Affinity Fraud: How to Protect Yourself and Your Finances

Despite what you may believe, financial fraud does not always come in the form of strangers touting Ponzi schemes or investments that sound too good to be true.  Instead, all too often financial fraud arises from people you trust – like the college classmate who just reached out on social media or the distinguished gentleman who recently joined your church group.  This unique, and often devastating, type of financial fraud is so common it has its own name – affinity fraud.

What is Affinity Fraud?

The U.S. Securities and Exchange Commission defines affinity fraud as the following:

Affinity frauds target members of identifiable groups, such as the elderly, or religious or ethnic communities. The fraudsters involved in affinity scams often are – or pretend to be – members of the group. They may enlist respected leaders from the group to spread the word about the scheme, convincing them it is legitimate and worthwhile. Many times, those leaders become unwitting victims of the fraud they helped to promote.

These scams exploit the trust and friendship that exists in groups of people. Because of the tight-knit structure of many groups, outsiders may not know about the affinity scam. Victims may try to work things out within the group rather than notify authorities or pursue legal remedies.

Affinity scams often involve “Ponzi” or pyramid schemes where new investor money is used to pay earlier investors, making it appear as if the investment is successful and legitimate.[1]

What to Look for to Protect Yourself

A Newcomer in Your Midst

While affinity fraud takes many forms, a common scenario involves a newcomer to your group who begins touting an idea to make you money.  The person often is friendly, charming, and appears to be successful.  After gaining the trust of the group, the individual suddenly begins offering to share the secrets of their “success.”  At that point the fraudster will begin touting their investment “opportunity,” which really is a scam.

The potential for affinity fraud does not mean you should prevent new people from joining your organization.  It simply means you should be cautious and, if the warning signs present themselves, warn others about the possibility that the investment “opportunity” may not be legitimate.  Remember – If an investment opportunity sounds too good to be true, it probably is.

Divinely Inspired Investments

The perpetrators of affinity fraud may stoop so low as to use a person’s faith to prop up the fraudulent investment scheme.  These fraudsters often insert themselves into church groups or other religiously-based organizations, exploiting the trust and friendship that exists in such groups.

Sometimes the crafters of affinity fraud schemes go even further, claiming that the investments they tout are limited to a specific denomination or religious group. This tactic seeks to create a tempting exclusivity, hinting that you are privy to a “special opportunity” that those outside your group

[1]U.S Securities and Exchange Commission website.  https://www.investor.gov/protect-your-investments/fraud/types-fraud/affinity-fraud