Affinity Fraudsters Exploit Relationships To Steal
1 July 2004
Affinity Fraudsters Exploit Relationships To Steal Money
The Securities Commission today issued a warning about affinity fraud – investment fraud which targets members of a close-knit group or community.
Commission Chairman, Jane Diplock, said affinity fraud was a problem in New Zealand.
“We know of five serious cases which have occurred in the past five years. In each case millions of dollars have been stolen people who belong to church or cultural groups.”
“Affinity fraudsters exploit our tendency to trust people who belong to the same group as we do.”
The fraudster convinces members of the group to put their money into an investment scheme, often saying that some profits will go to a charity or other worthy cause.
Often the fraudster uses money from new investors to pay “interest” to earlier investors, giving the illusion that the investment is successful. Eventually, people discover that most – if not all – their money is gone.
Jane Diplock said it was impossible to tell how much money was stolen from New Zealanders through affinity fraud each year.
“These scams are hard for authorities to detect. Victims are often shocked and embarrassed by what’s happened, so they keep quiet instead of going to the police. The fraudster is then free to move on to another group of people.”
The Securities Commission warns people to be aware that affinity fraud happens, to look out for the signs, and report them to the authorities.
Most investment scams can be avoided by using common sense and asking a few questions. In particular, people should always ask for an Investment Statement for any investment they are offered, and they should seek independent advice before investing.
The Securities Commission, New Zealand’s main investment regulator, has developed information to help New Zealanders avoid affinity fraud and other scams. The information is part of a wider programme aimed at helping people make better investment decisions.
Information is available on the Securities Commission website, at www.sec-com.govt.nz
Affinity Fraud in New Zealand
An American evangelist who defrauded New Zealand investors out of $8.5 million was sentenced to six years jail in June 2004. Donald Eugene Allen, a minister, preacher and motivational speaker was convicted of fraud in the Auckland District Court. Allen was convicted, together 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 they used Christianity to give the enterprise an aura of integrity and benevolence.
Many people from the Nelson, Hutt Valley and Tauranga areas were defrauded when they paid money to IMI Pacific Group Limited and Walakahai Pacific Corporation Limited in 1999. Two directors of these companies, Willard Karaitiana Amaru and John Edward Baylis were subsequently convicted of fraud and sentenced to prison terms. More than $8 million dollars were lost by investors attracted into the schemes by promises of unusually high rates of return. Promoters of the schemes 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 offshore bank accounts in Lichtenstein, the Isle of Man or Panama. Many people lost money in these schemes before the authorities were made aware of them and warned people against them.
An investment scheme offering improbably high returns was illegally promoted by Lakeland Wealth Creators Limited during 2002 and 2003. People in the Bay of Plenty paid at least $14 million into the scheme. Church groups were targeted. The Commission banned advertisements for the scheme because they did not comply with the law, and warned people about the risks of any scheme promising unusually high rates of return.
A scheme run by Donald Moris Rea collected some $30 million during 2001 to 2003. The scheme was promoted to members of church groups in the Bay of Plenty. The scheme ran by paying the first investors from money contributed by later investors. This makes it appear that the investment is working. Quite a lot of money is unaccounted for, possibly sent to overseas bank accounts for the personal benefit of Rea and his associates.