How to Spot Affinity Fraud

How to Spot Affinity Fraud And Prevent Becoming an Investment Fraud Victim

A dozen Georgia church members lose nearly $660,000 in a distressed real estate investment scheme. Three thousand Iraqis living in the U.S. and abroad are cheated out of $2 million by a man claiming to help rebuild Iraq. Around 300 Muslim investors in Chicago get conned in a fraudulent real estate scam. What do the three scams have in common?

They are all examples of affinity fraud.

Affinity fraud is a type of investment fraud in which the con artist uses his or her affiliation with or membership in a specific, identifiable group to target and defraud other members of that group.

The most commonly targeted groups include religious, ethnic, racial, professional, and senior groups, but any group whose members share a common interest or background is at risk.

To protect yourself from falling victim to an affinity fraud scheme, it is important that you be extra vigilant about running background checks on anyone who is claiming to be a member of your group and pitching an unsolicited investment.

Typically, the affinity fraudster is a member of the specific group he or she is targeting. However, this is not always the case. Sometimes, the con artist uses a personal connection to an influential group member to gain access to the target group.

After the con artist gains the trust of the influential group member, the group member (unknowingly) vouches for the scam and helps the fraudster draw in more victims.

“Research shows that con-artists are experts at the art of persuasion, often using a variety of influence tactics tailored to the vulnerabilities of their victims. Even a little information about your family, interests, or job can help a skilled con-artist swindle your money,” warns the SEC. “Fortunately, it’s easy to find information that can help you protect your investment dollars.”

If a friend, family member, colleague, pastor, or fellow group member encourages you to invest your money in an opportunity “guaranteed” to render a high return (say, 10% or more per year), be skeptical. Before parting with your hard-earned money, ask whether the seller/promoter is licensed to sell securities and double check the answer with an independent source, such as the SEC, FINRA, or your state securities regulator. Also ask whether the security is registered and verify the answer with the proper regulator. Finally, make sure to get the details of the investment opportunity in writing, and ask for clarification on anything you don’t understand. If something feels “off,” don’t hesitate to walk away.