Church Members and Financial Scams

December 29, 2003 | 24 comments
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A recent story in Deseret News discusses yet another recent financial scam that victimized thousands of church members. (Link via Dave). This one, according to the news, was a classic Ponzi scheme.

Church members are, in my observation, unusually susceptible to Ponzi schemes, multi-level marketing, Amway and similar programs, and other get-rich-quick devices. (I know, there are differences between Ponzi schemes and some types of legal multi-level marketing. As far as I am concerned, they are all dubious devices for removing money from the gullible.) I have wondered over the years why church members are more likely to be deceived. A few possible factors come to mind.

First and probably most important is the level of trust that exists between church members. Church members instantly give a very high level of trust to other church members solely by virtue of their church membership. We invite people over for dinner, we have them babysit our kids, we borrow and lend them our cars, we let them stay at our homes when they move in to the ward, we send our children on scout trips with them. This kind of instant trust is a very useful part of being a church member. However, it is susceptible to abuse, particularly financial abuse. (See also Dave’s brief note on this topic.) And the potential for abuse of trust may be particularly high where local leaders are also proponents of a scheme.

The Deseret News story quoted one shocked victim as stating about the scammer: “He’s a family man, he’s a religious man, he goes to church every Sunday. He sent us pictures of his grandchildren”. Imagine that — someone might be sending you pictures of his grandchildren, but also be scamming you. (Side note: Sending pictures of the grandkids? That takes evil to a new level!)

A second factor is the expectation of wealth that church members have. The scriptures talk about the Lord causing people to prosper in the land if they are righteous. Similarly, many church members expect not just to make ends meet, but to be wealthy. We expect that the Lord will provide us with wealth, and when we do not all become instantly wealthy, we begin to look for a deus ex machina to provide instant wealth. Financial scammers step into this gap.

A third and related factor is the LDS lifestyle, with its emphasis on church service and time spent with the family. Church members expect to become rich, but want to do so in a way that enables them to still meet for Family Home Evening every Monday, serve in the Elders Quorum presidency, and go on father-and-son campouts. This desire is not particularly compatible with traditional routes to wealth, which often involve lengthy and difficult sacrifices of time.

In contrast, financial scams appear to be a way to make money while also keeping the ability to spend time with one’s family or in one’s church calling. This seems like a righteous combination. (Members may also believe that they will be protected from financial scams since their intentions are righteous when they enter the scam.)

Fourth, the church continually emphasizes that our possessions come from God. The church has at times demanded that members give up all of their possessions; today, we are required to tithe. This creates an attitude of willingness to give up money for the Lord. That attitude is proper; however, it is easily perverted by financial scammers who prey on members such as by exploiting their righteous desires to spend more time with their families. Members may believe that they are led by the Spirit to invest in such schemes.

Finally, a possible fifth factor (I’m not sure about this one) is that perpetrators may feel that their church membership immunizes them from the wrong of their acts. They probably pay tithing on their ill-gotten gains. They may have convinced themselves of the righteousness of their products. And this sincerity may make them more successful in deceiving others.

These seem like the obvious potential factors in the overrepresentation of church members as victims of financial schemes. I am probably missing some factors as well. And, on reflection, I am surprised that the church does not do more to combat this problem. I suspect that an annual or semi-annual reminder — “Do not give money to church members without verifying the accuracy of any of their claims!” — would go a long way to preventing further victimization.

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24 Responses to Church Members and Financial Scams

  1. Matt Evans on December 29, 2003 at 8:54 pm

    My theory is that Mormons have more social contacts than other people. This allows a contagion that must spread to survive, like MLM, to flourish in highly-networked Mormon culture.

    MLM definitely needs to be addressed by the church. Casino operators have more integrity; they don’t claim that everyone’s going to win. People who sell MLM aren’t worthy to enter the temple because they can’t affirmatively answer “Are you honest in your dealings with your fellow men?”

  2. Kaimi on December 29, 2003 at 8:59 pm

    Matt: The social contacts are definitely part of the problem. Like many of the factors, the church’s social network is is a good thing that can be turned to evil.

    Some other factors may contribute:

    Faith. We are taught to believe in things we cannot see and verify. We are taught to have faith. This is easily exploited by scammers. “Don’t ask me about how the finances work — just have faith!”

