You Can't Cheat an Honest Man - James Walsh [102]
Case Study: Sell America Scams a West Virginia Church
In 1990, the United States Corps of Engineers determined that a church building owned by the First Assembly of God in Matewan, West Virginia, was located on an unprotectable flood plain. The Corps wanted to use the Church property to complete a flood-wall project along the Tug Fork of the Big Sandy River. It condemned the building and compensated the Matewan Church with a $375,000 lumpsum payment.
The Matewan Church paid off its existing debts with the proceeds and deposited the remaining $200,000 in the Matewan National Bank pending the construction of a new church building.
The Matewan Church needed a building site for the new church. It enlisted the aid of the Reverend Gordon Shinn, who was a pastor of the Heritage Assembly of God in nearby Dublin, Virginia. Shinn had construction and engineering experience.
While looking for suitable real estate, Shinn visited and “fellowshipped” with the Matewan congregation. About this time, he learned that church leaders were dissatisfied with the interest rate they were earning on the $200,000 at the Matewan National Bank. The leaders asked Shinn to help them find a better return.
At this point, the trouble started. Shinn accepted the assignment to find a better rate of return. He had no financial background, so he turned to acquaintances who did. After talking with several of these contacts, Shinn was referred to a Kentuckian named John Holtzclaw, who—by star-crossed circumstance—was at the time involved in a Ponzi investment scheme operating under the name Sell America.
Sell America was an Alabama corporation involved in various bogus multi-level marketing programs.
Over the course of several weeks, Shinn had many conversations with Holtzclaw and several of his associates. According to Shinn, Holtzclaw spun a convincing tale of the golden opportunities awaiting those who would participate in the Sell America program.
Shinn was dazzled. At a February 14, 1991 meeting with the Board of Trustees of the Matewan Church, he relayed Holtzclaw’s big talk of riches without risk.
Shinn arranged another meeting with the Board for a few nights later to complete the deal. At the second meeting, Holtzclaw and his cronies made a presentation that included an agreement authorizing them to carry away the money for an “investment” in the Sell America program. Shinn did his part to close the deal. He would later testify, shamelessly:
I informed the board of trustees that they dealt with gold-minted coins, not with mines or speculation.... I informed them in my presentation that the investment was risk-free. I told them, in explanation of investments, that it was similar to buying a piece of pie. A restaurant buys a pie for, say, two dollars...and sells each piece for two dollars apiece. And that’s how [Sell America] generated profits. They buy in large volume and then sell the individual pieces.
I also included a river analogy where a stream starts quite small but as tributaries are added to it, it becomes larger and more powerful. And for investors in firms like Sell America, each tributary added to the size of their buying power. In other words, the size of the river would grow as more tributaries joined it.
None of the Board members remembered any discussion of rivers, tributaries or pieces of pie. A few remembered that four professionals and a preacher presented a “risk-free” investment that would yield an 18 percent return—and that one of Holtzclaw’s cronies flashed a few gold coins. (Of course, since the members proceeded to lose Church money in a fool-hearty investment, they had reason to claim sketchy memories.)
Shinn said that Holtzclaw