Religion-based scams take Lord's name in gain

In her church, trust among members was a given.

South Florida Sun - Sentinel/January 26, 2003
By Jenni Bergal

So when Elizabeth Morgan came into a large chunk of money from her late husband's life insurance policy and a malpractice settlement from his unexpected death, she felt comfortable putting it in the hands of a Jehovah's Witnesses elder to invest in real estate.

She bought $764,000 worth of promissory notes from Raymond L. Knowles, a financial consultant and former missionary whom she'd known for many years from the congregation. Knowles assured her that her investment would be safe and that she'd get a high interest rate, Morgan said.

For two years, she received monthly interest checks. But then the checks started coming late, and finally, not at all. Morgan pleaded with Knowles to get her investment back, but it never happened.

Federal officials say Morgan was a victim of one of the most popular types of white-collar crime in recent years: religious affinity fraud.

These investment scams exploit the trust, friendship and tight- knit structure of people in religious groups, regulators say. The perpetrators often are members or claim to be members or enlist respected leaders to spread the word about a financial deal.

"I lost everything," said Morgan, 55, of Lauderdale Lakes. "That was money I had to live off for the rest of my life. I was forced to sell my house and declare bankruptcy."

In October, a federal jury found Knowles guilty on 16 criminal counts of mail fraud, four of wire fraud and four of securities fraud in a promissory note scheme in which prosecutors say he ripped off at least $2 million from Morgan and more than 50 other Jehovah's Witness members, many of them elderly or disabled. His sentencing is scheduled for later this month.

"The theme in these types of cases is that the perpetrators make faith in God synonymous with faith in their investment plan, and you can't separate the two," said Joseph Borg, director of the Alabama Securities Commission and past president of the North American Securities Administrators Association. "Religious affinity fraud is a huge problem, and it's phenomenal what's been occurring all over the country."

Among the cases:

In Philadelphia, the Securities and Exchange Commission filed a civil fraud suit in November against a Georgia businessman and two of his companies, alleging they had raised at least $3 million from more than 1,000 small, mostly black churches nationwide, including more than two dozen in South Florida. Pastors were promised a return of $500,000 for every $3,000 they invested, SEC officials say. The money was supposed to have been invested in a chain of Christian- themed vacation resorts, which were never built.

In Tampa, the founder of Greater Ministries International Church, his wife and three others were found guilty of conspiracy, money laundering and wire fraud in a $448 million financial scam. They used Bible verses to persuade thousands of people to invest in the belief that God would double their money. The church promised big returns from investments in foreign currency and gold and diamond mines. In 2001, the founder was sentenced to 27 years in prison.

In Phoenix, five former executives of the Baptist Foundation of Arizona were indicted on fraud, racketeering and theft charges after state investigators alleged it had raised $570 million from thousands of Baptist investors across the nation in a "Ponzi" scheme, in which money from new investors is used to pay off old ones. Investors who bought securities from the foundation were attracted by high rates of return and told their profits would be spent on church activities. Instead, investigators said the foundation allegedly hid losses and misrepresented its financial condition. The foundation declared bankruptcy and shut down in 1999.

In Boston, the SEC filed civil fraud charges against two companies and four men who allegedly raised $22 million in a securities scam aimed at members of the Christian Science Church. Regulators said they promoted bogus investments in an international trading program that did not exist, and told investors they would earn profits of 48 to 60 percent a year. A federal judge ordered two of the men to pay a $30 million judgment and penalties after they failed to respond to the SEC's complaint.

"These are all people who use a criminal enterprise to commit fraud and tack on religion as a cover," securities director Borg said.

Abuse of the Trust

Regulators say religious affinity fraud is particularly abhorrent because scam artists use people's faith to prey upon them.

"They're promising those beliefs will be furthered by the investment. They often quote from the Bible and promise parishioners that their money will be spent to further the Lord's work," said Susan Wyderko, the SEC's director of investor education in Washington, D.C.

Some officials say the stock market collapse and the Sept. 11 terrorist attacks might have made religious affinity fraud more popular than ever.

