Case # 15CF2773
Date: December 22, 2015
BUSINESSMAN AND CPA WIFE TO BE ARRAIGNED FOR DEFRAUDING INVESTORS AND STEALING MORE THAN $3 MILLION IN AFFINITY SCHEME
*Video released to warn against affinity fraud schemes at https://youtu.be/cg6A8DXFZ0U
SANTA ANA, Calif. – A businessman and his wife, who has a certified public accountant license, will be arraigned tomorrow on charges of defrauding investors and stealing more than $3 million in an affinity scheme. Steven Andrew McKinlay, 58, and Kristi B. McKinlay (licensed as Kindred), 56, both of Coto de Caza, are charged with 10 felony counts of using untrue statements in the purchase or sale of a security, one felony count of grand theft, and one felony count for the use of a device in a scheme to defraud, with sentencing enhancement allegations for loss over $100,000, aggravated white collar crime over $500,000, causing property damage with loss over $1.3 million. If convicted, the defendants face a maximum sentence of 23 years and eight months in state prison. The McKinlays are in custody on $3 million bail and must prove the money is from a legal and legitimate source before posting bond. They are scheduled for a continued arraignment tomorrow, Wednesday, Dec. 23, 2015, at 10:00 a.m. in Department CJ-1, Central Jail, Santa Ana.
The defendants are accused of victimizing more than 10 individuals, including a former Major League Baseball player, a family friend who came into money through a devastating personal injury, and a cancer patient who wanted to secure an inheritance for his family. Their investments ranged from $22,500 to over $700,000. Many of the victims had been associated with the defendants through the church they attended.
What is Affinity Fraud
The Securities Exchange Commission defines affinity fraud as:
Affinity fraud refers to investment scams that prey upon members of identifiable groups, such as religious or ethnic communities, the elderly or professional groups. The fraudsters who promote affinity scams frequently are – or pretend to be – members of the group. They often enlist respected community or religious leaders from within the group to spread the word about the scheme by convincing those people that a fraudulent investment is legitimate and worthwhile. Many times, those leaders become unwitting victims of the fraudster’s ruse.
These scams exploit the trust and friendship that exist in groups of people who have something in common. Because of the tight-knit structure of many groups, it can be difficult for regulators or law enforcement officials to detect an affinity scam. Victims often fail to notify authorities or pursue their legal remedies and instead try to work things out within the group. This is particularly true where the fraudsters have used respected community or religious leaders to convince others to join the investment.
Many affinity scams involve “Ponzi” or pyramid schemes, where new investor money is used to make payments to earlier investors to give the false illusion that the investment is successful. This ploy is used to trick new investors to invest in the scheme and to lull existing investors into believing their investments are safe and secure. In reality, the fraudster almost always steals investor money for personal use. Both types of schemes depend on an unending supply of new investors – when the inevitable occurs, and the supply of investors dries up, the whole scheme collapses and investors discover that most or all of their money is gone.
Facts of the Case
At the time of the thefts, Steven and Kristi McKinlay were owners of God’s Sports Company (GSC).
Between Sept. 12, 2011, and June 27, 2015, Steven and Kristi McKinlay are accused of defrauding more than $3 million from more than 10 clients by convincing them to invest in GSC without disclosing material facts, including prior bankruptcy filings by Steven McKinlay and outstanding liens against the defendants, using investor funds to pay back some of the other investors in a “Ponzi” scheme, and using investor money for personal use. The defendants are accused of spending investors’ money on $10,000 a month rent for a San Clemente home and $7,000 a month rent for a Coto de Caza home, paying for their daughter’s wedding, purchasing a luxury suite at the Los Angeles Angels of Anaheim Stadium, purchasing cars, and paying off old debts and day-to-day expenses. They are accused of using investors’ money to donate $50,000 to their church. The defendants are also accused putting their relatives and their friends’ relatives on GSC payroll.
This case was investigated by the Orange County District Attorney (OCDA) Bureau of Investigations after receiving a complaint from a whistleblower. Several victims were unaware that their investments had been defrauded until being contacted by the OCDA during the course of the investigation. The defendants were arrested on Dec. 16, 2015, by OCDA Investigators, with the assistance of the Orange County Sheriff’s Department.
“Affinity fraud most commonly happens in church, where victims are asked to invest with a false sense of trust in an investor who preaches morals and ethics. I want to remind the public that affinity fraud can also happen with people having the same nationality, race, or are living in senior living communities,” said District Attorney Tony Rackauckas. “Nobody is exempt from affinity fraud and people should vet everyone before investing, especially those they have a lot in common with or they think they know well and can trust.”
District Attorney Tips on How to Avoid Becoming an Investment Fraud Victim
When making an investment decision, it is important to use common sense and remember:
- If it looks too good to be true, it probably is.
- You should always know what you are signing.
- You don’t get something for nothing.
- If you aren’t sure about the investment, talk to a qualified, independent professional.
When listening to someone about a great investment opportunity, ask yourself:
- Why are they offering this to me? Why can’t they get money from the bank?
- Why are they offering me such a great deal when they can get my money cheaper in other ways?
- Can I afford the higher risk for this promise of a higher return?
- Why have other brokers/investors/businesses passed on this deal?
- Has the promoter provided professional references, not including other investors with a vested interest, for the promoter and his investment?
Before investing, always check with the Department of Business Oversight (www.dbo.ca.gov) to find out if the investment has been qualified and the promoters are properly licensed to offer securities. Never turn over your life’s “nest egg” without first discussing it with a qualified, independent professional.
Anyone with additional information or who believes they have been a victim is encouraged to contact Supervising District Attorney Investigator Damon Tucker (714) 648-3615.
Deputy District Attorney Michelle Lipton of the Major Fraud Unit is prosecuting this case.