Today, the Washington Post published a story detailing an alleged Ponzi scheme that targeted Mormons. (It’s worth noting that one of the alleged fraudsters—the one who seems to have thought up the scheme—was not Mormon. The rest? Yep. Mormon.) Ultimately, Mormons and others lost hundreds of millions of dollars.
Avoid Blaming the Victims
Before I go any further, I want to make something clear. Because I’ve been on the internet long enough to know that people are already formulating comments painting the victims of this fraud as greedy or as overly naive. Both reactions, while appealing, are wrong. The victims of this Ponzi scheme were, in fact, victims of people committing fraud. Blaming the victim of a crime for their victimhood is psychologically natural. But natural doesn’t mean right, morally or substantively. And blaming crime victims is neither right nor moral.
But also, both accusations miss the mark. Were the victims naive? Maybe. But remember Bernie Madoff? His investors/victims included banks, investment funds, charitable foundations, universities, pension funds, and plenty of other sophisticated people and entities. So dismissing victims as simpletons and naïfs doesn’t work.
As for greed: look, very few Americans have access to defined benefit retirement plans. While 67% of private industry workers have access to some sort of retirement plan, only about 15% have access to defined benefit plans (and those are mostly union members). The rest have defined contribution plans. Basically that means that most Americans (or, at least, most Americans who manage to save for retirement) bear the burden of figuring out how much they need to live on in retirement, then to invest in a way that will provide them with that money. The thing is, most Americans—those of us who need to somehow create and maintain and grow our savings to buy a house, to send kids to college and on missions, to retire—are financially illiterate.
Which is to say, I find it hard to blame victims of financial fraud for falling for it. Victims know they need to grow their money, they don’t really know how to do it, then someone comes to them and tells them they can get enormous returns with no risk. And what do we expect them to do?
What’s a Ponzi Scheme Anyway?
The SEC claims that Matthew Beasley and his Mormon business partner Jeffrey Judd operated a Ponzi scheme that preyed on Mormons. But let’s unpack that.
What is a Ponzi scheme? Also popularly known as a “pyramid scheme,” a Ponzi scheme is an alleged investment that pays earlier investors with money from later investors. (This is in contrast to legitimate investments, which pay investors out of the earnings and profits of the investment.) A Ponzi scheme works great. Until it doesn’t. At some point, the promoters won’t be able to get any more investors, won’t bring in any more money, and the whole thing collapses. People who haven’t been paid yet won’t be paid, because their money went to pay earlier investors.
Ponzi schemes can be part of a class of fraud called affinity fraud. Basically, affinity fraud target identifiable groups (based on age, national origin, religion, or other identifiable characteristics). The fraudsters are part of the group or pretend to be part of the group, and use the networks and trust that have been developed within the group. Mormons are a great target for affinity fraud, because our shared values tend to translate into trust in each other, and we have networks that allow the fraud to spread.
What Was This Particular Fraud?
As best as I can tell, it was basically a litigation finance scheme. The idea was that investors would invest their money with Beasley and Judd. The two of them claimed that they would give the money to personal injury plaintiffs to help fund their litigation. When the personal injury plaintiff eventually won their suit, the investment fund would get a percentage of the judgment. That money would then go to investors.
Beasley and Judd allegedly promised 50% annual returns on investment with virtually no risk. If that were right, if an investor put in $10,000, they’d get a $5,000 a year (and, presumably, if they reinvested that $5,000, their gains would compound). But, the SEC asserts, they never actually gave the $10,000 to a slip-and-fall litigant. Instead, the money went into houses and cars and other things for Beasely and Judd, as well as to pay the 50% returns to earlier investors.
Avoiding Ponzi Schemes
Here’s the thing: litigation financing is a real thing. (In fact, it’s currently a more-than-$9.5-billion industry.) Just like investments funds (like the one Madoff claimed to operate) are real things. And, in fact, I suspect that most Ponzi schemes claim to be real businesses.
So how can we protect ourselves from them? The government lists some common characteristics of Ponzi schemes:
- High returns with little or no risk.
- Overly consistent returns.
- Unregistered investments.
- Unlicensed sellers.
- Secretive, complex strategies.
- Issues with paperwork.
- Difficulty receiving payments.
This scheme hit most of these bullet points. Even though litigation finance is a real thing, it doesn’t provide consistent or guaranteed returns. You eventually get paid, but only if the plaintiff wins. Plaintiffs don’t always win, and the judicial system isn’t entirely predictable. If the plaintiff doesn’t win, you lose all of the money you put into the case. You’re certainly not going to pull 50% returns every year, and you’re not going to do it without risk. (In fact, one of the gigantic red flags that brought Madoff down was that year in and year out, he was providing his investors with a 10-11% return. And that kind of consistency just doesn’t happen.)
But here’s the problem with Ponzi schemes: like I said, they reflect actual investments. If you ignore or miss the puffery (or the fraudsters are sophisticated enough to pretend there’s some volatility to the returns), how do you avoid investing in Ponzi schemes?
