Seven members of a church in Queens, New York, have been charged with fraud for allegedly misappropriating USD12m from would-be hedge fund investors.
Seven members of a church in Queens, New York, have been charged with fraud for allegedly misappropriating USD12m from would-be hedge fund investors. The Securities and Exchange Commission has accused the men of orchestrating a fraudulent investment scheme that targeted mostly elderly parishioners.
The churchgoing fraudsters reportedly made numerous misrepresentations, including promises of returns as high as 75 per cent, to encourage their victims to invest in two purported hedge funds, the Logos Fund and Donum Fund.
But instead of investing the money, the defendants are accused of using most of it to fund their lavish lifestyles. One used his corporate credit card to buy a USD4,275 watch. Others spent investor funds on a USD200,000 Bentley limousine and splashed out on expensive clothes, meals and travel, sometimes with wives and girlfriends, to Trinidad & Tobago, Paris and Switzerland. The group also spent USD1.5m on office space.
Robert Khuzami, director of the SEC’s division of enforcement, says: ‘Affinity fraud is a particularly sinister scam that exploits investors in close-knit communities … This action is especially egregious, as church leaders targeted their own parishioners and betrayed the sincere trust placed in them.’
The SEC is demonstrating admirable vigour in rooting out fraud, especially since the Madoff scandal exposed some of its past failings, but financial crime is always more likely to surface when a tough market environment makes it harder, for instance, to keep Ponzi schemes from collapsing. Hopefully the regulator’s vigilance will be maintained when the economic climate turns brighter.
