A new criminal indictment and a $7 million settlement have been announced in the long-running church-fraud case dubbed "Operation Island Scam" by federal investigators.

Steve Harmon, 39, of Mount Vernon, Washington, was indicted on October 1 on eight counts of conspiracy to defraud, selling unregistered securities, and tax evasion. The charges stem from a fraud case involving hundreds of mostly elderly church members who lost millions in a Ponzi scheme run by Steve Harmon's father, Phil Harmon.

Steve Harmon told a local reporter that he will fight the charges, and "I look forward to the opportunity to prove my innocence in a trial."

Phil Harmon, who pleaded guilty to federal fraud charges in 1997, is currently serving an eight-year prison sentence. Phil Harmon's son-in-law and business partner, Terry Beebe, is also serving a prison sentence for his part in the scam. Two other Harmon employees have pleaded guilty to fraud or embezzlement.

Steve Harmon's indictment came only ten days after a Seattle federal judge approved the settlement of a class-action suit filed by victims of the Harmon investment fraud. According to the plaintiffs' attorney, Mark Griffin, about 200 of the investors, most of them elderly church members, will recoup up to 70 cents on the dollar.

Of the total, $5.9 million will be paid by SunAmerica Securities of Phoenix, Arizona, and $1.1 million by an insurance company. Steve Harmon was affiliated with SunAmerica, which the class-action suit charged with negligence for failing to detect the fraud.

Phil Harmon is an evangelical Quaker who told his investors he could get them above-market rates of interest on their money through real-estate investments. Many members of a large independent evangelical church in Camano Island, where Harmon was a prominent figure, invested their life savings in the scheme, as did numerous evangelical Quakers, including widows and retired pastors.

In fact, Harmon diverted funds through a complex network of shell companies and used it to finance a luxurious lifestyle for himself and his family, until his investment companies collapsed in late 1997 (CT, July 13, 1998, p. 24).

Harmon's frauds affected several hundred other victims, through additional real-estate schemes and a failed church health-insurance plan. Total losses in the frauds are estimated at more than $25 million. Additional legal actions to recover some of the losses are continuing.

The new indictment charges that Steve Harmon, along with his father, "used the funds to pay operating expenses of their various business entities, to support luxurious lifestyles, to pay themselves substantial salaries, to purchase real estate for their personal use and benefit, to acquire collections of costly hobby cars, and to pay off investors who demanded refunds or interest payments." If convicted on all counts, Steve Harmon could face up to 34 years in prison.

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