COLUMN ONE : Ethnic Scammers Fleecing Their Own Flocks : A growing number of con artists are employing 'affinity scams,' in which they prey on members of their own minority groups for millions of dollars.

By GREGORY CROUCH

Aug. 8, 1990 12 AM PT

TIMES STAFF WRITER

Word has it Anthony Mendes de Moraes is hiding out in the rain forests of Brazil or the jungles of Paraguay. Every now and then, somebody claims to have seen him walking around East Los Angeles. All anyone really knows for sure is that he has vanished, along with the $15 million that 4,200 hopeful Latinos invested with him.

Moraes wasn’t hard to find during the late 1980s. Better known as Anthony Fadel, he drove a black Rolls-Royce, lived in a Bel-Air mansion and did business out of a Los Angeles office tower on Wilshire Boulevard.

He had made a fortune, and the source of it was Fadel Investments. The firm advertised extensively on Spanish-language television and radio and in newspapers with an appealing message: Earn 16% to 22% annually, guaranteed.

But the California Department of Corporations alleges that Moraes was the brains behind an illegal investment scheme, and last year it issued a cease-and-desist order against Fadel Investments. His former attorney said Moraes is in hiding for fear that investors might harm him, but still maintains he has done nothing wrong.

Firms like Fadel are turning up all over the nation’s ethnic neighborhoods, operating what law enforcement officials call affinity scams. The term applies to fraudulent multimillion-dollar investment and charitable schemes in which minority con artists prey upon people in their own communities, capitalizing on distrust of the outside world or a natural affinity with members of their own ethnic group. Korean con artists rip off Koreans, Mexicans bilk Mexicans, Iranians steal from Iranians.

“This is the classic situation of the wolf in sheep’s clothing,” said Scott Stapf, spokesman for the North American Securities Administrators Assn. in Washington. “They automatically have a foot in the door that someone from outside the community who is trying to promote a scheme wouldn’t have.”

NASAA, which represents state investment regulators, issued an alert last year that affinity fraud is quickly escalating around the United States.

Affinity scams have received a big boost from the rise of foreign-language media in the United States as well as the increasing affluence of the country’s ethnic communities. With ready access to the airwaves, con artists can advertise to millions of people--counting on many to use ethnicity or national origin as a major factor in choosing where to put their money.

The sales pitch typically comes with a special twist that distinguishes it from dozens of other investment scams. “They say, ‘This is the way for our community to pull itself up by its bootstraps,’ ” said G. W. McDonald, chief of enforcement for the state Department of Corporations. “ ‘Let’s get a part of the American Dream.’ ”

Many victims do not realize they are getting fleeced because investment promoters initially make small interest payments or hand out collateral such as trust deeds or gemstones that later turn out to be virtually worthless.

In Boston, hundreds of Haitians lost several million dollars by trusting Cambridge, Mass.-based Longview Investment Corp., which frequently advertised on Creole-language radio promising returns of 100% to 500%. Haitian businessman and Longview owner Guy G. Lahens is now in jail awaiting trial on more than 100 counts of larceny and securities violations.

In Michigan, the Polish community is out $2.8 million in a gold and silver commodity scheme. State officials there say Barbara Ann Skorupskas, who is Polish, spent the money on a vacation home, fur coats and two Mercedes-Benzes. Skorupskas was convicted of mail and bank fraud and sentenced to 10 years in prison.

Nowhere, however, are the scams as diverse and plentiful as in Southern California, where they have victimized the Filipino, Nigerian, Chinese, Korean, Iranian, Vietnamese and Latino communities, among others.

In Orange County, American Finance and Investment Group (Inversiones Y Finanzas Americanas) allegedly bilked 700 Latinos out of more than $8.2 million, according to federal and state authorities. The Santa Ana company’s owner--Jose Manuel de la Jara--was recently convicted on money laundering charges related to IFA and, according to Asst. U.S. Attorney Carolyn Kubota, is now under investigation by a federal grand jury in Los Angeles on bank and mail fraud charges.

