The Faithful Prey
Chuck Fager September/October 2000 These people were talking about Philip Harmon, a genial salesman from Camano Island, Washington. Unfortunately, their experience was shared by hundreds of other churchgoers.They were all mistaken in their judgment of this "good" man. Harmon was a "crook," who stole more than $30 million from several hundred investors. Many of his victims were in his own congregation, the independent Camano chapel, where the losses included $48,000 from its school fund and almost $40,000 from the pastor's family. Harmon used the money to buy a yacht, an estate overlooking Puget Sound, beachfront condos in Maui, numerous antique cars, and other luxuries.
Harmon did not spare his own relatives. He took his brother for $96,000 and a sister for $59,000. Then there was Norma Beebe, of Eugene, Oregon. After her husband died, her son Terry, married to Harmon's daughter and working for him, persuaded his mother to put most of her inheritance into Harmon's investments. She lost $135,000.
In October 1997 Harmon pleaded guilty to fraud charges, and he is serving an eight-year sentence in federal prison. Terry Beebe later pled guilty to a similar charge.
Unfortunately, church members "make good victims" for scam artists, according to Steve Schroeder, the veteran federal prosecutor on the Harmon case. When I first heard this statement I wasn't sure I believed it. But my work since then has made it clear Schroeder is right. The evidence is overwhelming.
In March 1998 Priscilla Deters, a 63-year-old California woman, was convicted of defrauding churches and individuals in 21 states of more than $4 million. She had told them she could double their money for church projects in a year, using the profits from other vaguely described lucrative businesses. But there were no other businesses. Like Harmon, she was running a classic Ponzi scheme.
In a Ponzi scheme, investors are promised quick large profits from some usually mysterious business--and at first they get them. But in fact there is no mysterious business; the "profits" are really paid out of the funds put in by later investors, rushing to cash in. The cycle continues until the supply of new investors dries up. Then the scheme collapses, and most later investors lose their money.
That's exactly what happened to Priscilla Deters' operation. She was sentenced to eight years in prison for the fraud implicit in such a scheme.
I am a churchgoer myself, and much about these two cases was hard to take. I spent four months investigating the Harmon and Deters cases, and two weeks covering Deters' trial in a Wichita federal court. It was depressing to discover how easily many church leaders and members greedily succumbed to quick-money schemes presented in "Christian" garb. Since then I have reported on several more such fraud cases, most involving much larger sums. Among these are:
*Quoting from Luke 6:38 ("Give, and it shall be given unto you") Pastor Gerald Payne and his cronies at Greater Ministries International Church, of Tampa, Florida, promised thousands of donors from all 50 states they would get back more than double their "gifts" to the church in less than two years. They claimed that profits would come from fabulously rich diamond and platinum mines in Liberia and elsewhere. Greater Ministries took in more than $400 million. With this Payne and his cohorts planned to start their own country, "Greaterland," in which they would be safe from prosecution. The mines didn't exist, the money disappeared, and the plans for Greaterland went aglimmering when Payne and six other church officials were indicted in March 1999 on numerous fraud and conspiracy charges.
*The Baptist Foundation of Arizona was set up a half century ago to raise money for church charities. Instead it turned into a massive real estate investment Ponzi scheme that made a few insiders rich and gave only a pittance to charity. When the foundation filed for bankruptcy in November 1999, 13,000 investors, mostly elderly church members from several Southwestern states, stood to lose more than $640 million. Lawsuits alleging fraud and conspiracy have been filed, and state investigators are pursuing possible criminal charges.
*Run by Jonathan Strawder, a charismatic, Bible-quoting young college graduate, Sovereign Ministries, of Orlando, Florida, took in more than $12 million in a year, with a double-your-money pitch very similar to that of Greater Ministries, where Strawder once worked. State authorities arrested Strawder on charges of fraud in December 1998.
Crime experts call such church scams "affinity group frauds," since they are based on some bond of trust between perpetrator and victim. Professional, ethnic, and family groups are other targets for this type of crime; but nothing seems to beat religion as a bait for suckers. In fact, the North American Securities Administrators Association has named "affinity group fraud" as number one on its "Top Ten" list of frauds threatening the public today.
While my investigations showed these frauds to be widespread, it is troubling to observe how weak the typical law enforcement response is. Cases like these are notoriously hard to investigate- complicated, far-flung, expensive. Priscilla Deters' victims were scattered across the continent. Moreover, she intimidated many into silence, threatening that those who talked to investigators would never see their money again.