    Miracles. We also believe in miracles; this factor is related to faith. Church members might normally be distrustful of a scheme where too few details are shared. But dress it up like a miracle, and watch the doubts disappear.

    For example, a scammer might claim a return of 20% above the market for the past 10 years. At that point, one might normally ask how he achieved these results. Was it superior research? Better algorithms on how to pick value stocks? (The method is important, and without sufficient support, the scammer might be unable to convince people to buy.) And the scammer, knowing the LDS belief in miracles, replies “I always pay my tithing; I only invest in morally upright companies; and the Lord guides my hand.” It suddenly becomes a miracle — proof that God rewards the righteous (see discussion above) — and church members, ever willing to accept a miracle, believe the story.

    Testimony. This is another related factor. Members are conditioned to accept the testimony of others and not ask questions. In fact, it is often a matter of pride — people say “I don’t know all the answers, but I believe”. This attitude, commendable in matters of spiritual belief, can be exploited by scam artists.

    Finally, the culture of sales. The church sends out tens of thousands of missionaries each year, and many of them return having learned to be very effective salesmen.

  3. Clark Goble on December 29, 2003 at 9:11 pm

    I do think these types use the counterfeit of Mormon culture – I recall in the early 90′s seeing people following the commitment pattern for various companies. They followed it *very* closely, never exactly claiming the approval of the spirit, but using language most Mormons would recognize.

    With business I’m frankly more a caveat emporer. I tend to think the people who try get rich schemes get what they deserve. Still, those counterfeits of things we Mormons take very seriously are bothersome.

  4. Samurai on December 30, 2003 at 7:36 am

    I think people in our Church tend to implicitly trust other Church members, suspend judgement, and look down upon those Church members who dont go along with the herd, and express any scepticism. E.G: At my Ward a few years ago, a member claimed to have been diagnosed with cancer. Of course, being a small Ward, the whole Ward got involved in raising funds, getting this member help in all aspects of her life- from helping with her rent, groceries, car repairs, giving her money to compensate for the job she lost, etc. Except for me and my home teacher(who was a resident at the Hospital I was being treated at, and where the other member claimed to be a patient at.) At that point in my life, I was being treated for brain cancer at the local Univ Hospital, and I never saw the alleged cancer patient member there, and none of the doctors ever knew who she was. When I asked this particular member about her “cancer” she was always very evasive. So, me and my home-teacher approached the Bishop to inform him about our suspicions, but, instead, we were reprimanded for being overly suspicious,and we were told that “being judgemental” was a ungodly, and the wrong thing to do, and for daring to question the claims of this particular member. Anyways, this went on for a while, until this member’s whole story fell apart under the weight of her inconsistencies and lies. And at the end of it, she quit attending Church, and left a lot of people with a lot of unpaid bills, unpaid debts etc. What folks found out was that this person was never sick at all, and that she had just run a very successful scam. And in their quest to be help a fellow Church member, folks had suspended all judgement, despite the evidence, and allowed themselves to me royally scammed!!!!
    It is probably because of these traits that a lot
    of members exhibit, that encourages scamartists to prey on our fellow members.

  5. Renee on December 30, 2003 at 12:47 pm

    Is this primarily a Utah problem? It seems like it would be for the reasons stated and there’s a desire to work from home. I have a friend who moved there and is big into trying to get underlings in their MLM gig. The last time I visited, they had motivational quotes taped up all over their apartment – on cupboard doors, by the front door, in the bathroom – motivating them to meet 2 new people everyday. It was disturbing.

    On a side note, I recall a message read in every ward a couple of years ago from the first presidency about avoiding marriage encounter groups that encourage (some vague reference possibly about partner swapping?). I’d never heard of church members being into these kinds of groups. I asked one of the more seasoned members who’s family lives in UT. She said people there are frequently victim to strange practices simply because other members encourage them.

  6. Jordan Fowles on August 5, 2004 at 3:45 pm

    I know this is an old entry… But since Kaimi posted a link..

    I don’t think there is anything wrong with MLM per se. Think of Mary Kay and Pampered Chef. It is just another way to sell stuff- some companies sell it to retailers who act as a middle man and market the products, and some use multi-level marketers. I have no problem with that. Some products, like nutrional supplements, are more efficiently marketed on that level anyway.

    The problem is in the people who do it. Just like any used car salesman, multi-level marketers can be incredibly dishonest. But the fault there is not with multi-level marketing, rather it lies with the person who is dishonest.

