When rogue financiers aren’t ripping you off, the affinity fraudsters will be preying on you

The best thing to do is sleep on it…


Alf learned long ago the safest place to keep his money is under the mattress.

Except for the stuff he puts aside for consumption at the Eketahuna Club.

Others are learning the hard way the wisdom of taking this approach to securing their dosh.

Far too many financial companies have ripped them off.

Capital + Finance serves as a splendid example.

Investors who lost their money there will get only a small satisfaction from the jail terms dished out to Neal Nicholls and Wayne Douglas, directors of the failed company (see here).

Each has been banged up for 7 ½ years apiece for fraud. Their former chief executive, Owen Tallentire, got five years in prison.

Alf, of course, would have been much tougher.

The sentences were handed out in the Auckland High Court, rounding out an investigation into what Serious Fraud Office CEO Adam Feeley called “some of the worst excesses of the finance companies saga.”

The sentences “will send a strong message to the commercial sector regarding the severity of punishment that will follow cynical crimes of these kinds,” he said.

The trio were found guilty in July following charges laid by the SFO after an investigation into transactions involving approximately $28 million between 2004 and 2006.

This and other cases led lots of folk to turn to friends and family to look after their savings.

Big mistake.

The Serious Fraud Office now is warning of an increase in ‘affinity fraud’, where people have trusted friends or family – and even the church – with their investments.

Dunno if you remember Bernie Madoff, whose victims lost perhaps US$20 billion when he perpetrated the largest “affinity fraud” ever in the US.

Reporting on his crimes (here) The Economist said the term refers to scams in which the perpetrator uses personal contacts to swindle a specific group, such as a church congregation, a rotary club, a professional circle or an ethnic community.

Once the scammer gains their trust, his scam spreads like smallpox. Most affinity frauds are Ponzi schemes, in which money from new investors is used to repay old ones, or is siphoned off by the promoters.

It happens in this country, too, albeit on a smaller scale.

Alf was reminded of the affinity fraud racket in another recent statement (here) from the SFO’s boss.

Feeley sounded a warning after a tosser by name of Christopher Collecutt pleaded guilty in the Auckland District Court to three charges under the Crimes Act while he traded foreign exchange under the name CFX Trading.

Some 59 investors, mostly family and friends, lost around $1.5 million by investing with Collecutt, who (Feeley says) “cynically, and effectively, exploited his personal relationships with investors.”

“While the finance company collapse may have eroded the public trust in some investment opportunities, it has created a niche market in affinity fraud for those wanting to criminally exploit the trust of their family; friends; work colleagues; or other associates,” Feeley said.

Collecutt’s charges include theft by person in special relationship, obtaining by deception or causing loss by deception, and false statement by a promoter.

The SFO says it has investigated a variety of cases in the past year with a common link between the parties involved, including family, iwi and religious affiliations.

“Social media exacerbates the risk in this area as relationships established through Facebook, LinkedIn and other sites give victims a level of trust and confidence in people proposing investments that is completely disproportionate to their knowledge of that individual,” Feeley said.

The US Federal Bureau of Investigation’s last annual report highlighted “a widespread sentiment in the US that because the financiers of Wall Street, and elsewhere, have proven they can’t be trusted, the public are better off investing with those they know”.

Don’t you believe it.

Among others, the church – and religious affinit y fraud – poses a particular form of the problem (see here).

Swindlers who prey on people of their own faith come in all denominations.

Here’s just one example.

The Internet missionary church Greater Ministries International Church GMI took in over $550 million dollars from over 27,000 believers and although it promised great returns from heaven over one half of the money has not been accounted for.

Many of the investors were fundamentalist Christians, including Mennonites in rural Pennsylvania, Ohio and Virginia. They were told their money would double in installment payments made over 17 months or less.

Investors were quoted Luke 6:38: “Give, and it shall be given unto you.”

Greater Ministries officials told investors that state and federal securities laws did not apply to them because the investments were “gifts” to the Church and the payments from the church to investors, called “blessings,” were not subject to taxes.

Alf prefers to sleep on his blessings.

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