{"id":16389,"date":"2012-06-20T06:00:56","date_gmt":"2012-06-20T11:00:56","guid":{"rendered":"http:\/\/www.sequenceinc.com\/fraudfiles\/?p=16389"},"modified":"2015-03-25T12:42:15","modified_gmt":"2015-03-25T17:42:15","slug":"the-mormon-madoff-how-shawn-merriman-scammed-millions","status":"publish","type":"post","link":"https:\/\/www.sequenceinc.com\/fraudfiles\/the-mormon-madoff-how-shawn-merriman-scammed-millions\/","title":{"rendered":"The Mormon Madoff: How Shawn Merriman Scammed Millions"},"content":{"rendered":"

\"\"Jenna Martino, CNBC Associate Producer<\/em><\/p>\n

Shawn Merriman was head of an investment firm and lay bishop in the Mormon church who persuaded friends, family, and church members to invest with him. It turned out to be a big scam, taking in more than $21 million. Among victims: his own mother.<\/p>\n

What Merriman did is considered affinity fraud \u2014 where a perpetrator tries to swindle a specific group out of money. While Merriman was already a long-standing member of the Church of Latter-day Saints, other fraudsters have been known to specifically infiltrate a group with the sole mission of perpetrating a scam. The method of operations is simple. The person is introduced to the group, joins the group, and establishes a relationship of trust. Once trust is established, the scam has the potential to spread like wildfire \u2014 especially at a time when nearly 1 in 4 financial fraud schemes in America are actually cases of affinity fraud, according to a recent report by Marquet International, a professional consultancy.<\/p>\n

Characteristics of Affinity Fraud<\/strong>
\n\u201cPonzi schemes are almost always marketed as something exclusive or selective,\u201d said Tracy Coenen<\/strong>, a forensic accountant and fraud investigator. \u201cPonzi schemes play on our human nature, including our trust and our desire to be part of something special.\u201d<\/p>\n

This is why using a church or an ethnic group as an \u201cin\u201d is so effective, she said. People in these groups are typically trusting of other members. The common ground helps overcome the trust hurdle.<\/p>\n

\u201cGetting people to part with their money requires trust,\u201d Coenen said. \u201cIf an individual or group you trust is part of the investment or has recommended it, the victim is more likely to become involved.\u201d<\/p>\n

While exclusivity is a tool used to draw people in, it also is used to explain the secrecy of the investment or answer questions that may arise from investors.<\/p>\n

\u201c[Investors] can\u2019t go talk to [their] accountant or attorney, because that would violate the secrecy and exclusivity,\u201d Coenen said. \u201cYou aren\u2019t able to research the investment because it is top secret. If things don\u2019t make sense to you and you start questioning the investment, the exclusivity factor will help explain things away.\u201d<\/p>\n

Why Don\u2019t Investors Do Their Homework?<\/strong>
\nThese schemes appear to offer an investment solution that allows investors to earn money quickly.<\/p>\n

\u201cIt\u2019s security foremost. With an unpredictable stock market, many older investors are worried about retirement and having enough money saved,\u201d Coenen said.<\/p>\n

Even investors who have been burned by the stock market are still willing to take very high risks.<\/p>\n

\u201cThey say the stock market hasn\u2019t worked for them, so they need to try something else. They think about \u2018rich\u2019 people investing in private investments, and assume that must be the way to make money,\u201d Coenen said.<\/p>\n

Unfortunately, that assumption usually causes people to fall for scams that turn out to be Ponzi schemes. Instead of making money, people lose what they already have.<\/p>\n

Preying On the Congregation<\/strong>
\nInvestors are so eager to make money that they largely ignore the potential downsides of these investments.<\/p>\n

\u201cYou see in news stories the people saying they lost their entire savings in Ponzi schemes,\u201d Coenen said. \u201cHow could they let this happen? Why weren\u2019t they considering the downside of the investment? Why did they ignore the potential of losing everything? They trusted people, saw that others were earning large sums of money and threw caution to the wind.\u201d<\/p>\n

When some members of Merriman\u2019s congregation trusted him with their money, he used it to fund a lavish lifestyle \u2014 buying up classic cars, a boat and a 350-piece art collection.<\/p>\n

Merriman\u2019s mother, Sally Merriman, was one of his victims.<\/p>\n

\u201cHe just said, \u2018Mom, I have to tell you something very bad. I have been running a Ponzi scheme, I took your money.\u2019 And that\u2019s when I said, \u2018How could you?\u2019 I said, \u2018You took all of our money that we\u2019re counting on for retirement?\u2019 and he said \u2018Yes,\u2019\u201d Sally Merriman said.<\/p>\n

Like most Ponzi schemes, the pressure to recruit new business and the failure to bring in new investors took its toll on Shawn Merriman. Eventually, he did something unexpected \u2014 he surrendered to federal authorities. Merriman pleaded guilty to mail fraud, and is currently serving a 12 \u00bd-year sentence.<\/p>\n

Coenen said there are two things that really resonate with the Merriman case.<\/p>\n

First, she said, \u201cto keep it going for this long takes an incredible amount of work, and a constant influx of new money.\u201d<\/p>\n

Testimonials from early investors help perpetuate the crime. A large pool of money needs to be recruited constantly. People already invested in the scheme lend credibility to the investment scam.<\/p>\n

Secondly, the case shows a stunning lack of due diligence on the part of investors.<\/p>\n

\u201cIt is amazing to me that such large sums of money could be invested by people, some who seemingly have at least some sophistication with money, with so little research on or verification of the investments being marketed,\u201d Coenen said.<\/p>\n","protected":false},"excerpt":{"rendered":"

Jenna Martino, CNBC Associate Producer Shawn Merriman was head of an investment firm and lay bishop in the Mormon church who persuaded friends, family, and church members to invest with him. It turned out to be a big scam, taking […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[1186],"tags":[],"class_list":["post-16389","post","type-post","status-publish","format-standard","hentry","category-ponzi-schemes"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p6Z0e-4gl","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/posts\/16389","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/comments?post=16389"}],"version-history":[{"count":0,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/posts\/16389\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/media?parent=16389"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/categories?post=16389"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/tags?post=16389"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}