You Can't Cheat an Honest Man - James Walsh [98]
You Can Turn: $25 into $100 in 70 days, $250 into $1,000 in 90 days, $25,000 into $1,000,000 in 9 months. The Church of Hakeem, Inc. is an international as well as national church function. International and national investments return “Profits” which the church does not choose to keep. So it distributes its “Profits” to its active ministers only. These “Profits” we call an “Increase of God.”
The Church also printed and distributed tickets for free entry to Celebrations, which contained promotional statements of the wealth to be gained through investment in the Dare-to-be-Rich Program. In fact, Rasheed followed Carlo Ponzi’s steps carefully. He paid big profits to early investors with money invested by later ones. He counted on word of mouth to promote his scheme in Black communities throughout the Bay Area. Within a few months, the money was coming in faster than the Church could count it.
The scheme only lasted a year—but it was a busy year. During November and December 1978, the Church collected at least $3.6 million through the Dare-to-be-Rich Program. Rasheed poured money into a number of questionable investments, including a Church-related private school, a yacht and Rolls-Royces. He didn’t invest in any for-profit businesses, national or international.
On January 17, 1979, Internal Revenue Service agents seized all of the Church of Hakeem’s assets and effectively shut down the Dareto-be-Rich Program. At that point, at least 4,064 people had paid the membership fee and Rasheed had promised total returns of no less than $30.5 million. A flurry of civil and criminal charges followed.
At his criminal trial, Rasheed testified that money in bank accounts seized by the IRS, like all money invested in Church activities of any sort, had been obtained from member donations. He’d told Church members, investors and the IRS that he held this money as a “trustee.”
This wasn’t exactly true. Rasheed admitted that he’d converted money from the investors in the Church to his own personal use. The Feds had determined that Rasheed had purchased a yacht for $915,000 and transferred $1.5 million into accounts in his name at several local banks. In doing this, he’d ceased to be a trustee (if, in fact, he’d ever been one) and become a thief.
The IRS considers the money thieves steal as income and taxes it, just like legitimate money that working people earn. This was part of the reason the IRS had seized the Church’s assets—to collect $1,533,853 it concluded Rasheed owed for 1978.
In February 1980, Rasheed was convicted of six counts of mail fraud arising from his activities in the Church. He was sentenced to 15 years in a federal penitentiary.
In March 1980, the court certified a class action lawsuit in which burned investors could seek money back from Rasheed and what was left of his Church. They were able to proceed with the facts established by the criminal case. They won the case, but neither the church nor Rasheed had any money to collect.
In March 1981, the same federal court which had handled the criminal and civil cases against Rasheed considered a lawsuit the Church investors filed against the IRS. They wanted their yacht back.
One problem: The Feds had already sold the yacht. So, the investors wanted the $915,000 it had been worth when the IRS seized it. The court ruled for them, concluding that:
The question before this Court is whether the specific property obtained through the misappropriation of church membership fees and donations by means of a ponzi or pyramid scheme can be levied upon by the government for the purpose of satisfying the tax obligation arising [from] its passage into Rasheed’s possession. We think not.
The Feds eventually agreed to rebate the money it got for the yacht at auction back to the investors. The IRS was left with a $2.6 judgment against Rasheed—but no way to collect from the bankrupt perp. It was the same position the investors had been in a year earlier.
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