Recently Louisiana financial planner, Gregory Alan Smith and Houston church pastor Kirbyion H. Caldwell were indicted on multiple accounts related to a purported investment scam in which the two are alleged to have worked together to convince unwary investors to pour more than a million dollars into investments in worthless bonds issued by the Republic of China, which was the Chinese government prior to the communist revolution that overthrew the government in 1949. The bonds have long been in default and have no value whatsoever beyond historical value. According to the indictment Smith and Caldwell lied to investors about numerous aspects of the investment including promises of returns of 15,000%. In fact, the investments were worthless and according to the indictments, the investors lost everything they invested. According to the indictment Smith and Caldwell used the investment payments to pay for their own personal expenses. In addition, the investments were never even registered with the SEC.
TIPS
The indictments appear to be supported by evidence and if they are indeed true, this is a good example of affinity fraud where people put undeserved trust in someone offering an investment opportunity because that person is “someone like me.”  Affinity fraud works because people trust other people who may share a common bond, such as family, religion or a group affiliation.   The list goes on and on.  Scammers take advantage of every connection they can make with their victims to gain their trust and then steal their money. In this case, Pastor Caldwell is a well known and trusted Houston religious figure who even has served as a spiritual adviser to former President George W. Bush.
Before investing with anyone, you should investigate the person offering to sell you the investment with the Securities and Exchange Commission’s Central Registration Depository.  This will tell you if the broker is licensed and if there have been disciplinary procedures against him or her.  You can also check with your own state’s securities regulation office for similar information.  Many investment advisers will not be required to register with the SEC, but are required to register with your individual state securities regulators.   You can find your state’s agency by going to the website of the North American Securities Administrators Association.
You should also check with the Financial Industry Regulatory Authority (FINRA) for information about the particular  investment adviser.  It is also important to remember that you should never  invest in something that you do not completely understand.  This was a mistake that many of Bernie Madoff’s victims made as did the investors in this scam. Even a cursory investigation would have indicated that these bonds were in default and worthless.  You also may want to check out the SEC’s investor education website at http://www.investor.gov
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