I mean, one way is just to invest in securities traded on established markets. But, while that provides a market return, maybe you want exposure to more volatility. What do you do then?
I’d suggest not investing more than you can afford to lose. Because a big problem seems to be that the investors in this (and many) Ponzi scheme invested small at first but, happy with their investments, invested more and more. About 900 people invested somewhere in the range of $500 million. The Washington Post reports that some people put their whole retirement accounts into the investment (or, better, “investment”), while some borrowed against their home equity to invest. One 81-year-old retiree put in $2.2 million–about 95% of his money. And those people are, I suspect, unlikely to get any significant portion back. If it were a small investment among a lot of investments, the loss would sting, but the investor would be fine. But here, it’s going to cost people their homes and their retirements. (And before we criticize the retiree: elder investment fraud is a huge problem. I don’t know if it’s diminished facilities or loneliness or growing up in a more trusting world or what, but the elderly as a group are at enormous risk. In fact, even if you would never fall for something like this, it’s worth keeping an eye on your parents/grandparents to make sure they don’t.)
Concluding Thoughts
As Mormons, we’re definitely at risk of affinity fraud. We are socialized to trust each other. And, I would argue, trust and community are both important and good. But it’s important that we exercise the same skepticism when our coreligionists offer us an investment opportunity that we would exercise if a neighbor or coworker or someone randomly knocking on our door offered us the investment opportunity.
But Mormonism is not only a horizontal community—it’s a vertical one. And one of the victims quoted in the article said about the investment, “There was never a hiccup. . . . My bishop was involved and invested, and so were my closest friends.” And that’s one thing that affinity fraudsters do—they recruit high-prestige members of a community. And again it is critical to note that there’s no indication that the bishop was part of the fraud. He was defrauded too! Also, affinity fraudsters count on close-knit communities keeping it quiet and, to the extent there are problems, trying to resolve it within the community, or, perhaps, being too embarrassed about being defrauded (and, perhaps, inviting friends and family to invest alongside them) that they don’t say anything.
And again, the blame rests on the promoters of the Ponzi scheme. To the extent the allegations are true, they acted illegally and immorally. They deliberately defrauded their friends, neighbors, coreligionists, and others.
And I would argue (and, in fact, am arguing) that as members of the church, we have an obligation to protect not only ourselves, but members of our various communities, from this type of affinity fraud.
If you have a subscription to the Washington Post, you really need to read this story. The way it unwound—an accountant saying to himself, “This is too good to be true,” then going to a New York firm that specializes in exposing Ponzi schemes, which went to an old high school friend of one of the founders, who used his private jet to trick the guy into pitching him on it, is just amazing. Also, there’s a standoff with the FBI. And you really just need to read the whole thing.
By Common Consent, a Mormon Blog 
Sadly, I’ve been around long enough to remember seeing this before. The last one I seem to recall was centered in Utah County.
STW, I assume you’re thinking of the 2008 Galen Rust silver Ponzi scheme. Like I said, Ponzi schemes are often types of affinity fraud, and religious communities are a prime target for affinity fraudsters.
I read the story yesterday and fully endorse your recommendation to read it.
But I think you’re trying to have it both ways on “blaming the victim.” In your last unitalicized paragraph, you say (and I agree) that “we have an obligation to protect not only ourselves, but members of our communities, from this type of affinity fraud.” I could reword that as “we have an obligation to not be victims, and to help other members of our community to not be victims, of this type of affinity fraud.” Does that not imply that if we fail to meet that obligation that we bear some kind of blame? I think it does, and I’m OK with that.
To be clear, I am in no way trying to mitigate any legal liability that the fraudsters face. They belong in jail–the victims do not. Furthermore, I am not suggesting that victims need to stop taking the sacrament or forgo temple recommends or anything like that. But giving the victims a free pass just negates your final exhortation. Being a victim in these cases is not a random occurrence. There are steps one can take to avoid it and it should perfectly acceptable to advocate for taking those steps. And when we advocate for taking those steps, we implicitly criticize those who failed to take them. Oh well, I say. (Full disclosure: I lost about $1,000 in the early 80s when I joined in on an investment my father had been doing well with. I don’t think it was a Ponzi scheme–just a real investor taking too many risks–but I felt like a fool anyway. My father felt so bad that he made me whole and then managed to scrape back about half of his money.)
On a slightly different note, I disagree with your blanket characterization of the victims as not being greedy. At least one of them saw their participation as a road to early retirement. Early retirement can mean a lot of things and I don’t know what the quoted person had in mind, but I would argue that a desire to spend all of your time playing golf and riding horses is a manifestation of greed. At the very least, it is not as benign as not having access to a DB pension. (More full disclosure: My own recent retirement–undertaken when I became the caregiver for my son with Down Syndrome– meets Social Security’s definition of “early” and my access to a DB pension made that possible.)