Regulators, already overwhelmed by scams of every type, are particularly ill-equipped to deal with these.

Because they are carried out in a foreign language, the scams usually do not come to the attention of English-speaking authorities until it is too late. McDonald says the Department of Corporations has an advertising surveillance program, but can only keep an eye on the major big city newspapers, not the foreign language press.

The typical victim is an immigrant from a less-developed country, where interest rates of 50% or more are routinely paid to offset massive inflation and devalued currencies. Their jobs are low-paying; their meager savings have taken a lifetime to accumulate.

They rarely are willing to come forward to complain. Some are here illegally, and some had experiences in their homelands that taught them to avoid police.

Magdalina Daza and her son Edgar are among the rare victims willing to talk publicly.

Daza, 42, earns $6.25 an hour packaging airline food near Los Angeles International Airport. The Inglewood resident could never afford to send Edgar to college on her own, but her mother in Mexico sold a home and some cattle, netting $72,000.

Several years ago, Daza saw a commercial on Spanish-language television promising an 18% return from Latin American Financial Investment Group in East Los Angeles, a rate better than that of neighborhood banks but far below the inflated rates paid in Mexico. She figured that the family’s money would be safe at Latin American Financial because Jaime Jarrin--the Spanish-speaking play-by-play man for the Dodgers and an idol in the Latino community--was a spokesman for owner Enrique Izquieta.

The state Department of Corporations now claims in a civil lawsuit against Izquieta that Latin American Financial and a sister company, Enizar Financial Investment Group, bilked about 1,000 Latino investors out of as much as $20 million. The agency alleges that Izquieta promised investors a high rate of return on real estate but then spent the money on himself, his friends and some of his high-flying business ideas.

Izquieta has denied wrongdoing, saying he left his companies in the hands of employees. “No one feels worse for these people than Mr. Izquieta,” said his attorney, Barry Greenhalgh.

Jarrin said, “I never noticed any wrongdoing. Never, never. I feel bad, there is no question about that, especially when it’s in my community that someone gets robbed or (there’s) a bad deal or whatever.”

Daza has lost every penny--meaning that Edgar, who completed high school last month, will not be going to college any time soon. “Right now we don’t know what we’re going to do,” Daza said in Spanish, breaking into tears. “I never gave my son a vacation because I was saving the money and reinvesting it. I’ll never be able to gather that money again.”

Because of the diverse ethnic communities in Southern California, officials say they need a far bigger budget and many more investigators to adequately police affinity scams. Many regulators doubt they could find enough qualified investigators, even if they had the money to hire them.

“When the pitch is made in Korean and the printed material is in Korean, I can tell you how many securities investigators speak Korean and can work through that information, and it’s one or two, if that many,” said NASAA’s Stapf. “It’s a real regulatory nightmare. . . . These con artists know it and they take advantage of it.”

Massachusetts has begun translating alerts about specific schemes into Creole, Portuguese, Chinese and Spanish, but California officials have yet to follow suit.

The foreign-language media around Los Angeles are not helping much, carrying ads which that even on the surface seem far-fetched.

Spanish-language television station KMEX (Channel 34) has run commercials for several alleged affinity scams, including both Fadel and Latin American Financial. Court records indicate that one alleged con artist owes the station $350,000 in advertising fees.

Exasperated station managers and newspaper publishers say they are victimized just as much as investors because they are left with unpaid advertising bills when an affinity scam collapses. Like regulators, they complain that they don’t have the resources to conduct thorough background checks on potential clients.

KSCI-TV (Channel 18) cites the case of Freydoun Farokhzad. The Iranian singer approached KSCI--which broadcasts in 14 different languages, including Farsi, about putting on a telethon to benefit Iranian children imprisoned in Iraq as a result of the recent bitter war between the two countries. The station’s spokeswoman said they called a social services agency that said it had not received any complaints against Farokhzad.

So for three hours in late 1988, Farokhzad staged his benefit for the Children’s Health Organization, all in Farsi.

