1) Several of these people were told by my friend, trusted LDS person, it was fraud from the get go. But the fact that the investors were getting paid made them think my friend was just a judgy Peter Priesthood.

2) It is very hard for people to see this for what it is. You have a Bishop or a Stake President or person you trust making lots of money. They think they have found a great way to make money and they know they have been making money. They want to share that information with those they love. So they do. Those people "know" they can trust their leader or their friend who is actually making money and not making it up. The ponzi schemers aren't trading off their own reliability, they are trading off the reliability of those they are scamming.

3) It always catches up.

I personally know a guy that lost $4.6M in a similar scheme this year because he didn't do his due diligence and was too happy to be making the money.

It just blows my mind that people think money comes easy. No money is easy. "By the sweat of your brow shall ye eat your bread..."