Finally, there is one aspect that you could have highlighted but didn’t. A lot of the victims characterized their temporary good fortune as a great blessing. Again, that can mean a lot of things. But one of them is the implication that the Lord favors them–a manifestation of the prosperity gospel. Denouncing the prosperity gospel would be one of the more effective ways of protecting members of our community from this type of fraud.
lastlemming, I drafted this post at like 11:30 last night. Originally I had language saying something to the effect of, “Were they greedy? Not necessarily.” As I edited and rearranged, I apparently dropped it.
I didn’t mean to imply that there was no greed, no avarice, no bad behavior among the victims of the crime. I’m absolutely certain that some of the people who were bilked were trying to cheat the system.
But it’s also true that some victims of muggings were out in a bad part of town, late at night, drunk, with earbuds in. Some people whose car is stolen didn’t bother locking their car. And they should have been smarter. But it is not their fault that someone committed a crime against them. (The Atlantic article I link to talks about the propensity toward victim-blaming, both with respect to big and little crimes.) Was there greed? Undoubtedly. But do Americans need to figure out how to save for houses, college, retirement, etc., on their own and without a decent roadmap? Also yes.
That said, even if the victims weren’t at fault, we absolutely should be ready to take precautions to protect ourselves and our loved ones. Going down a different hypothetical rabbit hole: I’m a careful bicyclist. I ride carefully, I follow the law, I stay in the (painted) area I’ve been given.
But I also wear a helmet. If a car hits me, it’s going to be the driver’s fault, not mine. But also, I’m biking in Chicago, and drivers here are sociopathic. So I’m going to do what I can so that, when the inevitable day comes that a car hits me, I’ll limit my injuries. (Could I avoid them altogether? Well, I could stop biking. But that would ruin a lifestyle I enjoy and also, honestly, doesn’t guarantee anything—in 2020, 39 pedestrians in Chicago were hit by drivers and killed.)
So I’m suggesting some steps we can take to avoid being defrauded ourselves, even if being defrauded would not be our fault.
Unfortunately some Mormons believe in the prosperity gospel. They consider themselves righteous enough to be entitled to 50% returns. I put some responsibility on the victims for not doing any kind of due diligence.
I watch a YouTube channel that covers scams, MLMs, Ponzi schemes, and the like. She’s already done one video of the popularity of MLMs among members of the church (I haven’t watched it yet though), so I don’t doubt she’ll do a video about this one.
The WaPo story was phenomenal. Even how the story came to be written was amazing: “Las Vegas investigative reporter Jeff German was slain outside his home on Sept. 2; a Clark County official he had investigated is charged in his death. To continue German’s work, The Washington Post teamed up with his newspaper, the Las Vegas Review-Journal, to complete one of the stories he’d planned to pursue before his killing. A folder on German’s desk contained court documents he’d started to gather about an alleged Ponzi scheme that left hundreds of victims – many of them Mormon – in its wake. Post reporter Lizzie Johnson began investigating, working with Review-Journal photographer Rachel Aston.”
I read the article yesterday. Yes, it is a pretty amazing story. But its a sad commentary on Mormons. For some reason, we are more gullible than the average American, more trusting than we should be. But the old saw is again proved relevant here: If it looks too good to be true, it probably is. If you are desperate to get far higher than market returns on your investment, you will probably be taken advantage of eventually, if not sooner. Investor beware.
Ann, that is absolutely fascinating (if a bit tragic). Thanks for highlighting that!
And it’s interesting to me how ingrained this idea of blaming the victim is; so many commenters are working so hard to find a way to blame the victims of this Ponzi scheme for their victimhood.
So I’m going to repeat: affinity fraudsters deliberately target their fraud at certain people. They tailor it to appeal to those people. And, given the affinity part of affinity fraud, those victims are inclined to be more trusting and to do less due diligence. It’s literally the strategy.
And I don’t think anything about it suggests that Mormons are more gullible than the average American. The New York Attorney General explains it better than I did: “In a world of increasing complexity, many people feel the need for a short-hand way of knowing who to trust.” Falling for affinity fraud isn’t about gullibility: it’s about someone taking advantage of the mental shortcuts we all use to navigate an increasingly complex world.
Who are victims of affinity fraud? The Hispanic community. Chinese immigrants. The elderly. The African American community. The Orthodox Jewish community. The Mormons. Military servicepeople and veterans. And the list goes on.
And just to repeat myself: victims of affinity fraud are not culpable for being victims. We can and should protect ourselves, but if we’re defrauded, it’s not because we did something wrong.
And, just so I’m clear, of course there’s something about Mormon culture that makes us susceptible to affinity fraud. That’s literally how affinity fraud works—it preys on culture and community. But that susceptibility doesn’t make us different from other cultural groups, and it doesn’t represent any particular failure on our (or any other group that gets defrauded’s) part.
