ith President Bush and lawmakers proposing multi-billion dollar funding schemes to operate faith-based social services, others are warning of a proliferation in scams involving congregations and religious groups throughout the country.

   In a statement released earlier this week, the North American Securities Administrators Association said that religion-based investment fraud is becoming more common and more sophisticated.

   "Who could people trust more than someone who sits next to them in church every week?" asked Deborah Bortner, president of the Washington, D.C.-based organization. Bortner also serves as Securities Director for the state of Washington. "I've been a securities regulator for 20 years and I've seen more money stolen in the name of God than in any other way."

   For American Atheists President Ellen Johnson, the prospect of pouring billions of dollars into the coffers of religious groups not only jeopardizes the separation of church and state, but invites fraud and abuse.

   "Churches say they want taxpayer funding, but they don't want the type of regulatory oversight and accountability that is designed to protect the public," she said. "Bush is proposing the biggest transfer of wealth in the history of this country between churches and the U.S. Treasury, which is going to create more fraud and theft than ever before."

   Much of the scamming now going on inside houses of worship is described by regulators as "affinity fraud," since it involves using religion as a tool in gaining trust and money. It was first recognized as a problem in 1989, when the NASAA and the Council of Better Business Bureaus co-sponsored a report examining how over $450 million was lost by 15,000 investors during the previous five years. Since then, the number of scams has skyrocketed. Over the past three years alone, officials in 27 states have hauled individuals or companies operating under the veil of religion into court in actions involving more than 90,000 investors, some of whom lost their life savings. Among them:

   ¶    Washington state investigators shut down the Island Mortgage Company/Northwestern Investment Company which sold over $14 million in fraudulent promissory notes. The combine also collected more than $26 million in premiums from the Society of Friends (Quakers) for nonexistent health insurance policies. According to the Seattle Times, the founder of the company and his son "led lavish lifestyles that included waterfront homes, car collections and condos in Hawaii." In 1997, the pair were sentenced to prison on multiple counts of fraud and tax evasion.

   ¶    One of the biggest scams involved the Baptist Foundation of Arizona, which used a maze of over 120 front corporations to bilk 13,000 investors out of $590 million. BFA managed church building funds and retirement account savings, pouring the cash into an inflated real estate market and then using an elaborate web of shell companies and transactions to cover losses. The Foundation began aggressively raising money from new investors, using some of it to pay off previous obligations. Mark Sendrow, director of securities for the Arizona Corporations Commission said, "That the Foundation's senior management could solicit hundreds of millions of dollars from investors, knowing that what they were running was nothing but a huge Ponzi scheme, is unconscionable."

   In May, 2001, officials of the BFA including treasurer Donald Deardoff, pleaded guilty to charges of fraud. Five others are awaiting trial on 32 counts each of theft and racketeering.

   ¶    Last week's warning from the securities group came within hours of the sentencing of Gerald Payne, a founder of the Greater Ministries International Church on charges of fraud and conspiracy. Payne's church raised $580 million between 1993 and 1998 with lavish promises of huge returns for backers through "divinely inspired" investments in the volatile currency arbitrage and precious metals markets. Investors were also lured by ownership interest in foreign shipping lines, and were told by Greater Ministries that the program was "anointed." Payne frequently cited Bible verses like Luke 6:38 -- "Give, and it shall be given unto you; good measure, pressed down and shaken together, and running over, shall men give into your bosom."

   Joseph Borg of the Alabama Securities Commission charged, "Gerald Payne and his associates made faith in God synonymous with faith in their investment program. Sadly, while Payne was telling people to put every penny they could get their hands on -- equity, assets and loans -- into his scam, he also told them they lacked faith if they tried to get even the most basic information on their investment."

   Evidence uncovered during the probe into Greater Ministries include video showed Gerald Payne at a pulpit informing backers that his group had become the "mineral bank" of a certain un-named foreign country with abundant natural resources. "Glory to God!" Payne declares on the tape.

   For their role in defrauding followers, the 65-year-old minister was sentenced this week to 27 years in prison. Wife Betty Payne received a 13 year prison term for her part in the scheme. According to the Seattle Times, "Investigators have yet to find the missing millions, which they believe might be stashed in secret, offshore accounts."

   ¶    Another example of faith-based fraud was the IRM Corporation, which bilked investors in five states of approximately $400 million. The company offered bogus promissory notes and participation in limited partnership schemes in the California real estate market. Regulators in Michigan shut down the company's activities there in May, 1999 but not before over 2,400 investors had been recruited, many through church-based organizations or by ads airing on religious radio and television programs, including the "Back to God Hour."

   Like the Baptist Foundation of Arizona, IRM used a network of over 100 fronts to operate what investigators say was a classic Ponzi scheme, siphoning off money and paying previous investors with cash from new partners.

   ¶    Capital Plus Worldwide Financial Services recruited over 100 investors through a network of African American houses of worship before regulators in Tennessee ended the scheme. The firm promised clients that their money would be used in an extensive reconstruction effort throughout the African continent, and still return up to 120% annually from joint ventures and fraudulent "bank debentures" from European financial institutions. Worshippers lost $3.9 million, while company founder Ricardo Gant used $2.3 million in Capital Plus Worldwide revenue to go on vacation, accumulate a collection of antiques, expensive clothing, horse farms and take casino junkets.

