affinity fraud

Affinity Fraud is a Form of Investment Fraud in which the Fraudster Preys upon Members of an Identifiable Group such as Religious or Ethnic Communities

According to Investopedia, affinity fraud is a type of investment fraud in which a con artist targets members of an identifiable group based on things such as race, age, religion, etc. The fraudster either is or pretends to be, a member of the group.

These schemes work because the victims are more likely to trust members of a group to which they belong. Many of Bernie Madoff’s victims were wealthy members of the Jewish community. Folks in that community trusted Bernie because he was one of them.

How Does Affinity Fraud Work? 

Fraudsters who carry out affinity frauds frequently are (or pretend to be) members of the group they are trying to defraud. The group could be a religious group, members of a particular congregation, members of an ethnic group, or members  of the military. One Florida fraudster targeted members of the SE Florida gay community. Fraudsters target any group they think they can convince to trust them with the group members’ hard-earned savings.

At its core, affinity fraud exploits the trust  that exist in groups of people who have something in common. Frequently the fraudster will enlist respected leaders from within the group to spread the word about the scheme. Those leaders may not realize the “investment” is actually a scam, and they may become unwitting victims of the fraud themselves.

Particularly in insular ethnic or immigrant groups, it can be difficult for regulators to detect an affinity scam. Victims often fail to notify authorities or pursue legal remedies.

How to Avoid Affinity Fraud

Here are a few tips to help you avoid becoming a victim of an affinity fraud scam.

  • Even if you know the person making the investment offer, be sure to research the person’s background, as well as the investment itself – no matter how trustworthy the person who brings the investment opportunity to your attention seems to be. Be aware that the person telling you about the investment may have been fooled into believing that the investment is legitimate when it is not.
  • Never make an investment based solely on the recommendation of a member of an organization or group to which you belong. This is especially true if the recommendation is made online. An investment pitch made through an online group of which you are a member, or on a chat room or bulletin board catered to an interest you have, may be a fraud.
  • Do not fall for investments that promise spectacular profits or “guaranteed” returns. Similarly, be extremely leery of any investment that is said to have no risks. Do you remember that saying, “If its too good to be true it probably is”? That certainly applies here. Very few investments are risk-free. Promises of quick and high profits, with little or no risk, are classic warning signs of fraud.
  • Be skeptical of any investment opportunity that you can’t get in writing. Fraudsters often avoid putting things in writing. Avoid an investment if you are told they do not have time to put in writing the particulars about the investment. You should also be suspicious if you are told to keep the investment opportunity confidential or a secret.
  • Don’t be pressured or rushed into buying an investment before you have a chance to research the “opportunity.” Just because someone you know made money, or claims to have made money, doesn’t mean you will, too. Be especially skeptical of investments that are pitched as “once-in-a-lifetime” opportunities, particularly when the salesperson bases the recommendation on “inside” or confidential information.
  • Check to see if the person offering the investment is licensed. Not every type of investment needs to be sold by someone licensed. Most do, however. Ask the person offering if they are licensed and if not, why not. Assuming they say they are licensed, check it out first. (People selling securities are typically licensed by the SEC and the Financial Industry Regulatory Authority. You can check those folks on FINRA’s free BrokerCheck tool.

We have many affinity fraud stories on our Due Diligence Blog (be sure to use the search feature for more information.)  Simply as an illustration, in this post we discuss a “credit counselor” who targeted African Americans.

Credit counselors are there to help us manage our finances, get out of debt and help us achieve financial freedom. Apparently Alfred Parker of Woodland Hills, California didn’t quite understand that. Parker, who worked as a credit counselor for a non-profit company providing credit counseling to low-income families, was sentenced to 46 months in a federal prison. His crime? Bilking $2 million from his victims.

Targeting primarily African-American people, Parker raised $2 million with the promise of “guaranteed” returns as high as 40% in just 3 months. The money was to be used to help people avoid foreclosures and make payments on their debts.

Parker instead used the money to purchase a Rolls Royce Phantom, 2 Ferraris, and a $2.5 million home. In typical Ponzi scheme fashion, some of the money also went to pay earlier investors. The government says he even paid for his wedding with money stolen from others. He will not be joining his new bride for a honeymoon anytime soon.

Not getting enough money from individual victims, Parker obtained a $200,000 line of credit by falsely claiming that he had $2,000,000 in savings and significant rental income from property in Cleveland. Both false statements. In fact, Parker forged documents and presented them to the bank.

Parker is spending the next several years in a federal prison. United States District Court Judge R. Gary Klausner condemned Parker for presenting himself as a religious man and preying on the African American faith based community.

Security regulators consistently put affinity fraud in their yearly top ten lists of scams tactics. Faith based affinity schemes have hit the African American community hard in recent years. Using one’s religious affiliation establishes a false sense of security in the minds of victims.

Unfortunately religious affinity fraud is as old as the Bible. Most have heard the story from the Bible about Jesus driving the moneychangers from the Temple during his ministry because they had made it a “den of thieves.”

Two thousand years later, little has changed.

Mahany Law is a full service , national boutique law firm that assists victims of fraud recover their money. Our investment fraud lawyers handle cases anywhere in the United States. Typically we target stockbrokers, investment advisors and other licensed financial professionals  From welfare benefit plans to Ponzi schemes to bad investment advice, we can help.

To learn more, visit our investment fraud recovery page. Does the case involve a lawyer? Visit our sister legal malpractice site. Ready to see if you have a case? For a no obligation, Contact Brian Mahany directly online, by phone at (202) 800-9791 or by email brian@mahanylaw.com.

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