Sam Brunson: Don’t blame the victims. It’s morally repugnant and unuseful.
Wayne Hepworth: I blame the victims.
It’s hard to blame the victims when we’re told, very explicitly, that investing and increasing our ‘talents’ is what a good servant is supposed to do and that God isn’t happy if we bury our talents (or let them sit in an account that accrues minimal interest). Of course, that’s a really bad reading of that parable (because, among other reasons, we should never take parables literally). But Christians are told we’re supposed to invest, and increase, even if we’re not very knowledgeable about doing so. Therefore, we trust others we know. Those guys in the parable of the talents got a pretty unrealistic return on their investment, too – they were probably involved in some sort of scheme and it was wise for the third servant to hide his money from them.
Are we all using the word “blame” in the same way? To the extent that “blame” makes a person subject to criminal or civil liability, to church discipline, to a less-than-thorough effort to recover their property, or to social shunning, then I agree that it is misplaced. But if “blame” means critically evaluating their behavior in an attempt to learn from it or to teach others what to avoid, then I say go for it. It’s hard to tell in a forum like this, but it is not obvious to me that the commenters on this thread are doing “blame” wrong.
It would be fantastic if, for a combined 5th Sunday lesson, church members covered affinity fraud, MLMs, scams, and how to say “No” when the bishop or stake president approaches with an amazing business opportunity.
We’re literally taught that it is selfish and sinful to say “no”. I managed to avoid a big one in a former workplace where the CEO would pitch the “opportunity” by appealing to better natures. “When this pays off, how many missions could you and your spouse serve? How many kids could you send on missions? You could send every kid in your ward and never miss the money!” He was a stake president on the side.
I’m using “blame” to mean “assign moral culpability to.” And I stand—firmly—by the position that victims of crime bear no moral culpability for being victims of crime, whether that crime is fraud, theft, sexual assault, or anything else. Could they have done something differently? Like I said above, in almost every case, a crime victim could have done something differently. But not doing something differently does not make them blameworthy for being taken advantage of.
There could, of course, be some people who went in knowing this was a Ponzi scheme, but figured that if they got in early enough it didn’t matter. (To be clear, there’s no evidence in this particular circumstance that there was anyone like that.) I’d probably assign blameworthiness there, but it would be blameworthiness for trying to use a fraudulent mechanism to enrich themselves at the expense of others.
Again, as the NY Attorney General points out, affinity fraud works because we use shortcuts in figuring out what and who to trust. And we have to use shortcuts in at least parts of our lives—none of us can understand everything we have to understand. Victims of affinity fraud use trust of in-group members to decide what they should do. Is it a good heuristic? In many cases. But not in all cases. And there’s nothing morally wrong with using shortcuts to figure out who we should trust or how we should act.
To your point, though, the fact that it’s not a moral failing to fall for an affinity fraud doesn’t mean we shouldn’t protect ourselves and our neighbors from it. And that’s a little of what I’m trying to do here; I’m trying to aggregate explanations of what affinity fraud is, how to recognize it, and otherwise how to protect ourselves from the worst possible outcomes. But I don’t think there’s blameworthiness in trusting our coreligionists, our immigrant community, or any other in-group, even while I believe we should protect ourselves from the worst-case scenarios of such trust.
nobody, really, that’s a great idea. I do think there’s value in educating ourselves and our fellow ward members about practical issues like affinity fraud and saying no, though again, I think it’s critical that we underscore that this is practical life wisdom, not questions of moral failings. Because too often we frame financial success as morally positive and poverty as morally negative, and that’s a legit problem.
Having civilly litigated several Ponzi schemes over the course of my career, including amongst church members, I’d say the thing that perhaps makes Mormons more susceptible is also arguably our biggest cultural strength: strong community ties and trust in our friends in the pews. Conflating this with a special Mormon affinity for prosperity gospel or above-average Mormon gullibility are nonstarters for me.
Really good stuff, Turtle. Thanks for that — “Those guys in the parable of the talents got a pretty unrealistic return on their investment, too – they were probably involved in some sort of scheme and it was wise for the third servant to hide his money from them.”
I can’t get through the WaPo paywall, but the Wall Street Journal published an article about this on March 23, 2022. I’d link to it, but I suspect it’s lurking behind their paywall.
It would be well if we’d all remember the Lord’s injunction to be “wise as serpents.”
When something shows up on ByCommonConsent, I always look for the distinctively Mormon (culture) or The Church of Jesus Christ of Latter-day Saints (institution) flavor. Here, I wonder if it’s anything more than that Mormons were among the participants?
People are greedy. People gamble. The prosperity gospel is rampant. Every con I know about has an element of some people knowing they’re getting just a little dirty for a promised big reward. People take advantage of their neighbor. Lots of us follow the leader.
