Affinity Scams

Affinity Scams Are On The Rise!

By Julie A. Aydlott, CFE

What exactly is an affinity scheme?  Affinity schemes are investment scams that prey upon members of identifiable groups. The group leaders are in a very high regard with the kinship or members. Whether that kinship comes from religious groups (churches have a high affinity fraud problem), ethnic groups, elderly groups, minority groups and professional groups. The group leader has built a special trust relationship with the person(s) who refers them.

The victims in an affinity fraud scheme are referred into the group by a very trusting person.  Whether that person is a relative, a close friend, a co-worker or even the group leader.  These group are very tight nit in structure and don’t let new members in lightly.  If they do, the new member must be someone known.  Affinity schemes are frequently referred to as

  • Ponzie Schemes
  • Pyramid Schemes
  • Real Estate Investment Schemes

A Ponzi Scheme – A fraudulent investment operations that pays it’s returns to its investors from their own money paid by subsequent investors. Ponzi Schemes offer a high return on investments often in a short period of time

Pyramid schemes promises participants payment for services for enrolling other people into the scheme.  It generally does not involve real products.

A Real Estate Investment Schemes creates a “Partnership” and brings in multiple investors.  These schemes promise a high ROI as well as promises ownership on the properties.  Real Estate Investment Schemes last a long time and are more drawn out where the return isn’t always promised in a short period of time.

Affinity frauds are very difficult on the victim and unfortunately the bonds the victim has with the members can blind them into believing everything the fraudster is telling them.  They don’t think that one of their own would ever steal from them.  The perpetrator generally incorporate elements of charity and gift giving or giving back to the community which makes their fraud scheme even more difficult to believe because they are held in such high regard in the community.  If a victim of an affinity fraud scheme feels that something is wrong and attempts to speak with other members or even the leader, the group will claim that reporting the allegations of fraud will prohibit any possible return on their investment so they won’t do it.  The members have also been known to retaliate against the victim as well.

The perpetrator being well respected in the community is very good at their disguise.  They are pathological liars and are able to adjust their behavior to appear more credible.  They are able to adept and understand the mindset of those they defraud appearing sympathetic however they have no compassion or empathy for the financial destruction that they cause.  They only time the fraudster has any regret or empathy is if they get caught.

Some warning signs of an affinity fraud scheme:

  • Won’t provide financial or investment reports
  • Tax return not filed or late
  • Investor makes payment to individual
  • Company research lacks records
  • Real Estate title not held by partnership but by fraudster
  • Promises a high return on investment
  • Must act now urgency
  • Deal of a lifetime opportunity
  • Promises quick return on investment

If you know someone who may have invested their hard earned money into a questionable investment, remember the hardest part is to get them to accept that they have possibly been a victim of a fraud scheme. If you are the investor take the time to go through your paperwork and start researching your investment.  Never leave it to chance.  The magnitude of affinity fraud schemes on the rise is alarming and the fraudsters don’t care who they hurt along the way.

Take the quick test to see how you rank or if you know someone who has invested money into a private group investment to see if you should be concerned.  If you fail this test, I would gather all of your paperwork in relation with your investment and bring it to unrelated party to review.

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