"With the down markets and no one able to make money and people worrying about terrorism and war, many people turn to religion, and the scam artists know that," Borg said. "They dust off the old Ponzi schemes."

Scammers need only to persuade a few influential people to trust them and their investment, regulators say. Often they rely on word- of-mouth or recruit a religious leader or member of a church, who promotes the investment, usually unaware that it's fraudulent.

Morgan said she believed in Knowles because he had been a longtime elder and was well known nationally among Jehovah's Witnesses, especially for his work as a missionary in Africa and a speaker at district conventions.

Federal prosecutors say that between 1993 and 2000, Knowles and his company, All Diversified Financial Services Inc. of Opa-Locka and Pembroke Pines, defrauded investors by issuing risky promissory notes. The company invested in dilapidated properties, which it bought at foreclosure sales and resold or rented. Knowles told investors their money was safe, when, in fact, the company was in debt, according to prosecutors.

Prosecutors said he was running a classic Ponzi scheme and used some of the investors' money to lease two vehicles for himself and his wife and to pay business, personal and other unrelated expenses.

Attorney Miguel Caridad, a federal public defender who represents Knowles, said his client did not want to comment but has denied the charges. "He believes he's innocent, and we're going to appeal," Caridad said.

'We Were Destroyed'

Jeanette Howison, another of Knowles' victims, says she doesn't believe any of Knowles' claims or protests anymore.

She and her husband, William, both of Hialeah, say they knew and trusted Knowles completely.

When William Howison, a maintenance worker for Miami-Dade County, received a work-related settlement after suffering heat stroke on the job, the couple turned to Knowles for financial advice.

"We were scared silly of stock markets because of the risks we heard about," said Jeanette Howison, 72.

Knowles persuaded them to sign over $70,000 in promissory notes, explaining that he would be investing the money in real estate and it would be perfectly safe, the Howisons said. They ended up losing $55,000.

"We were destroyed financially," Jeanette Howison said. "This was our nest egg."

Her husband, 76, said he suffered from serious depression after their money disappeared. "It's a terrible thing that he used the church," he said.

Not all religious affinity frauds rely on reputation or word-of- mouth, however. Some find investors through the Internet, often appealing to sites popular with religious groups.

"The Internet is a fabulous way for fraudsters to reach a lot of people quickly," said the SEC's Wyderko.

Tangled Web

In South Florida last fall, one man pleaded guilty to conspiracy and wire fraud and another to conspiracy in a scheme in which their Internet service provider, Families On Line, raised more than $3.7 million from hundreds of investors, some of them fundamentalist Christians, by selling shares of stock through an unregistered securities offering. The men, both from Fort Lauderdale, are awaiting sentencing.

Federal officials said the company billed itself as a moral and safe alternative to the uncensored Internet for parents, religious organizations and schools. It offered subscribers "filtered" access to the Internet that would remove content involving sex, violence or gambling.

Mark Cecil Thurman, the chief executive officer, and Robert Fiene, the chief operating officer, used false information to raise money from investors, such as claiming their company was affiliated with Trinity Broadcasting Network, a Christian broadcast ministry, and providing a phony letter of support from the network's president, federal officials said.

The company also distributed a prospectus that projected a first- year subscriber base of 2.5 million people, when, in fact, it never exceeded 150 users.

Prosecutors say the men allegedly withdrew at least $1.6 million in investor funds for their own use, which included a $40,000 custom- designed motorcycle, a Hawaiian vacation, a BMW, jewelry and adult novelty items.

Thurman's attorney, Irwin G. Lichter, of Miami, said neither he nor his client wanted to comment. Fiene's attorney, Hampton Peterson, of Fort Lauderdale, could not be reached for comment, despite several phone messages left at his office.

For the victims of Families On Line and Raymond Knowles, the sentencing hearings won't be soon enough.

Jeanette Howison said she hopes to speak directly to Knowles at his hearing, scheduled for Jan. 31.

She plans to start by saying: "All of us trusted you as a brother, spiritual shepherd and one who would die for his sheep, not fleece them."