In my years in Chicago, I got to know something about the Greek Orthodox community there. The patterns I saw were indistinguishable from what I hear about affinity fraud among the Mormons. This is one area where I don’t think our collective culture makes us worse or more susceptible. Nor do I think we do better than average or normal for relatively close-knit groups defined by religion.
Chris, I think that’s right. The distinct Mormonness I wanted here was to highlight the fact that, as a close-knit religious group, we’re at risk for affinity fraud. We don’t often talk about that, and less often in non-morality play ways, but I think acknowledging the fact that we can be a target for fraudsters, identifying what the problem is, and discussing ways to avoid it is valuable, maybe not in a distinctly Mormon way, but definitely in a distinctly Mormon context.
Interesting the Hindenburg Group also exposed the exmormon running the Nikola scam.
900 people invested $500 million. The math works out to be over $500,000 per person. I understand the math is not that simple, but the people involved would most likely have at least a fundamental understanding of how finances work to have this quantity of liquid funds. Or at the very least, access to advisors. Most people I know would struggle to come up with 10% of this amount to invest.
I don’t blame the victims for making a mistake. But I do think they either knew better or should have known better. Like the old adage says, a smart person learns from their mistakes; a wise person learns from others mistakes. Given recent incidents involving Madoff, WeWork, and Theranos, we should all know better. These stories are dramatized on all the streaming platforms.
And saying you invested because your spiritual leader invested is immoral IMO.
Chadwick, saying you invested because your spiritual leader (or other respected community member) invested is literally the playbook of affinity fraudsters. The government makes that clear. (Interestingly, the church has quoted that language and has a page on affinity fraud, which maybe would support nobody, maybe’s suggesting that we talk about it in a fifth Sunday setting!) Again, as the NY AG points out, they take advantage of our mental shortcuts, and that’s an easy shortcut to take advantage of. As community people, it’s easy to say, I respect this person—they have one sort of expertise, so I’m going to take the mental shortcut that they have other sorts of expertise, too. (In a different respect, that’s literally Elon Musk’s following: people assume that because he apparently does electric cars well, he must do everything else well.)
And for me, like you, Madoff and Theranos and WeWork (and, for me, Enron) are tremendously salient. But not everybody was a New York attorney trying to figure out whether clients could deduct a theft loss in 2008 (before the revenue ruling came out). Not everybody followed Enron closely as it happened during their first year of law school. (And, to be clear, employees up and down the chain invested their life savings in Enron stock. And analysts—who should have looked critically—were also taken in until it collapsed. Madoff’s collapse came 8 years after Enron’s, and yet very sophisticated people and institutions were invested with Madoff.)
And sometimes you had layers. Even if on average people invested $500,000, that average doesn’t tell us a lot, like you point out. The article talks about an 81-year-old who invested $2.2 million, 95% of his net worth, in this thing. By any objective standard that’s insane.
But he’s not an objective standard. He was hit with an affinity group. And on top of that, he was old. In 2021, elder fraud took about $1.7 billion from roughly 93,000 people. Why are older Americans more susceptible to fraud? I have no idea. But they are, and fraudsters know it. So sure, objectively he should have known better. But he was defrauded, with the fraudsters taking advantage both of his trust for in-group individuals and, in his case, the fact that he was older.
As Chris pointed out, this isn’t unique to Mormons. I doubt we’re much more susceptible than any other tight-knit group. And there is definitely no moral failing in falling victim to people committing fraud.
Communities and even nations with higher levels of trust gain many benefits from it–google “social trust and economic growth.” They are also more vulnerable to affinity fraud. Overall, I think it’s worth it, and to criticize a community for having too much trust is wrong-headed.
But this is not new and leadership has been concerned about it for a long time. Elder Holland addressed it while President of BYU: https://speeches.byu.edu/talks/jeffrey-r-and-patricia-t-holland/inconvenient-messiah/ (search for the word “scam” but the whole thing is worth a read). A fifth Sunday lesson seems like a fine idea to me.
I know a guy who was taken in this scam. He lives a very high flying lifestyle and owes his ex wife large amounts of money. His motivation for the bad/fraudulant investment was the promised large returns to sustain his lifestyle.
Greed on the part of at least some of the victims plays a role.
As an investor/entrepreneur with a long track record of success I can tell you that you get surounded by experts. Lawyers, CPA’s, bankers, financial advisors etc. If one of your trusted advisors is up to no good they can do a lot of damage.
For those who can’t get past the paywall, this gift link should work:
https://wapo.st/3Ydbguu
My husband and I are solidly middle class but we could come up with close to $500,000 if we needed to – mostly by leveraging our house, which is modest but located in a city where prices have skyrocketed in the last 5 years. That plus our retirement funds could do a lot of damage. You get a wide spread in these kinds of scams, not just people who can afford to lose it.
I really recommend the Bernie Madoff audible series and/or the Netflix documentary. One quote is really haunting – ‘in a violent crime, the bodies fall before the trial. In a white collar crime the bodies fall after’. I hope no one falls victim to despair if they have been caught up in this or similar scams.