    I think it would be bad for the Church to officially come out and target a good profession (multi-level marketers) simply because there are those who abuse the system. The Church is right in sticking to condemning dishonesty in any form or fashion.

  7. [...] possible reasons why church members seem to be unusually susceptible to financial scams. (continue to original post . . .) Permanent Link : [...]

  8. Julie in Austin on February 4, 2005 at 11:49 am

    I don’t know, Jordan. Mary Kay, Pampered Chef, et al exist only on the basis of selling way overpriced goods and prostituting friendships–how ethical is it to be involved in that? I also find disturbing the fact that these ‘home parties’ are really sales opportunities. What happened to noncoercive social life?

  9. Jordan Fowles on February 4, 2005 at 11:56 am

    I think the statement that Mary Kay and the Pampered Chef “exist only on the basis of selling way overpriced goods and prostituting friendships” is not accurate.

    I recognize that there is a danger of “prostituting friendships”, but that danger can be mitigated by not laying on pressure. My wife, for example, simply loves pampered chef equipment and is always excited to go to a pampered chef party. She gets Mary Kay products from another friend. And I get all my multi-vitamins from my dad. Neither of us have felt coerced into these arrangements- we are glad for the personal attention and a break from walmart. And of course the “home parties” are merely sales opportunities! That’s why you don’t go unless you actually are interested in the product! If you turn down an invitation to a pampered chef show, no reasonable person would get bent out of shape about that.

    Noncoercive social life is still alive and well, even in the midst of a pampered chef show.

  10. HL on February 4, 2005 at 11:59 am

    Perhaps Jordan you view is skewed by an irrational bias for all things multi-level marketed–from kitchen gagdets to make-up to vitamnis.;)

  11. Kaimi on February 4, 2005 at 12:01 pm

    I should mention that (like most church members) I’ve had a small amount of experience in being solicited for various marketing schemes.

    One person was a former church leader of mine. He invited me over to discuss business. I went in knowing that I was going to be solicited, and knowing that I was going to say no. I was relatively sure that church-y pressure would be applied, and I had a church-y answer ready — I needed to pray about it.

    I was right on all counts. There was a lot of pressure. Despite already knowing what I would be solicited, it was still pretty hard to say no. And a lot of religious imagery was used.

    “A stake president in Virginia signed onto this. He now has a private helicopter.”

    “Heavenly Father wants us to take care of our families. He knows how hard that can be. And he has provided a way to make that easier.”

    and so forth.

  12. Jordan Fowles on February 4, 2005 at 12:10 pm

    re: #10 Kaimi- that seems unethical to me. I like it when the business is pitched as a business, not as part of the restored gospel.

    re: #9 HL- I think you are right. That and the fact that many of my family members are deeply involved in MLM for their living. Which is why I have to at least claim that a subset of MLMers are honest. I know my family members who are involved in these various businesses are scrupulously honest in their dealings with others. They don’t try to pitch business as part of the gospel, and they don’t use the ward list as their soliciting tool.

    I do, however, think that people generally, not just within the church, are too vulnerable to bad advice from friends, fellow church members, and “upstanding” members of the community. I would suggest that people try harder to evaluate the business or product independently from the person pitching it. If somebody tries to sell you on a product or investment based solely on the fact that they belong to some church or club or that they are a family man/woman, then you can suspect perhaps that the business idea lacks some merit.

    I don’t think that church members are “unusually susceptible” to this sort of thing, though, any more than anyone else who still trusts others. It’s just an interesting way for the Utah newspaper to pitch the article.

  13. Trenden on February 4, 2005 at 1:30 pm

    I’ll always remember my University of Utah business professor’s response when a student asked him about MLMs. He said, “I’d rather dig ditches for a living and be poor than be a millionaire through Amway.”

    I think members are more susceptible to scams and in my experience one reason is that members believe God wants to bless them because they’re good people, pay tithing and deserve to be wealthy and when a scam is pitched it sounds like just the mechanism for God to work a miracle in their lives. I was counseling a single sister with two children once and she announced she was quitting her job at a department store to join a MLM selling magnetic beds and herbal supplements. I felt really bad for her because it was obvious the business was a scam and their products were silly. Luckily she wisely reconsidered before being fleeced too badly. She did buy a bunch of magnets and herbal supplements so I guess she was fleeced a bit, but at least she didn’t loose here livelihood over it. Of course, the guy pitching the scam to her was a “good member” RM etc.

