A federal appeals court ruled that federal sentencing guidelines did not apply to a pastor who defrauded hundreds of persons in a securities scam.

Key point 4-07. Clergy may violate state securities laws in a number of ways, including the sale of securities without registering as an agent, and the commission of fraudulent practices.
Securities Law Violations

* A federal appeals court ruled that federal sentencing guidelines that call for an "enhanced sentence" for crimes involving a "position of trust" did not apply to a pastor who defrauded hundreds of persons in a securities scam because his victims were not members of his church. Pastor Don was the senior pastor of a church. He soon became involved in a "gifting" program. Though the name of the program changed from the "Double Your Money Program," to the "Double Your Blessings Program," and finally to the "Faith Promises Program," the gifting program remained essentially the same throughout its life. Under the program, investors would "gift" money to the church in increments of $250 and within 17 months the "giftors" were to get back double their money in the form of "giftbacks." The pastor and other individuals held "roadshow" meetings across the country to promote the program. Despite using religious rhetoric to encourage participation in the program, the main focus of the meetings was on how much money could be made. Although there were disclaimers on the "gifting forms" stating that there were no guarantees of a return, investors were promised giftbacks. The pastor told the giftors that profits were generated through investments in mining for precious metals and gems, in offshore commodities and drilling, and in overseas banks that paid high interest rates. Aside from being led to believe that they would get back double their money, potential investors were also told that some of the profits generated would go to feed the homeless, rehabilitate drug addicts, and support missionaries. In reality, the church never had any of the assets the pastor claimed to be investing in.

Notwithstanding the pastor's promises of large amounts of money, many investors received little or no return on their gifts. When giftors inquired about their money, the pastor employed stalling techniques. Moreover, despite claims that giftors' investments were going to charity, only about one percent of this money went to charitable purposes. In contrast, each "director" of the program received a five percent commission of all money gifted or re-gifted by an investor recruited by that director. Over the course of the fraud, the pastor received more than $539,000.

The pastor was charged with several counts of securities fraud. He was convicted of mail fraud conspiracy, money laundering conspiracy, and three counts of mail fraud. On appeal, the pastor claimed that the trial court erroneously increased his prison sentence because of his "abuse of a position of trust."

A federal appeals court noted that federal "sentencing guidelines" allow an "enhanced sentence" when a defendant's crime involves an "abuse of a position of trust." The court noted that a "position of trust" arises "where a fiduciary or personal trust relationship exists." The government insisted that the pastor's use of religious rhetoric at the roadshow meetings in which the securities were promoted was sufficient to establish a trust relationship. The court disagreed, "Since the pastor and the other elders traveled across the country, these meetings were not regularly held in one locality, and listening to a meeting over the course of a few hours is not enough to establish the type of relationship contemplated by the sentencing guidelines. The government attempts to equate the pastor's speeches at these meetings with the type of preaching a pastor engages in with members of his church at regular church services. These roadshow meetings, however, were not regular church services, and the government concedes that there is no evidence in the record to indicate that the pastor preached about the gifting program to victims at regular church services where he presided as a pastor …. None of these victims came to the roadshows for spiritual guidance; rather, all of them testified that they came to invest money, not because the defendant was a pastor, but because they wanted to double their money."

Application. This case demonstrates that pastors who engage in securities fraud with members of their congregation face "enhanced sentences" under the federal sentencing guidelines because of the position of trust that arises from such a relationship. United States v. Hall, 349 F.3d 1320 (11th Cir. 2003).

Resource. For more information on securities fraud, see the feature article entitled "Investment Fraud" that appeared in the March-April 2004 issue of Church Law & Tax Report.

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