Posts in this section were archived prior to February 2010. For more recent posts, go to the HOME PAGE.

Monday, December 11, 2006                                                                                       View Comments

Fraud in the church

ELYRIA, OH — Sarah Presnell did not think she would ever come home from the hospital.

Before she went in, the Tennessee woman got her finances in order for her elderly husband and disabled daughter. She cobbled together $25,000 from the couple's savings and her daughter's mea ger earnings from bundling silverware at a restaurant and sent it to Gary McNaughton, an Elyria church leader recommended to her by relatives.

As promised, he sent her a check for $250 the next month.

The first check would be the last.

McNaughton, former youth assistant at Church of the Open Door, sits in jail without bond. The 51-year-old Canadian was charged last month in federal court with fraud and tax evasion, accused of selling $17 million in bogus securities. He tricked 200 people from 1999 to 2003.

Many of those people attended the church or had relatives who did, prosecutors say.

Authorities say scams that sprout in church pews and beneath steeples are among the fastest-growing frauds in America.

In 1989, the North American Securities Administrators Association found that 15,000 people lost $450 million over five years in schemes centered at church.

Those numbers have ballooned. The association found that 80,000 people were victimized between 1998 and 2001, losing nearly $2 billion.

"I've seen more money stolen in the name of God than in any other way," Deborah Bortner, the group's former president, says in a news release on its Web site.

Bob Webster, spokesman for the securities administrators group, said fraud linked to religion thrives as society grows more threatening and people more cautious. One lasting place of trust is the church.

"People tend to let their guard down there," Webster said. "Con artists realize that. Outsiders look to penetrate the circle of trust."

The Ohio Department of Commerce says church-based and ethnic fraud was one of the state's leading investment scams last year, behind cons against the elderly and the sale of crooked promissory notes.

Since 1990, state regulators have shut down 16 people accused of investment fraud based in churches, including McNaughton.

In a notice titled "Preying on the Faithful," the department warned investors of new church members with "sure-fire" investment plans.

McNaughton promised just that, court records allege.

Under the name Haven Equity Co., he promised clients interest rates as high as 20 percent annually on investments and told them their principal was guaranteed, which it wasn't, according to court records.

Church of the Open Door, incorporated in 1950, is one of Lorain County's biggest and most visible religious institutions. It boasts 1,800 people at Sunday services, a rambling campus and a school that enrolls 640 children from pre-kindergarten through high school.

The interdenominational church never invested money in Haven Equity and had no involvement with the sales, Open Door's attorneys said.

"The church was only in the business of religion," attorney Kate Ryan said.

But the pastor at the time, David Walls, and other church leaders invested their own money and recommended the investments to church members, according to court records filed by the investors' attorneys. Walls left the church in 2003 and could not be reached for comment.

Presnell, the Tennessee woman, and James and Dorothy Jevack, of Medina, said the only reason they invested their money was because they believed it was connected with the church.

"Open Door's public venue and promotion of the scheme provided a ripe environment for unscrupulous shysters," according to court documents filed by the Jevacks, who lost close to $200,000 and sued the church.

Lorain County Common Pleas Judge Christopher Rothgery dismissed the couple's suit, saying the church did not have anything to do with McNaughton's business. The Jevacks are appealing the decision.

The Jevacks declined to be interviewed on the advice of their attorneys. Other victims would speak only anonymously because they are embarrassed they were duped. A Grafton couple who lost nearly $200,000 say only their children know about it.

Some victims believe the church should not be held liable. "Any judgment against the church will turn me upside down," said Seth Stevens, who blames himself for being naive and McNaughton and his Canadian partner, Andrew Lech, for deceiving him.

Stevens, who lost almost all of his $750,000 investment, is still a member of Church of the Open Door.

David Miller, executive director of Yale Divinity School's Center for Faith & Culture, said clergy have to be especially careful not to endorse businesses. But he also said it is common for a church to tap its members' expertise to conduct adult education classes or other programs, which may generate clients for the members' businesses.

Former church employee Scott Russ, who did not invest with McNaughton, said church leaders became a megaphone for McNaughton's investments.

Russ was fired as youth pastor in 2002. He said McNaughton's presence at the church changed the atmosphere for the worse.

"The focus was taken off of God and the ministry and the work of the church, and a lot of it shifted over to Gary and his money. He flaunted his money before a lot of people," Russ testified in a deposition.

McNaughton and his family lived in a $350,000 house about a mile from the church, owned boats and motor homes and drove expensive cars.

A Lorain man who lost $90,000 said he once saw a new Mercedes SL500 sitting in the driveway at the McNaughtons' house. "I joked to his daughter, 'Your dad bought a car with my money,' " he said.

McNaughton donated $250,000 to the church from 1996 to 2002 and bought meals and vacations for at least one church member, according to court records and Russ.

In a deposition, McNaughton said the investment business had nothing to do with his job at the church. McNaughton said he told investors that he was not a financial planner and that he would be sending their money to Lech, a stock trader in Canada whom he had done business with since the late 1980s.

Lech is in jail on contempt of court charges for refusing to give information in one of the civil cases filed by investors. Criminal charges related to the investments are pending.

McNaughton filed for bankruptcy last year, citing debts of more than $1.1 million. He is represented by defense attorneys Mark Stanton and William McGinty, two prominent attorneys in Cleveland.

Stanton declined to discuss how McNaughton could afford the pair.

As for the Presnells, they were forced to sell their home of 27 years for a smaller house and abandon their dream of securing health insurance for their 56-year-old daughter, Diana, who has cerebral palsy.

Sarah Presnell said she was grateful to recently receive a check for $1,980 from Lech's settlement in a class-action case in Canada.

"I've never lost my faith in God," she said.