Understanding Affinity Fraud: How to Spot the Dangers
Affinity fraud is a type of investment fraud which involves a scam that targets members of a specific group. That may include those who belong to a particular religious or ethnic community or individuals who share a particular affiliation.
The scammer, who may be a broker or investment advisor, might even be a member of the group or come highly recommended by someone in the group. Such ties or endorsements serve to create a built-in trust and only enhance the credibility of the fraudster and what they are offering.
Often, those recommending the scammer or their investment may be completely unaware that they are helping to perpetuate investment fraud or that they too are victims.
If you suspect that you or a loved one lost money in an affinity scam, speak with an investment lawyer who has experience with settling affinity fraud cases. Contact Shepherd Smith Edwards and Kantas (SSEK Law Firm at investorlawyers.com) to request your free, no-obligation case consultation.Examples of Groups That Have Been Targeted in Affinity Scams
- Military or veteran groups
- Alumni from the same school
- Members of a church or another type of religious organization
- Professional athletes
- Members of a club or association
- Members of an ethnic or immigrant community
Affinity scams can be perpetuated as pyramid schemes and Ponzi scams in which newer investors’ money is paid as the supposed “returns” to earlier investors. This causes everyone involved to think that there is money being made. That is until the scam fails and everyone discovers that they were, in fact, the victims of investment fraud.
One of the most infamous affinity scams is the $50B Madoff Ponzi fraud. Among those targeted were Jewish community members, ranging from retirees to seniors to nonprofits and wealthy individuals to institutions.
It is important to note that affinity fraudsters also have been known to get their victims to invest in legitimate investments that may be too risky for them but will pay the scammer high commissions and fees. The fraudster will then misappropriate the money to fund their lavish lifestyle or cover other expenses.
Meanwhile, the victims of the affinity scam will have lost money because of the unsuitable investment recommendations in which they should have never gotten involved.
Unfortunately, the lure of making money from a “trusted” individual in the community can be hard to ignore. This is one of the reasons that affinity fraud happens.How Can You Detect and Avoid Affinity Fraud?
Every investor should make a conscious effort to look for signs indicating a broker is negligent or partaking in fraudulent activity. To avoid being a victim of affinity fraud, consider the following tips:
- Conduct your own due diligence into the investment - Just because you know or trust the one who is offering the investment opportunity doesn’t mean that it is a legitimate or safe one.
- Don’t invest in anything you don’t understand - It can be easy to be intimidated by financial language. Don’t be. Ask questions. Make sure you get answers.
- Stay away from investments that promise returns, incredible profits, or no risks - Any legitimate investment will carry some risk, and returns are never guaranteed.
- Don’t feel pressured into investing right away lest you miss out on this opportunity - High-pressure sales tactics, including offering you a special deal if you invest now, is sometimes how fraudsters will try to get people onboard. Another persuasive method is telling you that other people you know have already invested, so why not you?
- Conduct a background check when dealing with investors - Even if you are dealing with an investment professional, make sure to look into their background to see if there are any past disclosures or other red flags. Make sure that they are registered to sell investments in your state.
- Beware of online investment opportunities - Be careful of investment opportunities that come to you online or through social media, including Facebook and Twitter.
For over 30 years, SSEK Law Firm has been fighting for investors, including retail investors, retirees, high net worth individual investors, and institutional investors. Our investment lawyers have helped them to recover the compensation they are owed if they were the victims of affinity fraud.