Former pastor, sons charged with Ponzi scheme

Associated Baptist Press/August 24, 2009

Sullivan, Indiana - A former preacher and his three sons are behind bars and charged with stealing millions of dollars from Christians led to believe their investments were being used to build churches.

Vaughn Reeves, 65, and sons Chip, 44, Chris, 40, and Josh, 33, were arrested in June on felony charges of securities fraud. Authorities allege the four engaged in a multi-million dollar, faith-based affinity fraud through the use of a modified Ponzi scheme.

They are being held in a county jail in Sullivan, Ind., on $1.5 million bond. They face separate trials in October and November. If convicted they could face 80 years in prison.

Authorities say the men ran a company that loaned money for building projects and refinancing of mortgages to churches and other non-profit organizations with insufficient cash flow to borrow money from a bank.

Alanar, Inc., sold mortgage bonds to investors - often members of the church needing the loan - and loaned money to churches, usually to build a sanctuary. Investors were supposed to be paid back, with interest, after the church repaid the loan, but authorities allege the men instead shuffled the money through various accounts and kept about $6 million to buy sports cars, airplanes and build expensive homes for themselves.

"This case goes far beyond simple theft," Indiana Secretary of State Todd Rokita said in a statement. "The Reeves allegedly targeted their victims through their faith, and then exploited their religious convictions in order to hide their elaborate Ponzi scheme from potential investors."

Authorities say the scheme involved bond issues at about 300 churches of various denominations. They raised at least $120 million. Some investors entrusted their life's savings to the men, believing they were good Christians.

Bob and Theresa Moore said they invested $300,000 with Alanar in 2004 and felt it was a good investment because of the company's reputation and longevity. "They didn't seem fly-by-night," Theresa Moore told the Terre Haute, Ind., Tribune-Star.

Bob Moore described the investment, frozen when the Securities and Exchange Commission shut down Alanar in 2005, as "everything we had."

John Hay, a retired district superintendent in the Church of the Nazarene, said he invested about $200,000 in Alanar church bonds.

"I assumed church bonds were safe and secure," Hay, 71, told the Terre Haute paper in 2006. "I was sadly mistaken."

Bill Springer, who entrusted the money of his local Oddfellows Lodge to Alanar, said he was lucky. After becoming suspicious of the company, he got the bank to cash a check for $45,000 that bounced. Springer said when he talked to Vaughn Reeves about the investment, he tried to sell him more bonds rather than issue the check.

"It was like pulling eye teeth to get the money," Springer said.

According to court documents, Alanar created training materials for church members to use in selling bonds to fellow members. Urging them to fulfill their "Christian responsibility" to support church construction projects, church members were trained to open the sales call with a prayer, quote Bible passages during sales calls and "never sell the facts, sell warm stewardship and the Lord."

Along with hiding funds from investors, authorities allege that Alanar also cheated churches.

Howard Fauntroy III, pastor of First Baptist Institutional Church in Detroit, said he found a discrepancy in their mortgage. Instead of owing the $6 million mortgage that Alanar claimed, he said the church in fact owes $490,000.

First Baptist Institutional Church is trying to raise the money by Aug. 22 to avoid foreclosure, according to Detroit television station WDIV. Several churches are already in default because of bond issues.

The type of crime alleged against Reeves and his sons is called "affinity fraud" - an investment scam that preys on members of identifiable groups, such as religious or ethnic communities, the elderly or professional groups.

"Most people don't think they need to be suspicious of a family member, a neighbor, or a fellow church member," said Secretary of State Rokita. "But in cases of affinity fraud, the perpetrator is typically someone the victim knows and trusts, or someone with a common bond. With faith-based affinity fraud, the fraudster abuses the inherent trust that comes from sharing a set of beliefs and belonging to the same religious community.

Reeves and his sons have all pleaded not guilty. They acknowledge making "mistakes" but deny any criminal wrongdoing.

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