[ by Melanie Gretchen ]

Are you at risk?

The SEC's Office of Investor Education and Advocacy is looking at Affinity fraud which is moving up in priority as the SEC.  The agency has busted schemes raising millions from unsuspecting victims.  Who's vulnerable: members of identifiable groups, such as religious or ethnic communities or the elderly.

What is Affinity Fraud? Scams almost always involves either a fake investment or an investment where the fraudster lies about important details (such as the risk of loss, the track record of the investment, or the background of the promoter of the scheme).  Fraudsters who carry out affinity scams frequently are (or pretend to be) members of the group they are trying to defraud.

• Many affinity frauds are Ponzi or pyramid schemes, where money given to the promoter by new investors is paid to earlier investors to create the illusion that the so-called investment is successful.
• This tricks new investors into investing in the scheme, and lulls existing investors into believing their investments are safe. In reality, even if there really is an actual investment, the investment typically makes little or no profit.
• The fraudster simply takes new investors’ money for the fraudster’s own personal use, often using some of it to pay off existing investors who may be growing suspicious. Eventually, when the supply of investor money dries up and current investors demand to be paid, the scheme collapses and investors discover that most or all of their money is gone.

At its core ... affinity fraud exploits the trust and friendship that exist in groups of people who have something in common:

• a religious group, such as a particular denomination or church
• an ethnic group or an immigrant community
• a racial minority
• members of a particular workforce, e.g. members of the military have been targets of these frauds

If you think you may be aware of a possible affinity fraud – or may have lost money in an affinity fraud – please contact the SEC through the [SEC Complaint Center], or your state’s securities administrator through the [North American Securities Administrators Association].

For further details, including how affinity fraud operates and how to avoid it, go to [SEC Investor Bulletin: Affinity Fraud].