Former Pastor Faces Ponzi Scheme Charges in Ind.

INDIANAPOLIS (AP) -- Karen and Fred Lamb tried to do their homework before investing their savings in an Indiana company's fund to help churches build or expand. After talking with church friends and checking out Alanar Inc. on the Securities and Exchange Commission's website, they decided the firm's goals and beliefs meshed with their own.

"It was a good place where Christians would be investing in the work of other Christians," said Karen Lamb, a 55-year-old Terre Haute housewife.

More than five years later, the Lambs still are waiting to get most of their $53,000 investment back. Now a former pastor is going on trial for what authorities call a multimillion-dollar scheme that preyed on thousands of parishioners who thought they were helping build churches but were actually buying the man and his sons planes and sports cars.

Vaughn Reeves, 66, faces 10 counts of securities fraud. Jury selection was to begin Tuesday in Princeton, Ind., about 25 miles north of Evansville.

Authorities say Reeves, founder and owner of now-defunct Alanar, and his three sons duped about 11,000 investors into buying bonds worth $120 million secured by mortgages on construction projects at about 150 churches. The men diverted money from new investments to pay off previous investors, pocketing $6 million and buying two airplanes, sports cars and vacations, according to court records.

Officials say the scheme operated mainly in Indiana, though church members in other states, including Florida, Michigan, Maryland and Oklahoma, also were victimized.

All four men have pleaded not guilty. An attorney for Vaughn Reeves did not return calls from The Associated Press seeking comment.

Experts say the Alanar case is a prime example of affinity fraud, in which scammers prey on people who share a common interest, such as religious affiliation, ethnicity or even age.

The SEC doesn't track cases of affinity fraud separately, but Lori Schock, director of the agency's Office of Investor Education and Advocacy, estimates investors have lost hundreds of millions of dollars to such schemes in the last two years. Many victims never report the crimes because they are ashamed to tell authorities they've been duped, Schock said.

A warning on the SEC website says schemes have targeted retirees, blacks, Jehovah's Witnesses and Armenian-Americans. Schock said recent schemes have gone after bus drivers in California, Latin Americans in Miami and Mormons in Utah.

Investigators say Reeves and his sons assembled teams of church members to sell bonds to other church members, urging them to fulfill their "Christian responsibility" by supporting church construction projects during the early part of the decade. The teams were given training materials that instructed them to open sales calls with a prayer and to quote scripture.

"Never sell the facts, sell warm stewardship and the Lord," urged materials quoted in court documents.

Five years after a federal judge froze Alanar's assets, Bradley Skolnik, the Indianapolis attorney who has served as Alanar's court-appointed receiver since 2005, has repaid about $35 million to investors who lost nearly four times that. He expects another payout of about $10 million late this year or early next.

The money, he said, comes from about 150 churches across the country that issued the bonds. Some were able to pay off their debt, but Skolnik said about 20 percent were in default. About eight churches face foreclosure proceedings and likely will lose their buildings, he said. Skolnik said that in some cases, Alanar had never determined whether the churches could afford to issue bonds on their projects.

The Lambs, who invested about $53,000 from inheritance money and their two sons' trust funds, have gotten back just $6,000.

"We wanted to invest in something honest, and doing the Lord's work - and that just sucked us right in," said Karen Lamb, whose 57-year-old husband works as a millwright.

Indiana Secretary of State Todd Rokita, whose office led an effort to toughen criminal penalties for affinity fraud last year, said people need to verify that they are investing in legitimate enterprises before handing over cash.

"The point isn't to make everyone distrust their friends and loved ones or be afraid of their own shadow, but to reinforce the fundamentals of sound investing," he said.

The SEC's Schock said such due diligence can "protect these people from a lifetime of hardship."

"Some of these people are too old to regain this money they've lost," she said.

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Online:

SEC alert on affinity fraud: https://www.sec.gov/investor/pubs/affinity.htm