Affinity fraud, while it has been around a long time, is on the rise. The problem with it is that is covert.
What is affinity fraud?
An affinity fraud is a scam that preys upon members of identifiable groups. These include religious, elderly, ethnic, and professional groups.
Today of course the internet is an added advantage for the crooks.
People that instigate the scams are often invited into the group or even respected members of the group.
Part of the reason that more is not known about the scams is that often groups are ashamed at having been taken.
Many times the schemes that are used are forms of “Ponzi” schemes. These are programs whereby “investment payoffs” are made by newer members’ fees to join the “program.”
The “genius” of an affinity scheme or of affinity fraud is that it uses the trust within the group to make people feel safe and also to make them feel as though they are getting something special unique to being in the group.
The “investments” are almost always used for personal use by the person pulling the scam.
How can I avoid being the victim of affinity fraud?
It is important to check out everything. Often part of the basis of the scam is the expectation for you to believe in the person who told you about it simply based on who they are.
If something sounds too good to be true it probably is. Investments that offer terrific, short-term and dramatic profits rarely do. If the return is guaranteed or “risk-free” that should be a warning signal.
If an investment is not documented in writing don’t get involved in it. If people want to give you different excuses like “There isn’t time because we’re too busy making money” avoid the situation.
If there is the least bit of pressure or a “one time only” mentality, don’t get involved.
What type of damage can be done by affinity fraud?
Just a few examples of groups being swindled include 125 members of various church organizations losing $7.4 million. These folks were sold shares of “prime bank” trading programs.
$2.5 million was stolen from Texas senior citizens. These people were told to liquidate their holdings so they could reinvest them in something that would pay more. They simply stole the money.
More than 1,000 Hispanic investors may have lost more than $475 million. While the investors were told that the funds were being put into safe investments, they were, in actuality being put in very risky investments and being lost.
Never underestimate the brilliance of crooks. When they are stopped in one way they will always come up with another plan.
“Affinity Fraud: How To Avoid Investment Scams That Target Groups,” Fact Sheet, SEC
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