The January 24, 2010 Lancaster Sunday News front page headline is "MISPLACED FAITH?".
Gil Smart’s article (read it here) explained an investment scam that looks like an Amish version of the Madoff debacle. Full details have yet to emerge, but it appears that the interest rates promised by John M. Sensenig were simply too good to be true.
Why do people, from all faiths, all regions, and all walks of life fall for these scams?
The Securities and Exchange Commission calls these schemes Affinity Fraud:
"Affinity fraud refers to investment scams that prey upon members of identifiable groups, such as religious or ethnic communities, the elderly, or professional groups. The fraudsters who promote affinity scams frequently are – or pretend to be – members of the group. They often enlist respected community or religious leaders from within the group to spread the word about the scheme, by convincing those people that a fraudulent investment is legitimate and worthwhile. Many times, those leaders become unwitting victims of the fraudster’s ruse.
These scams exploit the trust and friendship that exist in groups of people who have something in common. Because of the tight-knit structure of many groups, it can be difficult for regulators or law enforcement officials to detect an affinity scam. Victims often fail to notify authorities or pursue their legal remedies, and instead try to work things out within the group. This is particularly true where the fraudsters have used respected community or religious leaders to convince others to join the investment.
Many affinity scams involve "Ponzi" or pyramid schemes, where new investor money is used to make payments to earlier investors to give the false illusion that the investment is successful. This ploy is used to trick new investors to invest in the scheme and to lull existing investors into believing their investments are safe and secure. In reality, the fraudster almost always steals investor money for personal use. Both types of schemes depend on an unending supply of new investors – when the inevitable occurs, and the supply of investors dries up, the whole scheme collapses and investors discover that most or all of their money is gone. "
Read more from the SEC on how to avoid affinity fraud: click here.
Also check out " Why scams work – analyzing the reasons people fall for scams"
All too often, there is no recovery available. But sometimes, there is recourse, in which case the expertise of an attorney experienced in investment fraud or stockbroker fraud is required.