Articles Posted in Affinity Fraud

The US Securities and Exchange Commission (SEC) has filed fraud charges against two men claiming to be pastors of a church at a strip mall in Orange County, California. Kent R.E. Whitney and David Lee Parrish are accused of targeting members of their local Vietnamese community and defrauding investors of millions of dollars. The regulator has obtained an asset freeze in what it is calling a $25M Ponzi scam.

Whitney, who has a criminal fraud record, is the founder of The Church for the Healthy Self. The Commission said that he established the church three months after getting out of federal prison where he had been serving time for a different investment scam that had defrauded 10 investors of over $600K.

The regulator contends in its complaint that The Church for the Healthy Self’s investment program, called the CHS Trust, touted:

William Neil Gallagher, a Dallas area-based radio host based who calls himself the “Money Doctor,” is now facing securities fraud charges accusing him and his companies, Gallagher Financial Group and W. Neil Gallagher, PhD Agency, Inc., of seeking to defraud older investors of their retirement money in a $19.6M Texas-based Ponzi scam/affinity fraud. The US Securities and Exchange Commission (SEC) brought the civil fraud charges against them.

According to the SEC’s complaint, from 12/2014 through 1/2019, Gallagher, who is based in the Dallas/Fort Worth area, raised at least $19.6M (maybe even up to more than $29M) from about 60 elderly investors ranging in age from about 60 to the early 90’s. He allegedly did this through his companies in what the regulator is referring to as an “affinity fraud investment scam” that is also a Ponzi scheme.

Gallagher is accused of using his radio shows to target retired Christian investors, who were his radio audience, and to whom he ingratiated himself by often making religious references on his shows. He also allegedly urged radio listeners to call GFC to set up meetings, during which he would help them with their retirement plans and give them advice regarding how to make money without having to take on any risks.

Wyoming Investment Manager Indicted for Allegedly Bilking Retired Investor
Tyris D. Maxey has been indicted on multiple counts of wire fraud and he was arrested this week. Maxey, a Wyoming investment manager, owns RB Mister Enterprises LLC. He allegedly convinced a retired school teacher to give him about $950K to invest and then using almost all of the funds on his own expenses.

Meantime, any investments he made with the investor’s money experienced “heavy losses.” Funds that he gave to the investor, which he claimed were returns, were actually the same funds that the teacher had given him to invest.

Maxey pleaded not guilty to the criminal charges of financial fraud.

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According to a new study recently published in The Review of Financial Studies, the Bernie Madoff Ponzi Scam not only bilked over 10,000 investors of billions of dollars, but it also caused many in the investing public to stop trusting the financial industry. The study is called Trust Busting: The Effect of Fraud on Investor Behavior.

Researchers were able to track the impact of the Madoff fraud outside of the investors who were directly impacted because Madoff, who is Jewish, worked primarily with rich, older Jewish investors. Assistant Professor of Applied Economics and Management at Cornell Scott Yonker, who is a co-author of the study, describes the Madoff Ponzi Scam as an affinity scam in that it targeted investors who had similar backgrounds. That said, his victims included retail investors, wealthy investors, famous investors, celebrities, and various entities and financial funds.

The study found that once the Madoff Ponzi scheme became public knowledge, investors who either personally knew his victims or lived in the areas where his victims lived withdrew $363B from their financial advisers and placed their funds in banks instead—that’s almost 20 times more than the $17B that Madoff has been ordered to pay in restitution to his investors.

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Stephen J. Hatch, the mastermind of a $70M Arizona Ponzi scam, has been sentenced to five years in prison. Hatch, who pleaded guilty to fraud, targeted Christian investors, causing many of them to lose their life savings.

As part of his plea deal, the Texas man agreed to pay back $1M to investors. Meantime, prosecutors agreed to not file criminal charges against Hatch’s children.

Many of his victims were family members and friends. Hatch persuaded 110 investors to back various real estate properties by promising double digit returns on land deals.

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SEC Charges Man Accused of Running $10M Ponzi Scam
Mark Anderson Jones, whom the US Securities and Exchange Commission has charged with fraud, has been sentenced to 70 months in prison in a parallel criminal case. Jones pleaded guilty to running a $10M Ponzi scam.

According to the SEC, Jones solicited investors in a number of US states, as well as in Washington DC. He did this by issuing promissory notes, as well as providing personal guarantees to clients that were willing to invest in The Bridge Fund, which supposedly lent money to Jamaican businesses that were waiting to get commercial bank loans.

However, rather than investing their money the way he said he would, Jones used a portion of investors’ cash to pay his own expenses as well as make Ponzi payments.

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The US Securities and Exchange Commission filed fraud charges against Larry Holley, a pastor with the Abundant Life Ministries in Flint, Michigan. According to the regulator, the pastor used faith-based verbiage to solicit investments from his targets in what he led them to believe was a successful real estate business with hundreds of commercial and residential properties. The SEC’s affinity fraud complaint said that Holley’s scam raised about $6.7M from over 80 investors who were promised high returns.

Holley allegedly held “Blessed Life Conferences” that were actually financial presentations at churches across the US. During these gatherings, he would ask congregants to disclose their financial holdings on cards he gave them to fill out and he promised to “pray over the cards.” He is said to have called investors “millionaires in the making.”