Other victims have been too ashamed to talk. As Dick Johnston, head of the National Center on White Collar Crime, told me: "The situation with white-collar crime today is not unlike the underreporting of rape a few years ago, when we couldn't get many victims to come forward."
Another obstacle is that these cases are not "sexy" mediawise. They are tough to explain and seldom draw more than local media interest. With low public attention comes a low law enforcement priority. After all, white collar criminals usually look and talk like their victims--and who gets elected being tough on grandparents?
Maybe I shouldn't have been amazed to find that most white-collar crime enforcement is tepid. But I was shocked by how lax it can be.
When North Dakota securities officials issued a cease and desist order against Deters in 1991, Roger Wegner, a Nazarene district superintendent, was quoted in a daily paper there openly ridiculing it. "I happen to believe people that are in the church," he said. "I happen to believe Priscilla Deters." Wegner also knew who not to believe: "It's not illegal. I don't care what [the] Securities [Commissioner] says. . . ." Then he simply ignored the order and sent Deters $600,000 of his churches' money, almost all of which was lost.
The official response? Seemingly none.
South Dakota issued a similar order against Deters in 1995. But when I called in 1998 to ask about it, the staff only vaguely remembered it, and nobody could even find a copy to send me.
California was somewhat tougher. Its Department of Corporations issued a "desist and refrain" order against Deters' operation in 1991. She ignored it for four years. Finally in 1995 the state noticed and obtained an injunction ordering her to stop. Again she ignored it. In early 1997 Deters was cited for civil contempt and fined $2,000. She paid the fine and kept going until her federal criminal trial.
Is this law and order? Are the slick crooks out there stealing the millions of dollars really supposed to fear such Keystone Kops routines and slaps on the wrist?
Effective white-collar crime enforcement involves cooperation. In Tampa last August, a task force involving local police and several state and federal agencies joined in a raid on the Greater Ministries International Church headquarters. They acted because Gerald Payne had bragged he was busy destroying possibly incriminating records. Priscilla Deters was finally stopped when the Kansas Securities Commission teamed up with federal authorities. In the Philip Harmon case, Washington State insurance investigators worked with agents from the FBI, IRS, and Department of Labor in a task force they dubbed "Operation Island Scam."
Steve Schroeder, prosecutor in the Harmon case, is very proud of this cooperative investigation and considers it a model for the prosecution of white-collar crime. "State agencies by themselves have a hard time stopping these frauds," he says. "Most don't have the enforcement clout. So unless you get the attention of the feds, it's hard to get convictions."
So where does that leave us, the folks in the pews? I think we have two main courses of action:
First, if you are victimized this way, refuse to be a "good victim." Don't take the loss in silent shame: Speak up. Make the so-called "tough on crime" politicians and prosecutors take notice.
Second, understand that prevention is unquestionably our best protection.
The first step in protection is requiring outside audits. Many of the church groups I covered had no audits. They trusted their leaders, as persons chosen by God, to handle the financial affairs of the church or agency honestly and responsibly. So the accountability was spotty at best.
And most of those leaders were in fact "honest," in the sense that they were not diverting church funds into their own pockets. On the other hand, many were neither responsible nor professional in performing what lawyers call "due diligence" about investments. Too many were also just plain gullible. Further, it was extremely rare to find one who was ready to stand up and sound the alarm about a fraud scheme, whether from embarrassment or guild loyalty. Many more were anxious to hush the scandals up and divert their flocks' attention to happier topics.
Outside audits are a basic institutional precaution. They are well worth the cost. As a recent auditor's report for a Philadelphia church group put it, "we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements." Put even more plainly, auditors are paid to look for fraud, and thus they can deter much of it.
The second ingredient in meaningful prevention must be self-education. But this should not be left to individuals. Con artists target groups, and deterring them is a group responsibility. Indeed, fraud education should be a standard part of every denomination's adult education efforts, for leaders, clergy, and laypeople alike. For Christians, this education program could be built around a single motto: "Trust in Jesus, and check out everybody else."
Checking everyone out does not require taking on worldly cynicism. It means learning about, and insisting on, items as basic as a prospectus (Phil Harmon didn't have one), and verifying the securities licenses required by every state (Harmon didn't have one of them, either, nor did Deters, or Gerald Payne of Greater Ministries).
To these checks should be added regular reminders of the clich