How to Avoid Affinity Fraud

Affinity fraud may be one of the lesser known types of fraud to the general public, but it’s every bit as scary. This type of fraud involves investment scams that target members of identifiable groups, such as religious or ethnic communities, the elderly, or professional groups, says the SEC. The fraudsters that do the targeting often claim to be members of those groups, which is how they infiltrate and do the most damage. In fact, they call upon respected community leaders to convince others in the group that the “investment opportunity” is legitimate. Typically, those leaders are not in on the scam but become unwitting participants because they, too, have been fooled.

The exploitation of trust is at the heart of this kind of scam, which is why it’s so common. The other factor that plays so heavily into the formula is that the groups – by their very nature – are close knit and private, and are very tough to infiltrate by law enforcement. That’s why it’s so hard for regulators to detect and research affinity fraud. Even if the victims figure out the fraud, they often don’t go to the authorities for help; rather, they try to work it out on their own within the group.

Ponzi and pyramid schemes are the most common type of affinity fraud, which involves using new investor money to show previous investors that the investment has been a success. In actuality, none of the “investments” are safe or secure. The fraudster makes off with the money for personal use, and everyone else is hung out to dry. This is why you need an investment fraud lawyer on your side to help you recover from this type of financial fallout. The scheme collapses when the money dries up and investors become aware of the deceit.

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Avoiding Affinity Fraud

Doing your research is a key component in avoiding being the victim of affinity fraud. Be aware of any deal presented to you and check each one out thoroughly. Even when the person seems trustworthy and convincing, don’t make an investment decision just because the rest of your religious or community group says it’s OK. Checking the validity of the investment is critical in detecting whether the investment is legitimate or not.

Here are some more tips:

  • Don’t fall for investments that come with “risk-free” rewards. No investment worth considering is truly risk free, so don’t get caught up in promises of high profits with no risk.
  • Get it in writing. This is one way fraudsters get away with their acts; they don’t show you anything in writing. Beware this approach, as well as anyone who asks you to keep the deal confidential.
  • Don’t be pressured into any investment you don’t feel comfortable with – at least until you are able to do proper research. It’s easy to be swayed by all the success stories you’re told. Remember: if it sounds too good to be true, it probably is.
  • Report any unsolicited emails or social media messages to the SEC at enforcement@sec.gov.