The SEC’s complaint also claims that Holley’s business associate, Patricia Enright Gray, targeted recently laid-off auto works who were given severance packages and she offered to consult with them to help grow their finances. She purportedly promised to roll over their retirement funds into tax-advantaged IRAS and invest their money in Treasure Enterprise, which was Holley’s company. She advertised her services on a religious radio station in Flint.

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The U.S. Securities and Exchange Commission is suing Earl D. Miller for securities fraud. According to the regulator, the Indiana man bilked investors, many of whom were Amish and new to investing, through private investment vehicles 5 Star Capital LLC and 5 Star Commercial LLC.

The SEC says Miller began recruiting investors last year. The private investment entities he created were supposed to invest in real estate property and green products with patents that one of the companies owned. However, claims the regulator, no patents were actually owned. Instead, contends the agency, the money went to companies that were supposedly developing other products, including energy-efficient washing machines and a pedal-run wheelchair. The bulk of these investments quickly failed. Most of the funds were invested in loans and were supposed to result in interest payments every month. However, such payments only were issued for five months and then they stopped completely.

Miller marketed his investment services in Amish newspapers and in Amish community meetings. He gave investors promissory notes for their money. The notes came with a fixed 8-12%/year return rate, which is a lot higher than the rates for other fixed-return investments, including bank deposits. He also purportedly said he was not paid any money for managing the fund even though he allegedly took $1M for his own spending. At least 70 investors were bilked.
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The U.S. Securities and Exchange Commission is accusing Leroy Brown Jr. of Texas securities fraud. Brown, a U.S. army veteran, allegedly solicited ex- and current members of the military and others to invest with him and his firm LB Stocks and Trades Advice.

Among his purported wrongdoings are presenting his firm as SEC- and Financial Industry Regulatory Authority-registered, when it is neither, touting himself as holding all securities licenses, which he does not, and creating a bogus sense of success and legitimacy via numerous misrepresentations to get people to invest. Brown also allegedly persuaded investors to buy $1,000 membership certificates in the firm’s stocks to get involved in purported investments in undeveloped real estate that were purportedly “guaranteed” to double or even triple their money. Instead, said the SEC, he took investors’ funds and placed the cash in his own accounts. The Commission believes the Texas securities scam has gone on for about sixteen months.

Affinity Scams

The North American Securities Administrators Association has issued its yearly list of the top investor threats. The list is compiled through a poll of its member state securities administrators. With the enactment of Jumpstart Our Business Startups Act, which takes away the advertising restrictions when it comes to soliciting securities and other investments, now more than ever investors should be cautious.

The List:
Private Offerings (especially fraudulent private placement offerings, also known as Reg D/Rule 506 offerings): These are limited investment offers that are very liquid, poorly regulated, and have very little transparency. They are risky and might not be suitable for individual investors. Now, with the JOBS Act, these private placement offerings can be promoted to the general public, which means ads for them may be placed on billboards, social media, and other platforms even though not everyone who sees them is qualified to invest.

REITs: Real estate investment scams may involve new development projects or buying, or beleaguered properties. Non-traded real estate investment trusts that are owned by banks or waiting for foreclosure or short-sale can be problematic for customers, as can investment funds purportedly tied to interest in real property that has no equity and is very leveraged.

Ponzi Scams and High-Yield Investments: High-yield typically translates to greater risk. This type of investment program and Ponzi scams promise great returns and low risk while justifying why the opportunity is so great. Financial fraudsters will typically tout bogus credentials or belong to a certain organization or group and early investors get a return as they market to new investors. Such financial scams eventually collapse.

Affinity Fraud: This type of financial fraud targets members of a particular organization or group. Often, the fraudster is trusted because of the shared affiliation (ie. age demographic, membership, alma mater, ethnicity, religion, etc.)

Self-Directed IRAs Used to Cover up Fraud: Self-directed individual retirement accounts, which are typically safe investments, can be used to conceal a financial scam. Fraudsters may claim that the custodian of an account has more obligations than actual to investors, causing the latter to wrongly believe that their investments are protected from loss and/or legitimate.

High Risk Oil and Gas Drilling Programs: Energy investments that for some investors are becoming a preference over traditional bonds, stock, and mutual funds. They are very risky and really only appropriate for investors that can take huge losses. Unfortunately, some promoters will hide these risks and pressure customers to invest.

Proxy Trading Accounts: This can involve allowing individuals who say that they are experienced traders to manage or set up a trading account for you. It is not recommended for investors to let unlicensed persons have access to your brokerage account information or set up an account for you. Anyone who manages such an account for an investor should be properly registered and have a clean record.

Digital Currency: Virtual money such as PP Coin, Bitcoin, and others. Such coinage isn’t backed by tangible assets, not subject to a lot of regulation, and not government issued. Digital currencies’ value can be very volatile.

NASAA’s Top Investor Threats, North American Securities Administrators Association
Securities and Exchange Commission

Financial Industry Regulatory Authority

More Blog Posts:
SEC Looking to Simplify Disclosure Rules to Minimize “Information Overload” for Investors, Stockbroker Fraud Blog, October 16, 2013

Puerto Rican Bond Crisis Places Oppenheimer Funds at Risk, Institutional Investor Securities Blog, October 15, 2013
Detroit Becomes Largest US City to File Bankruptcy Protection, Institutional Investor Securities Blog, July 18, 2013 Continue Reading ›

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