Affinity fraud is a reference to investment scams that prey upon people who are part of a specific group, such as an ethnic or religious group, professional group, or the elderly. The criminals who promote these scams are usually part of this group, and they often use respected religious or community leaders from the group to tell others about the scheme. These leaders often work to convince others that this investment opportunity is worthwhile and legitimate. In many cases, the leaders become victims of the ruse themselves.
These scams work because they exploit the friendships and trust that exist in these groups, as the people have something in common with each other. Since these groups are so tightly knit, it is difficult for law enforcement or regulators to detect affinity scams. Victims usually fail to notify the authorities and instead attempt to work things out within their group. This is even truer when the fraudsters have used well-known leaders of the group to convince others to invest in the scam.
Many affinity scams are known as "pyramid schemes" or "Ponzi schemes." With these, the fraudster takes the money from new investors to pay off older investors, which gives the illusion that the investment is a successful venture. This illusion of success is used to get new investors to fall for the scheme. (Think: Bernie Madoff.) In reality, however, the one pulling the strings simply steals most of the money for their personal use. However, these schemes are only successful if the pool of new investors never dries up. When this happens, the scheme will collapse, and investors will discover that their money is gone.
Avoiding Affinity Fraud
When investing, you always put yourself at some degree of risk, but you can minimize it by asking questions and getting the facts about any investment before you start. To avoid these scams, follow these tips:
- Check Out Everything: You have to check out every part of the investment, even if the resentative seems trustworthy. Never make any investment based only on the recommendation of any member of a group that you belong to, such as a religious or ethnic group. Investigate every investment, and check the truth of all statements that you are told about this investment. Remember, the person telling you about the investment may not realize that the investment is bad, as they, too, may be taken for a ride.
- Don't Fall for Guarantees: You also must make sure that you are not falling for any investment scheme that guarantees a return. If an investment sounds too good to be true, it probably is. You should also be leery of any investment that is advertised as "no risk." There are very few, if any, risk-free investments. Any promise of a fast or high profit with little risk is a classic sign of fraud.
- Get Everything in Writing: You also must be skeptical of any investment opportunity that is not given to you in writing. Fraudsters try to avoid putting anything in writing, but a legitimate investment is almost always in writing. You also should avoid any investment that you are asked to keep confidential.
- Think About It: You should also make sure that you are thinking about any investment opportunity you have. Do not allow yourself to be rushed or pressured to invest in any opportunity. Just because someone else has made money or claims to make money on an investment, that does not mean you will, too.
- Use Caution When Checking E-mail: Fraudsters commonly use the Internet to target specific groups through e-mail. If you get an e-mail from a person you don't know with a "can't miss" investment, it is best for you to pass up the opportunity and hit delete.