  14. Jordan Fowles on February 4, 2005 at 1:53 pm

    RE: #12: That is unfortunate that he said that- it sounds quite haughty. There are very legitimate MLM businesses with scrupulously honest people, just like in every profession. I guess it’s the adage of a few bad apples spoiling the bunch. That’s OK- everyone also similarly slanders lawyers. I suppose that one of my friends is the worst of BOTH worlds: he is an in-house attorney for Mary Kay *GASP*!

    Some of the bad rap is certainly deserved, but we have to be careful not to malign entire legitimate professions- only the dishonest individuals practicing them.

  15. Mark B. on February 4, 2005 at 2:34 pm

    One serious problem with MLM is that class of MLM-ers who believe that all friends or acquaintances are potential business underlings. Every time you walk by, you have to watch your back lest they grab you for another sales pitch. Sort of like the potted amaryllis my wife got for Christmas–it has grown two feet in a month, and I’m careful not to get too close.

    And, the other problem, legitimate though some may think it, is that wealth through MLM is sort of like wealth through chain letters. The real secret is to sign up lots of underlings, who sign up underlings of their own, and so on ad infinitum. The problem is that the number of human beings in the world is finite, and only a small subset of them are willing to go out selling. So, just as you can’t get a buck from 10 e10 (how can you do a superscript here?) recipients of the 10th iteration of your chain letter, so too you can’t sign up enough underlings to reach the heights of wealth through MLM.

    I’ll one-up your U prof, Trenden: I’d rather shovel **** in Newark than make a million from (or get another sales pitch about) MLM.

  16. Jordan Fowles on February 4, 2005 at 2:44 pm

    But you are referring to unscrupulous MLMers. There are plenty of MLMers who don’t view their friends and acquaintances as MLM fodder. That’s fine if you prefer not to do it, but maligning a whole class of workers because of their legitimate job is different than pointing out the bad apples themselves. It seems unfair to so malign a whole class of people, many of whom you know nothing about!

  17. Colleen on February 4, 2005 at 2:45 pm

    I’m a firm believer that Mormons are more susceptible to scams than the general public. Titles for Utah like “Fraud Capital of the World” don’t come out of nowhere. These scams aren’t unique to Zion, either. I work for a news outlet in the mission field where a reporter right now (this is so coincidental) is investigating a church member who scammed investors — most of them Mormon — in the 1990s, then fled the country and any possible prosecution. In his wake were dozens of devastated people. Being the token Mormon on the staff, I have been asked for church contacts — the reporter understands we are a tight group. I’ve tried to give him a little background on this whole Mormon-gullibility thing but have urged him to tread gently, too. We’ll see where he takes it.

    Trusting too easily is definitely a factor for those who get caught in schemes, and many people simply are victims of ignorance. I feel sorry for them. But I have little patience with people who enter tenuous deals thinking their righteous desire to help their family justifies their desire to get rich. I have even less patience with those who feel entitled to wealth due to righteousness, if they in fact exist. Greed powers scams, it’s that simple.

  18. Jordan Fowles on February 4, 2005 at 2:48 pm

    I wonder if empirical research would indeed support the claim that LDS are more susceptible to scams than the general public. Anecdotal evidence of the sort tossed around here and in the news is quite sketchy to rely upon. Sounds like an interesting social science project for some BYU professor.

  19. Jack N on February 4, 2005 at 4:45 pm

    I’ve been in sales for over 30 years. I haven’t participated in MLM (I call it ‘fleece a friend’), although I’ve met many members and nonmembers who have done very well and are at least as honest as I would think any on this site.

    I like to be sold. I will stop and watch the pitch man at the fair selling pot, pans, or car polish. Just because I listen to the pitch doesn’t mean I buy, in fact, most of the time I don’t buy (every pitch man knows he gets a percentage). But I do love a good pitch. And many of you need to be pushed to make a decision anyway. Otherwise all the sales people in the world would become lawyers and blog writers.

    And love to see what I’ve sold put to good use. On occasion, what I do will seem ‘high pressure’ to a person not used to sales, but frequently it’s just to find out if that person is a potential customer, or not. My daughter is a real estate agent and just naturally talks to almost anybody she meets about real estate. One of her big disappointments is when a friend or relative says ‘Oh I didn’t know you sold real estate, I could have used your help on this deal’.

