A church leader scams the congregation to invest in his bogus new business. The head of a local financial planning club of his “friends” is at the top of a Ponzi scheme. A member of a retirement community recruits his fellow residents into a fake investment.
Scammers often build trust to pull off their schemes, especially with affinity fraud – investment scams that prey upon members of identifiable groups.
How Affinity Fraud Works
Think Madoff: Affinity scams most often involve Ponzi schemes where new investor money is used to pay earlier investors. This arrangement gives investors the illusion of security by giving the impression that there is a legitimate, successful, money-making enterprise behind the fraudster’s story. In reality, unwitting investors are the only source of funding.
How to Avoid Affinity Fraud
Do not rely solely on recommendations by fellow friends, club members or associates.
Find out if the product being sold or investment being promoted is legitimately registered through the Securities and Exchange Commission (www.sec.gov).
Be sure to know where your money is being invested and who is investing it.
Get everything in writing and check to be sure that your money is actually where it is supposed to be.
Be careful if the person is trying to pressure you into quick decisions; if they make it sound too good to be true or say it is a once in a life time opportunity, be skeptical.
If You Think You Have Been Scammed
Because of the tight-knit structure of these types of groups, it can be difficult for law enforcement officials to detect an affinity scam. Victims may try to work things out within the group rather than notify authorities or pursue legal remedies. But it is important that you report it; contact:
We may think fraud won’t happen to us. But regardless of financial knowledge, income level or outlook be on the lookout for investment scams, no matter how much you trust the source.
