Former Pastor Vaughn Reeves sentenced to 54 Years in Prison for Religious Ponzi Scheme!

December 14, 2010

Former pastor Vaughn Reeves, a southern Indiana church financier was sentenced to 54 years in prison for pocketing millions of dollars that investors believed would be used to build churches.  Oh God…another Ponzi scheme!

While his attorney Dale Webster said, “There’s going to be an appeal on a lot of grounds,” investigators said Reeves and his three sons used their now-defunct company, Alanar, and sales pitches that included prayers and Bible passages to dupe about 11,000 investors into buying bonds worth $120 million secured by mortgages on construction projects at about 150 churches.

OK…so what happened?  Well…according to court documents, Reeves and his sons diverted money from new investments to pay off previous investors, pocketing $6 million and buying two airplanes, sports cars and vacations.  A classic Ponzi scheme – using new money to pay off prior commitments.  Prosecutors have said the case was a prime example of affinity fraud, in which scammers prey on people who share a common interest, such as religious affiliation, ethnicity or age.

Actually, in my analysis – the folks who were scammed fell into the PIT.  In other words, they fell prey to three components that make it easy for victims to become victims.  Promise – Illusion and Trust.  In this case, the trust was based, in part, on the fact that folks trusted Reeves et. al. to do what they said, after all it was done in the name of religion – God.

According to the Indiana Business Journal – “What they did in their company hurt a lot of people,” said Jack Newman, 73, of Terre Haute, a retired vice president of marketing who said he invested about $26,000 with Alanar and so far has recovered just 20 cents on the dollar. “Justice needed to be served.”

One of the victims who testified at Tuesday’s sentencing hearing said he wasn’t able to buy health insurance after investing $600,000 in church bonds from Alanar, Sullivan County Prosecutor Bob Hunley said. As a result, Steve Duncan testified that he went blind after developing an eye condition that would have been preventable.

Sentenced to consecutive six-year terms for each of the nine fraud counts, Hunley alleged that he victimized about 2,900 investors who lost a total of $13.1 million.  Among aggravating factors, Special Judge Dena Martin found Reeves targeted people over age 65 and used religion to influence them, Hunley said.

Alanar used a modified Ponzi scheme in which it diverted investors’ money from their building projects to speculative investments and to interest payments on other bonds, according to the Indiana Secretary of State’s Office, whose Securities Division assisted prosecutors in the case.

Alanar encouraged church members to sell the bonds to fellow congregants using sales pitches that included prayers and Bible passages.

“Never sell the facts, sell warm stewardship and the Lord,” Alanar training materials said, according to the Securities Division.

It makes no difference from what walk of life we come, people (not all thank God) will find ways to dupe or scam others.  Often I am asked in various media interviews what people can do to avoid becoming a victim of a Ponzi scheme like this.  The answer is easy – in a sense – (1) don’t fall for offers that seem ‘too good to be true’ – that is the first classic sign of a scam; (2) check out the documentation and do your due diligence – don’t fall for the illusion of a good con artist (they are not called that for nothing) and (3) keep a healthy distance from any one you’d invest your funds with.  The closer they are to you and the more that ‘trust’ is a factor, the more important it is to check it from every angle.

Reeves like Bernie Madoff will likely die in prison.  That’s a steep price to pay for some life luxuries that are short lived.