Wow. Even with clear and repeated instructions not to blame the victims some people really can’t help themselves.
Even if it were the victim’s fault, they are already paying dearly for their alleged mistake. Piling on now is in such poor taste. You think you’re preventing future calamity by judging people who lost enormous amounts of money, but you’re actually pouring salt in wounds caused by actual criminals.
To riff on Sam’s biking/helmet analogy, my middle school daughter was hit by a car while biking to school. She was still laying in the Pediatric ICU in critical condition when multiple people were asking nosy questions in an effort to blame a 12 year old for her injuries. 3.5 years later I still hold unfavorable opinions of those people.
Michinita, I’m so sorry about your daughter; I hope she’s recovered!
And yes, my daughter was also hit by a driver (fortunately, without the injuries), and one person at her school’s first reaction was, “Were you looking at your phone?” She was not, but even if she had been, that would be no excuse for a driver to hit her.
It’s likely that Ruffian Road was named for the very successful racehorse from the early1970’s, but it seems appropriate to the situation somehow.
I am thinking of a woman I know who is quite old, worn out, without family support, whose finances are precarious. The brother in her ward assigned to minister to her is one who in his professional life manages the personal finances of a billionaire. He has applied his advanced skills to find ways to keep her afloat financially. Her bishop also works in finance, and he and other knowledgeable people are impressed with and grateful for what the ministering brother has managed. As I became familiar with the situation, I have thought about how much trust has been placed in that brother, who I fully believe is worthy of it, how awful the woman’s situation would be if he abused his trust, and how much more difficult her current situation would be without the service he has given.
I hate to think something good like this going right is only possible in a setting that also makes it possible to abuse trust and harm others, but I wonder if it is, and I wonder if I am OK with that. Trust cannot be abused if there is no trust, and trust that does not leave us vulnerable in some measure is not what most would call trust.
On one hand, you have mealy mouthed discouragements from the pulpit for get rich schemes. Nothing *too* specific, after all, that might cause inconvenient strife.
On the other hand, you have executives from NuSkin selected for leadership positions in the Church. Steve Lund was an early co-founder and president and CEO, and is now the 23rd Young Men’s President. Truman Hunt, a CEO, was called to be a mission president. Their involvement with the company is touted in church PR descriptions as evidence of their success in the world.
But NuSkin is an MLM, and a heavily exploitative one at that:
https://www.talentedladiesclub.com/articles/how-much-can-you-earn-with-mlm-nu-skin/
Yet these men’s involvement with it is touted as a righteousness. As long as the Church is unwilling to remove the beneficiaries of these schemes from their leadership ranks, it will be unable to better protect its membership from their predation. The Church is telling us these people are trusted, are chosen to be leaders by the Lord, so why wouldn’t people think the works that they do are proper?
Thanks for your comment, KA. A couple things to unpack:
First, while I’m absolutely first in line to be skeptical of MLM schemes, they are different from (even if similar to) Ponzi schemes. I find them at best misleading to people, but they’re a symptom of a different problem, primarily, some communities’ discouragement of women entering the formal labor market. MLMs are a different discussion than affinity fraud, though.
And I agree that the church should speak out more against affinity fraud, though the church website has an explicit statement against it (which I’ve linked to in a prior comment). This kind of statement would probably be far more effective in smaller classes at the local level than repeated on occasion at the general level, though.
And even this statement won’t end affinity fraud, because, while fraudsters will use high-profile people in the community, they don’t need them. The fraud works on mutual trust, not on hierarchical direction.
And again, to underscore this: Mormons aren’t unique in being victims of affinity fraud. Mormons are probably not at the top of the list of affinity fraud victims. This can happen within basically any group with high levels of social trust. It can capture sophisticated members of the group. It can capture unsophisticated members. It can reach the rich. It can reach the poor. It’s critical that we watch out for ourselves and for our neighbors, but, as John points out with his example, the same community impulses that make affinity fraud possible also can sincerely improve the lives of members of the community. I don’t know that there’s an easy or obvious solution, other than being aware of the hallmarks of affinity fraud and keeping alert.
And even then, not being victimized may be as much of a there but for the grace of God go I thing as it is anything.
For the record, Madoff claimed, and others who were not in with him in his scheme corroborated the statement that at least some banks and other institutional investors knew he was almost certainly corrupt, but didn’t care because it was “not their problem”. This to me says something significant about the industry and world in which Madoff operated and was able to persist in for so long. Let the buyer beware indeed.
I think the actual financial markets are a barely legit scheme to make money, so anything that’s not that IMO is highly suspect to begin with.
I’m also post-Covid, rather down on the members of my own ward and stake in many ways, so where perhaps once I may have been more willing to just believe much of what many members might have said, now it’s the reverse. There’s a family in my ward that seems to be selling a way to “make and grow your own business” but what exactly they do is unclear to me (it’s not MLM in any obvious way) and how they make money seems to be very vague, except that their families come from some wealth. So I do indeed wonder.