“He showed pictures of the children jailed in Iraq that had been hurt by the fighting between Iraq and Iran--children with broken legs and those bleeding to death,” said Shirley Flucus, principal investigator with the Los Angeles Social Services Department. “There was lots of singing and crying.”

Los Angeles authorities alleged in interviews that the Iranian telethon was a fraud and that Farokhzad has put together similar programs in San Jose, Memphis, Tenn., and Paris, and is now in West Germany preparing to broadcast another.

The Los Angeles County district attorney’s office in interviews said that at least 400 Iranians sent in checks, but nobody knows how much cash was contributed by people who thought they were helping their own kind.

“We have an open investigation,” said Deputy Dist. Atty. Richard Rosenthal. “The suspect is out of the country and we are trying to locate him.”

Securities investigators and community leaders cite several factors--including ethnic pride and a naivete about U.S. laws protecting investors--that have turned thousands of immigrants into easy targets.

“These people are immigrants and their English is very limited,” said Estelle Chun, deputy director of the Asian Pacific American Legal Center in Los Angeles. “They are not sophisticated with our laws in terms of what businesses can and can’t do.”

So they tend to rely on someone else in the community to take care of things.

“The Spanish or Korean or Chinese or Japanese communities are more comfortable speaking their native language and appear more comfortable dealing with people of similar backgrounds and similar experiences,” said John Reitman, an attorney representing 140 investors in Latin American Financial. “Any member of the Latino community could go to American Express or Shearson Lehman or Latin American Financial. The difference is Latin American Financial is a Latino business and there is a greater willingness to keep things in the community.”

Enforcement officials are frustrated that most victims remain mum about their losses, which means that there are few convictions. In addition to victims who are in the United States illegally and those who are reluctant to deal with police, some victims simply refuse to believe someone in their own community could steal from them.

“They think, ‘Someone I trusted with my same background cheated me,’ and that’s a hard thing to accept, because if you can’t trust your own people then you can’t trust anybody,” McDonald said.

Orange County’s Vietnamese community lost $3 million in a real estate investment scheme that is now the subject of a federal grand jury investigation, said Deputy Dist. Atty. William Overtoom. Prosecutors maintain that Vietnamese promoters persuaded investors to take second mortgages on their homes in return for a guaranteed interest rate of 21%.

Even though investors may now lose those homes, none of the apparent victims want to talk. Out of pride, “Vietnamese tend to swallow the loss,” said Phong Duc Tran, former head of the Little Saigon Merchants Assn. in Westminster.

For the time being, law enforcement officials seem to favor shutting down affinity scams before they do too much damage, and worrying about indicting them later. “I think a policy decision has been made to put them out of business rather than prosecuting them and getting (operators) into jail,” said David Haberbush, a court-appointed bankruptcy attorney in the Fadel case. Regulators, he notes, “just have so many fires to put out.”

In Southern California so far, the Latino community has suffered the most from affinity scams, with $40 million lost in what investigators view as the three biggest schemes.

“The Hispanic community is just starting to come into a little power and a little money so the crooks are coming out of the woodwork,” said Dorene Wolf, an attorney with the state Department of Corporations.

Unlike most other ethnic communities, however, Latinos have started victims’ groups that are demanding increased government surveillance and enforcement. Some leaders contend that U.S. authorities are turning a blind eye toward the problem because the victims are relatively poor immigrants--a charge that investigators vehemently deny.

Leticia Rodriquez, a homemaker whose South-Central Los Angeles family lost $10,000 placing money with Fadel Investments, said: “The Department of Corporations let this (Fadel) go on for over a year. They were advertising on radio and television. Where was the government?”

Jose Acero, a retired meat cutter in Commerce, lost $25,000 investing in Latin American Financial. “I feel the government has let us down,” he said. “That was my life savings.”

State enforcement official McDonald insists authorities are doing their best. “There are built-in impediments to resolving these cases quickly and in a way that is satisfactory to the victims,” he said. “I wish I could wave a magic wand and get all of their money back.”