Why so many Latter-day Saints fall for Ponzi schemes

Many Latter-day Saints let out a collective sigh of resignation at the news that members of their church had fallen prey to yet another investment venture that turned out to be fraudulent.

They’ve heard this story before — over and over and over.

Indeed, in a 1982 speech, future apostle Jeffrey R. Holland (then president of Brigham Young University) warned students about the allure of quick money and pointed out this headline from Honolulu: “Mormon Utah Called a Test Market for Scams.”

Quoting from the article, Holland repeated these lines: “It’s very easy for people to bridge the gap from unbelievability to believability if church affiliation is used.”

Now, decades later, it remains a problem for The Church of Jesus Christ of Latter-day Saints — so much so that the Utah-based faith warns about it in its General Handbook.

“Affinity fraud occurs when a person exploits another’s trust or confidence to defraud him or her,” the handbook states. “...It can also happen by abusing a position of friendship or trust, such as a church calling or family relationship.”

This crime is usually done “for financial gain,” the guidelines add. It “is a shameful betrayal of trust and confidence. Its perpetrators may be subject to criminal prosecution.”

Latter-day Saints who commit affinity fraud, the book notes, “may also face membership restrictions or withdrawal.”

The handbook makes clear that “members may not state or imply that their business dealings are sponsored by, endorsed by, or represent the church or its leaders.”

Despite such strong wording, Utah still has a higher per capita incidence of affinity fraud, says Mark Zimbelman, an accounting professor at church-owned BYU who specializes in fraud. “It’s really sad.”

In a couple of recent rankings, the Beehive State placed as high as ninth and 14th among states for per capita fraud cases. “Does Utah lead the nation in Ponzi schemes?” the church-owned Deseret News asked in 2019. “The answer is no, but it is regularly near the top.”

The Washington Post reported a large-scale case earlier this month involving Latter-day Saints in Las Vegas who were drawn into a “Mormon Ponzi scheme” in which organizers used money from new investors to pay off earlier ones rather than from any real earnings.

“More than 900 people invested their savings — an estimated $500 million — between 2017 and 2022,” The Post explained. “They included surgeons, real estate developers, Mormon bishops, retirees and stay-at-home mothers.”

Why Latter-day Saints are vulnerable

Latter-day Saints are hardly alone in being duped by those in their flock.

All fraud requires trust, and trust is easily created in an already existing group, particularly an ethnic or religious community, says Christine Hurt, who teaches corporate, partnership, business and securities law at Southern Methodist University in Dallas.

What makes Latter-day Saints especially valuable and, frankly, vulnerable to scam artists is their “ready access to a network of contacts,” says Hurt, who previously taught at BYU.

Members, for instance, carry their contact list — the ward (congregation) directory — in an app on their phones.

“It’s a strong and instant network,” she says, that is gold to multilevel marketers, for starters, and to fraudsters.

Not every group has that.

The church also has a general and local hierarchy, Hurt says, which adds another level of trust.

“When a victim normally would begin to have doubts or be skeptical, [Latter-day Saints might] say to themselves, ‘No, they wouldn’t do that because they are in my ward or are in the bishopric.’” she says. “It’s hard to be skeptical of people in your trust group.”

Sam Brunson, a Latter-day Saint who teaches tax law at Loyola University Chicago, echoes Hurt’s sentiments on trust.

Church members pray together. They sit next to one another in the pews. They teach one another in Sunday school. They babysit one another’s kids. They attend campouts and play basketball together.

Managing money in today’s world — a necessity for many Latter-day Saint workers as pensions have been eliminated — is “complicated so one shortcut is to go with the people we trust,” Brunson says. “That makes us more vulnerable than those who don’t have such a close-knit community.”

Most affinity ploys “look like a real investment,” he says. “The veneer is plausible. The difference with what they are selling is that there is a ton of risk that they downplay or don’t mention at all.”

Brunson’s advice?

• Never invest more than you can afford to lose.

• Request financial information.

• Find an objective outside expert to review the proposals.

“You can’t get a 50% return without significant risk,” he says. “The bigger the gain, the bigger the risk. You can lose it all.”

What the church can do

Beyond regularly cautioning leaders and the rank and file, the nearly 17 million-member faith could add a class in ethical investing to its popular self-reliance courses, Hurt says. Such classes could teach members how to be “a prudent saver and investor.”

Zimbelman, the BYU expert, says: “The church has tried to do things, including sponsoring fraud conferences.”

In one of his first statements to be read over the pulpit in every congregation, Zimbelman recalls, then-church President Thomas S. Monson urged members to be careful about investing, to live within their means and not be greedy.

If a wealthy member in your ward is pitching you on a “once-in-a-lifetime opportunity,” Zimbelman says, “you should ask if they can make that kind of money, why do they need you?”

And if somebody says “the stake president or any kind of LDS leader is behind this investment, that should be ‘a red flag,’” he adds. “That means they are invoking religion to get people to put on their blinders and just trust.”

A little common sense, Zimbelman says, “would go a long way.”

God’s reward for righteousness?

Some Latter-day Saints also could be victims of their own spiritual optimism in the form of the “prosperity gospel,” says Latter-day Saint civil rights attorney Carolyn Homer.

There’s a strong theological message that “faithful financial support for the church will lead to greater financial blessings,” Homer says. “We’ve all heard dozens of General Conference and Sunday school stories about how God will ‘open the windows of heaven, and pour you out a blessing’ as being literally fulfilled with increased wealth.”

The Washington, D.C., lawyer has seen that promise — that if you pay your tithes and offerings to the church, you will have financial security — come true in her own life.

Still, the whole underlying premise gives her pause, Homer says. “No one is ‘worth’ more to God because of their ‘net worth.’”

Top church leaders have said earthly riches and worldly success are not signs of “divine favor” and Christ regularly condemned the rich and arrogant.

And yet “church doctrine promises financial security as blessings for obedience,” Homer says, “and church culture tends to promote the wealthy as role models and call the fiscally stable into leadership positions.”

It’s easy, she says, for members to observe “the perceived spiritual success of the wealthy, and then fall victim to affinity schemes which promise them that they too can join those favored ranks.”

Spiritual inspiration is “not tantamount to financial inspiration,” she notes. “Joseph Smith himself was notoriously inept at managing money.”

Does that mean members should stop being so trusting?

Having a community you love and trust is what “makes social groups wonderful,” says Hurt, the SMU financial expert. “To throw that away or edge it with skepticism may not be worth it.”

A better way might be to divorce “spiritual success from material wealth,” Homer says, and add a dash of theological humility.