I’m saddened to hear about anyone getting taken advantage of, even if they were reckless, it doesn’t justify the crime.
When looking at investments outside of the financial markets and traditional Real Estate investments specificity and transparency is the key to knowing what you are getting into. There is money to be made in the private equity markets but its loaded with potential problems especially for unsophisticated investors
Always get the “private info” on the opportunity. Personal and corporate tax returns several years worth of bank statements etc. I sat across the table from a business owner today and requested three years of tax returns and bank statements as part of a potential purchase.
The vaguer the info and the larger the returns the more likely its fraud. Watch out for people selling investments with large homes and expensive lifestyles. I personally do not invest or partner with folks that live flashy lifestyles. The best investments I have ever made have been with folks that live well below their means.
I think the crowd here should say a thing or two about these wealthy victims essentially looking to live and eat by the sweat of someone else’s brow. I read criticism of the church’s investment arm, which is seeking prudent market level returns. And here we have some of the wealthy who are in a strong position to help their neighbors seeking more and more and more.
It was greed that drove them. The saying pigs get slaughtered doesn’t just apply to the bad guys eagerly gobbling up more and more.
I’m also greedy from time to time and have caught myself dreaming or even trying to live without putting in the effort. This is a fault that I can absolutely imagine Brigham Young calling down some harsh words for.
I’m still very sorry for all involved. The families that lost everything, even the family of the perpetrators. Reading the story it really tugs at your heart reading about the perpetrator!
That doesn’t make the greed of the victims beyond reproach. I think of Israel of old, in all the wealth and splendor concentrated many of the lavish houses of Jerusalem, while many poor starved and suffered exposed to the elements. And the various times it fell and was destroyed, presumably because they turned from God.
I think of many in Las Vegas, ruined by the false dream of wealth in gambling and vice in desperate need of real opportunity. And I see hundreds of millions of dollars from so called Saints chasing even more hundreds of millions. To what end? How can God not ask himself, when is enough enough when you gather the manna I’ve given you and seek to multiply it many times over while your brothers and sisters down the street have none?
These towers of babel that fell should cause serious learning moments of reflection. I hope they agree having them instead of saying, “how could someone else do this to me”.
This fraud was a terrible crime and the guilty should spend many years in prison for the misery they inflicted on the innocent. Hell is too good for the fraudsters. Thanks to the hard-working journalists for shedding light on this story. Now can you please look at the financial wrongdoings going on at Cresco Labs, one CB of the supposed leading MSOS in the emerging cannabis space. The CEO and other members of management have pretty much stripped this company of any value while defrauding investors. The company has lost about 90 percent of its value in the last 24 months and is expected to be delisted within the next three months leaving investors with nothing but dust. Please help!!!
Dave Rich
Franklin, MA
This fraud was a terrible crime and the guilty should spend many years in prison for the misery they inflicted on the innocent. Hell is too good for the fraudsters. Thanks to the hard-working journalists for shedding light on this story. Now can you please look at the financial wrongdoings going on at Cresco Labs, one of the supposed leading MSOS in the emerging cannabis space. The CEO and other members of management have pretty much stripped this company of any value while defrauding investors. The company has lost about 90 percent of its value in the last 24 months and is expected to be delisted within the next three months leaving investors with nothing but dust. Please help!!!
Dave Rich
Franklin, MA
Sorry if someone offers you a 50% return in one year yes you are an Idiot for investing. Common sense should kick in. If this is a real investnent that returns 50% the people selling this would not need to scam around and try and get 5 to 10 thousnad dollar investment money from average folks. Plenty of high end rich people would swoop this up in a minute. WC Fields “a sucker born every minute” .
Sam, this is an excellent essay and I appreciate how you and the commenters shows how many different groups can be exploited by affinity fraud. I’d add in how communities can be enticed to vote for 30 year school bond measures that result in paying way too much for too little, as taxes are increased to pay off investors. A school may be built, but one that can’t be maintained and is out of date by the time the bond ends.
Dean: thank you for piling on. I’m sure that the victims appreciate it. Now, please tell a few victims of sex crimes that they’re idiots as well.
I so hope that you aren’t in a position to counsel people.
It’s not so much the message as it is the way it’s given, although the message is, in fact, wrong
dean, I’m going to go blue in the face repeating this but: they weren’t idiots. We undereducate people when it comes to finances and investing; they know they need to do it, but I suspect that few people understand risk-adjusted returns, for example. (I wouldn’t if my life hadn’t taken me in the direction it ultimately did.) And, like I said, fraudsters deliberately play on people’s shortcuts.
Someone please cut through this Gordian knot!
btw, I’m surprised no one has brought up romantic catfishing scams (more appropriate than sex crime victim analogies IMO).
