Churches need to be aware of Wolves in their midst

By Pat Huddleston

Saddleback Church and Crossroads Christian Church both had members fall prey to scamsters.

Fraud targeting Christians is an epidemic. Of the $40 billion that Americans lose to investment fraud every year, fraud against the faithful accounts for as much as $1 billion of it.

Antiquated notions of why churches fall victim to fraud are at least partially responsible for the epidemic. Old adages like, “If it sounds too good to be true, it probably is,” are not only useless as protection against fraud, but also dangerous.

Church executives concerned with sound financial stewardship and protecting the flock must reach beyond trite axioms. In this post-Madoff world, where scam artists are smarter and their schemes harder to spot, church leaders must adopt a pro-active, 21st century approach to protecting their church.

Advances in the science of decision-making and a better understanding of the cognitive biases that all humans share offer a much more successful path to protection. The discerning church executive will incorporate the latest information into a plan to shield their flock from the wolves among them.

Wolves are out there
The slogan for the PGA Tour is “These guys are good.” The same is true of financial scamsters. You can scan the horizon constantly for the one who aims to victimize your church, only to discover, too late, that he has been standing at your elbow the whole time.

Professional scamsters understand that relationships lead to influence. They are willing to invest time and energy into relationships that will allow their schemes to succeed. They will serve in ministry. Those who serve alongside them will be convinced that they are humble and trustworthy. The scamster may make large donations to the church and even serve in lay leadership.

The wolves are subtle. The most experienced operators will merely mention their investment in passing, counting on questions from their prospective victims to draw out the details. They’ll casually say that the investment has allowed them to contribute much more to ministry projects than they ever have in the past, and let their victims’ curiosity and desire to help the church take it from there.

Their victims may never feel like they’ve been sold.  On the contrary, the most skilled operators will arrange for the investment to be the victim’s idea.

Megachurches are especially vulnerable. Church executives who focus only on threats to church accounts fail to appreciate that the thousands of members at larger and megachurchs give a scam artist all the victims he could ever want, without once approaching the church leadership about investing the church’s capital. Saddleback Church in Lake Forest, CA – with more than 20,000 members – learned that lesson in 2006.

Saddleback member Lambert Vander Tuig handed out copies of Pastor Rick Warren’s A Purpose-Driven Life to prospective investors in Carolina Development Properties Inc., which supposedly developed luxury residential communities centered around exclusive golf courses.

Using glossy brochures that included pictures of Jack Nicklaus and Greg Norman, Vander Tuig, and salespeople he recruited from among Saddleback members, sold stock in Carolina Development to more than 1,000 people, including Saddleback members.  In January 2009, California prosecutors charged Vander Tuig and his cohorts with securities fraud.

While neither Warren nor anyone in leadership at Saddleback knew about the scam, it gathered $52 million.

Whether a scam targets church accounts or the savings of members, the result is the same: fewer resources for the kingdom.

Scam artists who want to fleece a church flock know that attracting the shepherd will always lead to success. If they cannot convince the pastor or other leaders to invest the church’s capital, they will target them to invest personal funds. If a pastor invests, word of that investment will be enough to convince many in the congregation that the investment must be legitimate.

At the very least, the scam artist hopes that a warm relationship with the pastor – even if he does not invest – will lead him to vouch for the honesty and trustworthiness of the scamster when members of the congregation ask the pastor’s opinion.

According to news reports, at least one of the pastors at Crossroads Christian Church in Corona, CA, vouched for choir member Randall W. Harding. Harding promised many of Crossroads’s 8,000 members that his business, JTL (“Just the Lord”) Financial Group, could generate attractive, guaranteed returns.  He swindled hundreds of Crossroads members out of more than $18 million and served 51 months in federal prison.  He was released in December 2009.

“I’d never fall for that.” Every victim of financial fraud – regardless of education, investing experience, or income – had that thought at one time.  It is the mindset that every scam artist most wants to see in his victims. It is a belief common to all healthy humans, driven by a cognitive bias called the “optimism bias.”

That bias helps us in most areas of life. Without it, we’d never walk out our front doors into a world full of crime, germs and teenaged drivers.  But, the optimism bias is absolutely deadly in the investing context.  Scam artists manipulate it with devastating effect.

Beware cogruence bias
Another cognitive bias thwarts the efforts of even the most diligent investor.  The “congruence bias” leads us to seek to confirm our first theory about any given situation, to the exclusion of alternative theories.  Again, it does more good than harm, but not in the investment context. We find what we look for, and what we look for with investments is confirmation of legitimacy.

Every scam artist worth the title can see to it that we find that confirmation. Defeating that bias requires approaching an investigation with another theory in mind: the fraud theory.  Seeking to confirm a fraud will lead us to evidence that we’d never find otherwise.

Learning about cognitive biases and what brain imaging technology tells us about how we perceive the world can better equip the church executive to protect his church.  Church executives must take charge of training themselves and their staffs about these human tendencies and how to neutralize their effects.

Training should include not only pastors and church executives, but lay leadership and every member of the staff.   At a megachurch, especially, you can never predict from which corner of a fellowship an investment scam will spring.  Equipping everyone to recognize the warning signs is the most effective path to catching a scam early and limiting the damage.

Equipped with an understanding beyond the common, but naïve, belief that gullibility is the chief contributor to fraud, church leadership can save the flock from the wolves in their midst.

Pat Huddleston has worked for the Enforcement Division of the U.S. Securities and Exchange Commission as an enforcement attorney. Now in private law practice he has represented investors in securities litigation and arbitration, and serves as court-appointed receiver in SEC fraud cases, cleaning up the mess left in the wake of the collapse of those scams and working to recover assets for defrauded investors. He blogs on investment scams and investor protection issues every weekday at


How the affinity fraudster preys on congregants

“Affinity fraud” is the name the U.S. Securities Exchange Commission gives to scams that target an identifiable group, whether religious, ethnic, professional or other.  But affinity fraud is not so much a separate species of fraud as it is a description of the con artist’s modus operandi.

The affinity fraudster becomes a member of the group he intends to fleece.  Because it is impossible for a scam artist to give himself a different ethnicity or cultural heritage, affinity fraudsters gravitate toward Christians, an identity that is open to all.

Forgetting that Christ counseled his disciples to be not only “as innocent as doves,” but also as “shrewd as serpents” (Matthew 10:16), believers too often accept the representations of a fellow believer as gospel.

But training that incorporates the latest advances in human psychology and neuroscience can equip believers to protect themselves from the wolves in sheep’s clothing.


One Response to “Churches need to be aware of Wolves in their midst”

  1. Great article. Loved the inclusion of operative biases within the context of fraud. I second your suggestion of utilizing training within a church to help members avoid becoming susceptible targets to scammers. I’d even go so far as to suggest that training include classes on business management. Some religious institutions are now beginning to include business courses within their religious degrees, as they recognize the growing threat of fraud. While the church differs from a business due to its non-profit status, adapting certain business savvy principles would only help the church to maintain secure funds and integrity.

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