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Affinity Fraud: What it is and How to Avoid Getting Scammed

December 4, 2019

by Howard Haykin



Most investors have never heard of “affinity fraud” – which can be a killer. It robs investors of their life savings and shatters people’s faith in trusted advisers, friends and neighbors. So, over the next couple of days, our lessons (or posts) will address this crippling crime.



WHAT IS AN AFFINITY FRAUD?    Affinity fraud refers to investment scams that prey upon members of identifiable groups, such as religious or ethnic communities, the elderly, or professional groups. The fraudsters who promote affinity scams frequently are, or pretend to be, members of the group. They often enlist respected community or religious leaders from within the group to spread the word about the scheme by convincing those people that a fraudulent investment is legitimate and worthwhile. Many times, those leaders become unwitting victims of the fraudster's ruse.


These scams exploit the trust and friendship that exist in groups of people who have something in common. Because of the tight-knit structure of many groups, it can be difficult for regulators or law enforcement officials to detect an affinity scam. Victims often fail to notify authorities or pursue their legal remedies and instead try to work things out within the group. This is particularly true where the fraudsters have used respected community or religious leaders to convince others to join the investment.


Many affinity scams involve "Ponzi" or pyramid schemes, where new investor money is used to make payments to earlier investors to give the false illusion that the investment is successful. This ploy is used to trick new investors to invest in the scheme and to lull existing investors into believing their investments are safe and secure. In reality, the fraudster almost always steals investor money for personal use. Both types of schemes depend on an unending supply of new investors - when the inevitable occurs, and the supply of investors dries up, the whole scheme collapses, and investors discover that most or all of their money is gone.



HOW TO AVOID AFFINITY FRAUD.    Investing always involves some degree of risk, but you can minimize your risk of investing unwisely by asking questions and getting the facts about any investment before you buy. To avoid affinity and other scams, you should …


  • Do your due diligence:  Check out everything - no matter how trustworthy the person seems who brings the investment opportunity to your attention.


  • Ignore the hype:  Do not fall for investments that promise spectacular profits or "guaranteed" returns.


  • Get it in writing:  Be skeptical of any investment opportunity that is not in writing.


  • Take your time:  Don't be pressured or rushed into buying an investment before you have a chance to think about - or investigate - the "opportunity.”


  • Beware of unsolicited email.  Fraudsters are increasingly using the Internet to target particular groups through e-mail spams.



[To better understand how you can avoid affinity frauds, click on SEC Publications.]
[For a look into a real-life affinity fraud, click on Affinity Fraud Hits Haitian Community.]