I am a lawyer who specializes in Ponzi schemes in Utah, so this is an issue that is near and dear to my heart. For those who are interested, I did an interview with Gina Colvin on this issue a while ago on this issue.
https://www.athoughtfulfaith.org/267-the-church-of-jesus-christ-of-latter-day-saints-and-affinity-fraud-mark-pugsley/
I didn’t expect to find so much of the “blame/don’t blame the victims” discussion here just spinning in the same old circle as everywhere :(
Let me suggest, a la lastlemming, dissecting our shorthand more finely. It’s easy to leap among “duty” and “responsibility” and “blame” and “then it’s all over and you can’t go on a mission/get sealed/be exalted/attend BYU,” but doing so, very quickly we end up talking past, or thinking past, the fact that responsibilities are relationships.
The motorist at a cross street has a responsibility not to roll out carelessly and hurt Sam. AND Sam has a responsibility to watch out for careless motorists. And the two responsibilities don’t form any kind of zero-sum balanced pair.
They are not responsibilities to different parties with conflicting interests. They are both responsibilities *to Sam.*
(Or maybe “duty” would be a better word for Sam’s one. I don’t know. As long as the terminology is adequate for sorting out the concepts, we can optimize it later.)
It’s not a question of opinion about how to divide “the” responsibility for preventing a crash. There is no generic quota of responsibility that they can interchangeably fill. The kind of responsibility that arises when a choice affects the chooser, and the kind when the choice affects someone else, are just not the same.
(The traffic analogy is doing me a favor here, in that we all know that sometimes there are external circumstances, like maybe glare ice, such that Sam and the motorist *both* have to prevent a crash, and neither could do it alone. That makes it more obvious that the responsibilities aren’t interchangeable. With fraud, sure, either a lack of fraudsters or a lack of dupes is sufficient to prevent the event. But if our moral perspective only looks at causing or preventing events, not existing in relation to other beings, well, then we are debtors to do the whole law, and what are we carrying around a New Testament for?)
Once again, from another angle: No, I’m not giving Sam any responsibility *to the motorist* not to get hit. No, I’m not taking away any of the motorist’s responsibility *to Sam* not to get in a crash. AND ALSO, Sam better not get such tunnel vision on the motorist’s responsibility as to forget that most people sometimes drive irresponsibly, and end up dead right (right in traffic court, and dead in probate). It is all of the above.
(For anyone in the back who adores tangential qualifiers: Well, OK. Sam has an indirect, ecological responsibility to this motorist *as a potential victim of some other car crash,* to set an example of not treating potential car crashes as inevitable (shrug, whatchagonnado), because we live in a society. Culture as probabilistic equivalent of iteration in the Prisoner’s Dilemma, and all that. But that doesn’t negate the motorist’s responsibility in the current potential crash, either.)
If you start with the basis that any alleged incredible investment opportunity, no matter who hustles it to you (family, friends, ward members, local leaders) that returns more then 3 to 8% is a scam/lie/fraud until proven otherwise that’s a safe place to start. Know that even financial professionals have been or could be hoodwinked with a scheme. Same is true even if a person was an original investor and got all of their investment plus additional back. Most Ponzi schemes fall apart months to years later.
One well known one was Daren Palmer in Idaho Falls. Said to be 75 million, but supposedly many who got took but were so humiliated and embarrassed having lost everything, so never came forward. Some said it was actually around 100 to 125 million and family members privately said money got moved to Caymen Island accounts and that wasn’t accounted for nor could be traced or so they said.
There was a Ponzi scheme that went through my ward when I was growing up (1980s). My parents bought in because they really needed the money at that time. At some point the bishop heard about what was going on and gave a talk in sacrament meeting in which he told the ward if something sounds too good to be true, it probably is. I remember later asking my parents if the bishop was talking about the scheme many ward members had invested in. They responded, yes, but this opportunity is different. It turned out not to be. Everyone thinks their investment opportunity is unique and different. I learned from that to be skeptical about investment opportunities. I also learned that from the most devout (my parents) to the most heretical (me now), all of us may find we sometimes disagree with things a church leader says, and all of us will find our own ways to rationalize it.
Affinity fraud is a big problem for other minority religious groups as well. In South Florida and New York, a number of Orthodox Jews fall victim to these types of schemes.
Great article, thanks. When I was a bishop I had a 5th Sunday lesson and talked about MLMs and affinity fraud. It was a good and lively discussion.
One point a young mother brought up is that some MLM pitches were targeted directly at SAHMs, who were told they can “support their husbands” and still be home to take care of their kids.
I was also surprised to hear that some older members had lost money to a particular member of the ward who had since moved out of state. It’s wasn’t their life savings, but it was high four figures. I knew who this was before they said it. He was the guy who smiled too much, shook your hand and grabbed your forearm too. He always had a project he was working on, all MLMs or sketchy things like “get a hundred pounds of ground beef for 150 bucks.” I shudder to think what was inside that stuff.