Financial investments consist of both direct investments, such as stocks and bonds, and indirect investments, such as mutual funds. Criminal fraud occurs when an individual intends to or actually deceives another through false representation. As a result, the intended victim relies on the false representation to their financial detriment. When financial investment and criminal fraud are combined, it can result in several different types of financial scams. One such financial scam is called affinity fraud.
Affinity fraud is a type of investment scam in which a person preys on an identifiable group of people. The individual promotes the investment scam while pretending to be a member of the group. This type of fraud is so named because the victim may feel an “affinity” or closeness with the person due to their perceived membership in the group. In some cases, the fraudster is actually a member of the identifiable group.
What is an Identifiable Group?
In the context of affinity fraud, identifiable groups of people include:
- Professional groups;
- Ethnic communities; and
- Religious groups.
Affinity fraud scams often involve an exploitation of the relationships and trusts that might exist within these identifiable groups. Also, due to the close-knit nature of some groups, affinity fraud schemes can sometimes be difficult to detect.
They can also be difficult to report, as some victims may feel pressure from the group not to file a report. Sometimes, victims can actually be a part of the fraud or scam, as they can sometimes be manipulated in ways that they are not aware.
What Types of Scams are Considered Affinity Scams?
These scams usually involve a pyramid, or “Ponzi”, scheme. Under a pyramid scheme, a new investor will give money to the perpetrator of the scheme. The money is then used to pay to someone who invested their money earlier. They often depend on illusions that their invested money will be successful and provide large returns. In reality, the scheme is based on various methods of manipulation in order to trick new investors into supplying more money, which might then be used for personal use by the scammer.
These scams might also be done via email where the sender claims to be a relative or someone that they are acquainted with. Like a close friend’s child who is studying abroad but needs money to avoid trouble. Through the advent of technology, there are more ways for affinity scams to happen.
How Does This Type of Scam Occur?
The individual, who actually is or pretends to be part of the group, will first convince a respected member of the group for help. For instance, the target may be a religious or community leader. They will tell people about the new fraudulent investment opportunity on the scammer’s behalf.
In many instances, the trusted leader will unknowingly be a victim of the scam too. People invest their money into the fraudulent scheme. The individual usually flees after collecting the investments, leaving the group without money or an investment.
What are the Legal Penalties for Affinity Fraud?
Affinity fraud can lead to various criminal penalties. Depending on the amount of money stolen or involved, affinity fraud is typically filed as a felony charge. This may result in serious criminal penalties, including criminal fines and fees as well as sentences in a prison facility of over one year.
In addition to the criminal consequences, it is also common for the victims of affinity fraud to file private civil claims for damages stemming from the fraud scheme. Affinity fraud cases can sometimes involve the theft of millions of dollars; class action lawsuits can sometimes be filed if many persons were affected by the affinity fraud.
How Can I Avoid Becoming a Victim of Affinity Fraud?
Most victims of affinity fraud were lured due to the prospect of an attractive investment opportunity. Thus, affinity fraud can be prevented by careful research and preparation when looking into a new investment opportunity. Some steps to take to further avoid being a victim of affinity fraud can include:
- Research investment opportunities thoroughly before taking action;
- Question investment opportunities that appear to exist solely on the basis of membership in a particular group;
- Look into the background and certifications of the person making the investment suggestion. If something feels “off”, avoid working with them;
- Be wary of investments that promise “guaranteed” results or returns, or that make promises that are spectacular or too good to be true;
- Avoid investment opportunities that aren’t verified in writing. Legitimate investments are usually in writing, and affinity fraudsters may intentionally avoid using documents and written items;
- Avoid making decisions in situations where you feel pressured or rushed to take action. Mistakes are often made and scams are accomplished when people make investments without taking the time to understand them; and
- Be especially alert for scams online and that come to you through email channels. Scammers are increasingly using digital means to reach affinity fraud victims. Be especially cautious when opening unsolicited emails from parties that you don’t recognize.
A trusted person will never ask you for your bank account information, a picture of your I.D., or anything else that is private like your Social Security Number.
Should I Talk to an Attorney If I am Suspected of an Affinity Scheme?
Affinity schemes are serious white-collar crimes, and a conviction of involvement in an affinity scheme can subject you to a serious criminal sentence. They can also have a very negative impact on your professional reputation. If you are accused of or charged with this type of scam, talk to a local criminal attorney.