You Can't Cheat an Honest Man - James Walsh [104]
In the wake of the federal court’s ruling, Cynthia Rife—the secretarytreasurer of the Matewan Church—said the 70-member congregation had lost all of its money and was deeply in debt. “Several members and Pastor Thomas Larinson signed personal notes to pay the vendors. We now have a new building, but it’s not paid for and it will be a while before the notes can be paid,” Rife said.
CHAPTER 16
Chapter 16: Charities and Not-for-Profit Organizations
Religion and spirituality may be fonts of trust for some; but, in a secular age, other institutions have taken over as the most trustworthy in many people’s lives. For these people, involvement in charities and not-for-profit (NFP) organizations offer the feelings of camaraderie, reflection and renewal that—in earlier times—only religion offered.
The Ponzi perps haven’t missed this trend. As a result, charities and NFP’s have been the scenes of some dramatic Ponzi schemes in the 1980s and 1990s.
In many NFP’s, management is granted considerable autonomy. These managers often act as the de facto owners of their organizations, accountable to no one or to a board of trustees or directors appointed by management in the first place. This loophole of accountability can come into tight focus when economic realities force an NFP to act entrepreneurially.
Most NFP’s derive their revenues from a combination of endowments and current fundraising. As the segment has become more professional, fundraising has become more scientific—even small, local charities are usually pretty sophisticated about building donor lists and scheduling fundraising drives.
With the fundraising done well, the remaining issue is how the endowment is managed. This is where the Ponzi perp will try to enter the equation.
At a time of dwindling resources and pressure to provide more programs, organizations often become more aggressive with their investment strategies. They become vulnerable to promises of higher returns and the willingness to assume more risk.
How a Ponzi Perp Played on NFP Trust
California-based United Grocer’s Clearinghouse was a Ponzi scheme that marketed itself to naive investors by affiliating itself with charities and NFP’s. In the end, the investors, charities and NFPs were all in the same boat; they’d been fleeced in a not-so-creative Ponzi scam.
The pitch was pretty simple. UGC printed coupon books that provided deep discounts and free samples of consumer dry goods. Consumers could purchase family-size packages of things like breakfast cereal and coffee by mail from UGC for less than a dollar per item.
The company claimed it made its money from advertisements that other companies paid to have mailed along with the cereal and coffee. To market the coupon books, UGC enlisted charities and NFP’s like church groups or Scout troops. The NFP’s would buy the coupon books for between $10 and $15 each and then sell them to supporters for $30 each. Each book had 30 coupons, so consumers could save between $30 and $60 with each book they used.
At least that was how it was supposed to work.
UGC opened its doors during the summer of 1995. In less than a year, it had sold more 200,000 coupon books and taken in about $3 million. However, while UGC was growing through word-of-mouth in charitable organization circles, complaints from consumers slowly started trickling into the offices of consumer protection advocates throughout the western U.S.
Initially, consumers were able to redeem coupons for the merchandise. UGC claimed that it would send the cereal or coffee within one day of receiving coupons, but it actually took up to eight weeks. “The reason was simple,” recalls one investigator who looked into UGC’s operations. “[They] staked a little cash up front to buy some cereal and coffee. Then, they only spent a little of their cash flow to buy more. They couldn’t ever catch up because they were running behind from the beginning.