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Affinity Fraud

When she retired from 30 years of teaching, Mary thought she could trust her investment adviser with all of her savings. After all, the adviser was well known to other African American professional women in her community. She seemed to portray the positive image of a successful African American businesswoman. Little did Mary know that her money would disappear, leaving her with few funds and broken trust.

Mary was the victim of affinity fraud. Affinity fraud is not about something that went wrong with the investments. It can involve any number of investment scams. What's unique about affinity fraud is how it comes about. It preys upon members of identifiable groups, such as ethnic or religious communities. Typically, the perpetrators who commit affinity fraud are, or pretend to be, members of the same group they cheat. They develop a sense of trust by being from the same community, sharing a common heritage. They overcome others' natural skepticism because, as Mary believed, "Someone like me surely can be trusted, because we share the same background and interests."

State regulators report getting a steady stream of complaints from surprised and perplexed victims of friends, neighbors, fellow club or church members—even members of their own family. Newspaper accounts of Bernie Madoff's alleged elaborate investment scams note that almost all of the victims were Jewish. Other scams have focused on Jehovah's Witnesses, Baptist congregations, and Korean and Armenian communities.

How to avoid affinity fraud:

  • Check out the person. No matter how trustworthy, how well recommended by fellow club members or parishioners, you must independently investigate the background of the individual. Do not invest solely on the recommendation of a member of an organization to which you belong.

 

  • Check out the investment. No matter how promising the profits, how enthusiastic the recommendation, independently investigate how the investment is going to make money. Get all information in writing, and then verify the facts and figures.

 

  • Resist pressure tactics. Many affinity schemes thrive on word of mouth, and the schemers emphasize the need to act quickly to get in on what they describe to be once-in-a-lifetime opportunities.

 

  •  Be aware of the use of names or testimonials from other group members.

 

 Take action:

  • Obtain a written prospectus or other form of printed material that thoroughly explains the risks of the investment and how you can get your money back.

 

  •  Get professional advice from a neutral party outside the group, such as your attorney, accountant, or investment advisor.

 

  •  Contact your state securities regulator to learn more about the investment and the salesperson. Is the product and promoter properly licensed or registered?

 

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