Alert over 'affinity' fraudsters

By JULIE MIDDLETON

People are being warned to be on their guard against "affinity fraud" - get-rich-quick investment scams that target tight-knit communities such as religious, social or cultural groups.

The Securities Commission and the Ministry of Consumer Affairs have both issued warnings about the frauds, which exploit the trust that often exists between members of special-interest groups.

Commission chairwoman Jane Diplock says affinity fraud is a problem in New Zealand. The commission knows of five serious cases over the past five years.

Also charged with defrauding people through get-rich-quick schemes are Bill and Lee Papple from Rotorua, who, with their business associate Tina West, are awaiting trial.

"Affinity fraudsters exploit our tendency to trust people who belong to the same group as we do," says Ms Diplock.

They convince members of a group to put their money into an investment scheme, often saying that some profits will go to a charity or other worthy cause.

The fraudster often uses money from new investors to pay "interest" to earlier investors, giving the illusion that the investment is successful, she says.

Eventually, people discover that most of their money, if not all, is gone. These are known as pyramid or "Ponzi" schemes.

But it is impossible to tell how much money is stolen through such fraud.

"These scams are hard for authorities to detect," says Ms Diplock. "Victims are often shocked and embarrassed by what's happened, so they keep quiet instead of going to the police."

Cases of affinity fraud include:

* An American evangelist, Donald Eugene Allen, who defrauded investors of $8.5 million, was sentenced to six years' jail in June 2004.

The minister, preacher and motivational speaker was convicted in the Auckland District Court with Murray Christie, Dianne Ruth Christie and Stuart Alfred Buckland of conspiring to defraud investors with false promises of returns of up to 15 per cent a month, equal to 431 per cent a year.

Paul Davison, QC, prosecuting for the Serious Fraud Office, said the quartet used Christianity to give the enterprise an aura of integrity and benevolence.

* People from the Nelson, Hutt Valley and Tauranga areas were defrauded when they paid money to IMI Pacific Group and Walakahai Pacific Corporation in 1999.

Two directors of those companies, Willard Karaitiana Amaru and John Edward Baylis, were subsequently convicted of fraud and sentenced to prison terms.

More than $8 million was lost by investors attracted into the schemes by promises of unusually high returns. Promoters targeted Maori groups.

* The Millionaires of the World (part of the Hope Foundation Members Association S.A.) and the Wairua Tahi Trust (Goldrush) schemes were promoted in Tauranga, the Waikato and Auckland during 2000.

The promoters and their agents targeted church groups. Contributors were required to send money to bank accounts in Lichtenstein, the Isle of Man or Panama. Many people lost money in these schemes.

* An investment scheme offering improbably high returns was illegally promoted by Lakeland Wealth Creators during 2002 and 2003.

People in the Bay of Plenty paid at least $14 million into the scheme, and church groups were targeted. The commission banned advertisements for the scheme because they did not comply with the law.

In a case before the High Court, a scheme run by Donald Moris Rea collected $30 million from 300 people - members of church groups in the Bay of Plenty - between 2001 and 2003.

Source: Securities Commission

How can I avoid falling victim to affinity fraud?

* If someone offers you an investment, ask to see the investment statement. Most investments offered in New Zealand require such a document, which outlines important information about the offer and the people behind it. If there isn't one, you're probably dealing with a scam.

* Be sceptical about paying money to someone who claims to share your beliefs.

* Be suspicious if you are told to keep the investment opportunity secret. Legitimate investments don't need to be concealed.

* Never invest solely on a friend's recommendation. Get independent advice from a financial adviser, lawyer, or accountant from outside the group.

* Don't fall for promises of spectacular returns. And don't believe claims that the investment is no-risk: all investments have risks.

* Take time to think over investment offers. Resist pressure to act quickly.

Source: Ministry of Consumer Affairs