How to Spot Affinity Fraud And Prevent Becoming an Investment Fraud Victim
A dozen Georgia church members lose nearly $660,000 in adistressed real estate investment scheme. Three thousand Iraqis living in the U.S. and abroad are
cheated out of $2 millionby a man claiming to help re-build 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 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
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.