   ¶    In July, acting as the Washington state securities regulator, Ms. Bortner's department issued a cease-and-desist order against Tri-Ject International and its chairman, Peter Lemin. Lemin had joined an Episcopal congregation, where he enticed parishioners to invest in the "ENSI Safety Syringe," a disposal syringe with a retractable needle that would supposedly reduce the risk of accident needle sticks. According to the Puyallup (Washington) Herald newspaper, 250 investors poured in over $500,000 in return for stock which Lemin said that been issued in accordance with federal Securities and Exchange Commission regulations. In fact, the company had not registered with either the Washington State Securities Division or the SEC. The matter is still under investigation.

   According the North American Securities Administrators Association, con artists tailor their schemes to specifically exploit religious groups.

   ¶    One method involves warning congregations that doomsday, Armageddon and other disasters are immanent, and that investments will act as a hedge against times of crisis. Gold, silver, platinum and other "precious metals" are often touted as "security" against volatile real estate and stock markets. Others might offer parcels of land for speculative purposes or use "in times of crisis."

   ¶    Operators can claim that a portion of the profits will benefit a worthwhile cause, and even help religious institutions while still delivering handsome profits to investors. One example was the New Era Philanthropy which in May, 1995 collapsed after conducting a huge Ponzi-style scheme which enticed more than 1,200 non-profit groups -- many of them religious or religion-affiliated -- to invest. (In a Ponzi or pyramid scheme, payments from late investors are used to pay large returns to earlier investors.)

   In September, 1996, the U.S. government filed an 82-count indictment against New Era's President, John Bennet Jr., who was convicted of diverting millions of dollars for his personal use over a six-year period. Scores of religious organizations and leaders including the Lancaster Bible College, Southfield Christian School, United Kingdom Charities Board, Young River Ministries, Maranatha Bible & Missionary Conference, and even Sir John Templeton of the Templeton Prize were enticed with promises of huge profits from their investment. New Era declared that for every dollar put into the fund, $2 would be earned in less than a year. Bennet was convicted, though many investors never saw their principle again.

   Why are faith-based scams becoming so popular? Is there an inherent problem if religious groups suddenly enjoy an infusion of billions of dollars from the public treasury in order to operate social programs? It all raises questions of accountability and oversight.

   "Cloaking an investment with religion can give it a false aura of safety," says Brad Skolnik, Indiana Securities Commissioner. "It's one thing to tithe or give an offering so that your money is used for good works, it's another thing if you're led to believe you'll get a monetary return...."

   Just as money can disappear in a Ponzi scheme cloaked under the mantle of religious respectability, though, some worry that faith-based social programs -- often unregulated and unmonitored -- are an invitation for fraud and abuse. There are already disturbing hints that this could be taking place:

   ¶    Florida Gov. Jeb Bush's "Front Porch" program is already experiencing trouble. The outreach involved heavy emphasis on recruiting houses of worship to operate faith-based community initiatives. In one case, though, money from a Department of Justice grant for a "revitalization" program ended up in the hands of a man with a 12-year history of drug and weapons convictions. In another case, a Health Department program review uncovered thousands of dollars being used for "indirect" and "other" expenses. And the Tampa Tribune newspaper raised questions about a "faith-based Trojan horse" bill in the legislature which would increase the number of religious groups receiving funding.

   ¶    In Philadelphia, the man hired by Mayor John Street to coordinate the city's aggressive faith-based partnership program has been indicted by a grand jury on charges of theft, but still continued to draw his $96,000-a-year salary even after being quietly dismissed 10 months earlier. Philadelphia has been a bellwether city in using public money to subsidize houses or worship conducting community service programs. The former manager, Rev. Randall E. McCaskill, had been tapped for the job "to promote volunteer and religious efforts to foster youth mentoring, clean up blighted neighborhoods, and welcome returning prisoners to their community." He was a founder of the influential Black Clergy of Philadelphia and Vicinity in 1981, a religious group which supports political candidates, including Mayor Street and former Mayor Ed Rendell.

   The intersection between faith-based scams and the potential gold mine of government funding of religious social programs has yet to emerge as an issue in the media, or on Capitol Hill. "It's difficult enough holding religious organizations accountable now," warned Ms. Johnson. "Faith-based groups are already receiving direct and indirect government assistance, and it is next to impossible to keep track of it all." She pointed to the situation in Texas, where the director of a faith-based program, the Community Enrichment Center, boasted that his organization would not hire Atheists despite receiving much of its annual budget from taxpayers. A state official was quoted in the Star-Telegram newspaper, noting: "No one tracks all the religious groups that receive federal funds or how much money is distributed through North Texas because the process is too decentralized and the sources of financing too varied."

   "No one's keeping track," said Ellen Johnson. "We're just handing out the money, and it's there for the taking."

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