The Securities and Exchange Commission, (“SEC”) on January 29, 2020, charged a Pennsylvania man with defrauding Amish and Mennonite community members when he falsely represented how he would use their funds and by guaranteeing returns on their investments.
The SEC complaint alleges that Philip E. Riehl while providing accounting services to Amish and Mennonite communities, developed his own investment program using money raised by selling promissory notes to community members. According to the complaint, over a nearly ten year period, Riehl raised approximately $60 million by promising to invest the funds in business and real estate loans to others in their religious community. As alleged in the SEC complaint, Riehl falsely claimed that two co-signers would be on every loan, and he personally guaranteed repayment of the investments with interest. The SEC further alleges that Riehl sold Trickling Springs Creamery promissory notes, investments in a dairy business that he owned, concealing from investors the company’s financial difficulties. In his 2019 letter to investors, Riehl allegedly apologized for his dishonesty, admitting that his statements created a “false sense of security, in that such a considerable percentage of the funds were channeled into my personal projects.” Trickling Springs Creamery filed for bankruptcy in December 2019, leaving Riehl unable to pay back investors.
In the press release announcing the charges, the SEC warns that “Promises of guaranteed returns or investments without risk are classic warning signs of fraud.” It cautioned investors who invest with someone in their faith-based community stating that “[i]t is important to learn as much as possible about your investments, even if it means questioning someone you know and trust….”
What is Affinity Fraud?
Affinity fraud refers to investment scams that prey upon members of specific groups, such as religious or ethnic communities, the elderly, or professional groups. The scammers who run affinity frauds frequently are – or pretend to be – members of the group. According to the SEC, they often try to fool respected community or religious leaders from the group to spread the word about the scheme by convincing leaders that a fraudulent investment is legitimate. Many times, even those group leaders become unwitting victims of the fraudster’s scheme.
Affinity scams exploit the trust and personal friendships in groups of people who have something in common. Because of the tight-knit structure of many groups, regulators and law enforcement officials have difficulty detecting an affinity scam. Sadly, victims often fail to notify authorities or bring legal claims and instead try to work things out quietly within the group. This is often the case when the fraudsters have involved respected community or religious leaders to convince others to join.
Many affinity scams involve Ponzi or pyramid schemes, where new investor money is used to pay off earlier investors creating the impression the investment is profitable. Such tricks are used to lure new investors in the scheme and to lull existing investors into believing their investments are safe. In reality, in most Ponzi schemes, the fraudster almost always steals investor money for personal use. Because each of these types of investment schemes depends on an unending supply of new investors – when finally the supply of investors dries up, the entire scheme collapses, and only then do the investors discover that their money has been stolen.
Avoiding Investment Fraud in a Faith-Based Community
Affinity fraud or faith-based investment fraud is a rampant problem. So much so that the SEC’s Office of investor education has issued an investor alert to educate the public on avoiding faith-based investment fraud.
It is a natural tendency to trust someone when that person appears to share your beliefs and values. It is for this reason that sometimes fraudsters try to take advantage of that trust by targeting people of faith. In fact, the fraudster may even be (or pretend to be) part of the very group they are trying to cheat.
In John Henderson and Global Leadership Resources L.L.C., the SEC charged an Illinois-based corporation and its officers for making false and misleading statements in a securities offering aimed at Christian investors. According to the complaint, the alleged fraud targeted individuals associated with a Christian college, the Christian church, and other religious organizations with which the CEO was associated, including a church he founded, by employing numerous religious references.
There are many examples of faith-based investment fraud which has become more common in recent years. The SEC cautions that affinity group securities fraudsters target both broad-based communities (such as persons of a specific religion) as well as smaller groups, like people who attend the same mosque, church, or synagogue. Some scammers even coax leaders of a group to spread the word about their investment. Such leaders may even not realize the “investment” is actually a fraud, which means they too may be victims.
While it is difficult to believe that a community member who shares your beliefs and values would ever try to cheat you, when this happens the losses can be devastating. Here are some tips published by the SEC to help you and other members of your faith-based community avoid falling victim to fraud:
1. Know who you are dealing with. Even if you know the person making an investment offer, either personally or through their role in your religious organization, be sure the person is a registered investment professional. Always do a background check (using their legal name if possible) on any investment professional you are considering with the free search tool on Investor.gov. If the person is not licensed, we urge you to be very careful – unlicensed individuals commit much of the investment fraud we see. You can also see if the person has been named in an SEC action using the SEC Action Lookup – Individuals (SALI) database, or even do a simple internet search for any news about the person.
2. Understand what they are selling. If someone recommends an investment, get more information. Don’t trust an investment offer if you can’t get it in writing. Fraudsters often avoid putting things in writing.
3. Avoid investments that are “too good to be true.” Don’t fall for investments promising spectacular profits or “guaranteed” returns. More likely than not, they are frauds. Watch out for investments claiming to have no risk. All investments have risks. Promises of quick and high investment returns, without risk, are classic warning signs of fraud.
4. Don’t be rushed. Research the “opportunity” before you decide to invest. Be especially skeptical if someone tells you they “don’t have time” to write down the details. Reputable investment professionals won’t pressure you to buy immediately.
Protect Yourself – Get an Investor Fraud Lawyer to Represent You or Your Family
If you or a loved one has been the victim of religious or group based fraud or any type of investment fraud, then you need an experienced, aggressive securities fraud attorney to zealously pursue your case against the perpetrators. We invite you to contact former Wall Street lawyer Melanie Cherdack at Investorfraudlaw.com.
If you have lost money due to investment fraud or simple broker negligence, it is crucial to hire a lawyer who fully understands this area of law. Former Wall Street securities attorney Melanie S. Cherdack and her team of lawyers represents individual and institutional investors who are unwitting victims of investment fraud and broker negligence. She heads up a group of attorneys who represent investors across the United States. Contact us by filling out our online contact form, or calling 888-768-2499.