose ourselves to the winds and storms of fraud and scam, we should not be surprised when we come down with deficit disease. Over the years of listening to those who have suffered heavy money losses, I have heard many in desperation declare, “I was taken.” Often my heart, mind, and the Spirit have prompted me to share, “Yes, you were taken by yourself.” We all need to be encouraged to lift up our heads and see where our thoughts and undeclared priorities are taking us. Self-deceit permits us to blame others for our failures.

James E. Faust, “Integrity, the Mother of Many Virtues,” Ensign, May 1982, 47

The fruits of industry and thrift may appropriately be put into sound investments. A good solid investment can equal years of toil, and there is some risk in all we do. But investments that are highly speculative and promoted with unsound, vague promises of inordinate return should be viewed very carefully. The leaders of the Church have long warned against speculation. Brigham Young said, “If the Lord ever revealed anything to me, he has shown me that the Elders of Israel must let speculation alone and attend to the duties of their calling.

In our time President Nathan Eldon Tanner has said, “Investment debt should be fully secured so as not to encumber a family’s security. Don’t invest in speculative ventures. The spirit of speculation can become intoxicating. Many fortunes have been wiped out by the uncontrolled appetite to accumulate more and more. Let us learn from the sorrows of the past and avoid enslaving our time, energy, and general health to a gluttonous appetite to acquire increased material goods.”

Marvin J. Ashton, “This Is No Harm,” Ensign, May 1982, 9

A lie can be effectively communicated without words ever being spoken. Sometimes a nod of the head or silence can deceive. Recommending a questionable business investment, making a false entry in a ledger, devious use of flattery, or failure to divulge all pertinent facts are a few other ways to communicate the lie.

Avoid those who want immediate decisions or cash right now. All worthwhile investment opportunities can bear deliberation and scrutiny. We must get all the available facts and consider them well, and then make decisions that are in the best interest of all. When marginal cases and situations arise, personal integrity must be an important element in any decision. When right actions are not clearly evident, personal honesty will lead us to discern and reveal relevant points or facts of which others may not be aware. A person of integrity will assist others to be honest. A person of integrity will ask questions and give answers that are accurate. Integrity makes it possible for us to chart a course of righteous personal conduct long before the time for action arrives.

A wise person will not allow himself to be victimized by the unscrupulous because of false pride. Oftentimes people are swindled because false pride prevents them from asking questions and seeking additional information. For fear of embarrassment or being thought ignorant, a prospect ofttimes nods his head in the affirmative when he really doesn’t understand the glib salesman’s line of chatter. “What does that mean?” “What are the risks?” “What are the pitfalls?” “What is the history of the company?” “What references do you have?” are questions worthy of pursuit. When promoters carelessly use simple but elusive words such as “hedge,” “shelter,” “exempt,” “annuity,” “umbrella,” “tax free,” “insulated,” and “deferrable,” the buyer had better be aware.

If prudent decisions cannot be reached on the basis of one’s own expertise, advice should be sought from knowledgeable and trusted counselors. Offers that cannot wait or stand review are not worthy.

“Protecting Family Finances by Avoiding Fraud,” Ensign, June 2008

(See entire article at link above.)

These past warnings by leaders of The Church of Jesus Christ of Latter-day Saints have sent a clear message to members that the threat of affinity fraud is real. This admonition given by worldwide leaders of the Church is frequently repeated and reiterated at the local level both in congregational instruction and in counsel given to individuals and families by local lay leaders.

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