    Both of us, and several of our associates, do not market to members of the church. If they fall into the correct demographic then I treat them like any other customer in that same demographic and I rarely mention my church membership in any business deal.

    A friend who is a dentist had a large percentage of LDS clients and frequently they demanded discounts because they were members of the church (how do you figure a discount on an LDS cavity?)

    Several years ago a story about Mormons and a business deals went something like this. If in the course of a business deal the membership in the church comes up, first red flag. If they bear their testimony, second red flag. If they say GA’s have invested in the deal, run away.

    Many of the worst deals I’ve seen have been presented by members of the church, my home was robbed at Christmas by LDS baby sitters. But it is not exclusive to the church. The Lutherans had a financial scandal a couple of years ago as well as the Seventh Day Adventist. I ‘m not sure that members of the church are any more gullible or more larcenous than any other group. As one other post said ‘caveat emptor’.

  20. John T. on February 4, 2005 at 5:44 pm

    As an investigator, It is becoming obvious to me that much of the history described in the book of Mormon doesn’t stand up to close scrutiny….neither do statements indicating such things as Lehi’s seed traveling to New Zealand and forming at least in part the genetic makeup of the Maori race, to name just one hard-to- believe “fact” as proclaimed by Prophet David O. McKay; the mindset which can minimize or eliminate the growing scientific problems which the canon of scripture have to contend with is probably the same mindset that can believe a 95% return on “International Debentures” is not only possible, but likely. I admire people who can continually focus on the miraculous, but God, or Heavenly Father, if you prefer, has created a universe that apparently follows consistent rules. Dead bodies decompose, they don’t “rise from the dead” and not everyone can get rich from MLM opportunities. A Wasatch Front computer dealer advertises that one should shop from them because “We Love You”. I doubt that would work as well in other parts of the country. I know it wouldn’t work in Seattle.

  21. Mark B. on February 4, 2005 at 6:40 pm

    Not to belabor the point, but . . . (beginning the belabor engine)

    The secret, as I understand it, to making a lot of money in MLM is to have a large stable of distributors beneath you in the distribution chain. That way you get a share of the profits from their sales as well as the profits on whatever you sell.

    The second point I made in my previous post, therefore, has nothing to do with the scrupulousness of any of the MLMers themselves, but instead is a defect in the entire system. If you want a lot of little nether-distributors to build up your pyramid of profits, then you have to sell them on the notion that they too can strike it rich by getting their own stable of distributors as well. As with the chain letter, you’ll run out of potential salesmen/women long before the pyramid gets high enough to make you wealthy. So, many of them will send the buck to the guy on the top of the list, send out their ten letters, and not get anything.

  22. John T. on February 4, 2005 at 7:02 pm

    ..Gee!…is that how it works?…..!

  23. Geoff Matthews on February 4, 2005 at 8:16 pm

    I’m gonna have to send out a request to objective data to back up these anecdotal assumptions. For example, how does Utah rate for fraud? What proportion of Pampered Chef/Mary Kay/etc. sales occur in Utah (in relation to their adult population for the U.S., etc.)?
    Anyone out there interested in getting real information on the subject rather than make guesses?
    Please don’t say that I’m ignoring the problem or whatnot. Though my own experience with MLMs has been minimal (my wife has attended a few of these ‘parties’), I’m not about to generalize my own experiences to a larger group. Why are so many other people willing to?
    So please, get some objective data in these meme.

  24. Jordan Fowles on February 4, 2005 at 9:17 pm

    Mark B.-

    I think you are right as far as SOME MLMs go. But with others, it is the product that is most important. People want the product, and those are your main income. You’re like a traveling salesman, only you only sell to people who want your stuff, from home. Sometimes, people do join your “organization”- not because you NEED them under you, but because they like the products and they know some people who would also like to try them, so they hope to also get some sort of financial reward. But nobody in the businesses I am talking about really hopes to get super rich. Only to bring in a modest income selling products they love and believe in and staying out of the corporate nightmare.

    So- I disagree that the entire system is flawed. Some bad apples have made it seem that way. And some greedy people, in and out of the church, have made it seem like the whole point is to get rich quick- IT’S NOT!