Tim D. Tribe 0000-00-00 00:00:00
Affinity Fraud With Friends Like These… Affinity fraud scandals burst into the public awareness through headlines such as these - “‘Christian’ con artist gets 5 years in prison”1 “In Madoff scandal, Jews feel an acute betrayal”2 “The Fraternal Order Of Fraud Victims - Investment scams targeting social, religious, and ethnic groups are on the rise”3 Affinity (uh-fin-i-tee) – noun, plural – ties., adjective – 1) a natural liking for or attraction to a person, thing, idea, etc.4 Unlike the terms “Ponzi scheme,” “lapping,” or “advance fee schemes,” etc., the term “affinity fraud” isn’t descriptive of how money is stolen; rather, the term is descriptive of how victims are acquired. In fact, the “fraud” portion of an affinity fraud can be any of those aforementioned fraud schemes. The key here is there is a high degree of trust created by the fraudster through some kind of pre-existing relationship. Affinity frauds occur because fraudsters are able to exploit a natural sociological phenomenon. Namely, we have a natural tendency to trust people who seem to be “like us” in some way that is important to us and fraud, by its very nature, is a violation of trust. Affinity scams may run across a variety of different types of sources of human similarity: race, religion, political affiliation, geographic isolation, gender, ethnic origin, family, age group, etc. A clever fraudster need only focus in on some group of which he is a member. Once the fraudster decides upon the group he will use as his prey, he can then move on to the next step – offering a “special” investment to which only members of the group have access. This approach serves two valuable purposes for the affinity fraudster: 1) it provides a relatively steady flow of new victims as word is passed through the group; and 2) there is a ready-made level of trust already in place. Trust is the key ingredient in any successful fraud scheme. In order for the fraudster to convince his victims to part with their money, he has to convince them that he is trustworthy in some way. In an affinity fraud, the fraudster’s work to gain trust is largely done for him. When one of these frauds is uncovered, the inevitable statements from shocked victims will often be along these lines – “Of course, I trusted him. I saw him at church every week!” “All my friends at the country club kept going on about how much money they made by investing with her. I thought I was missing out.” “I just can’t believe he would do this to his own community!” Examples of affinity frauds abound. The Bernie Madoff “Ponzi” scheme was especially damaging to the New York Jewish community, of which he was a prominent member. When the news broke of the collapse of the Baptist Foundation of Arizona, it was the largest non-profit bankruptcy in United States history – what started out as a legitimate real estate investment fund for members of the local Baptist churches turned into a “Ponzi” scheme and destroyed both finances and faith. The advice for spotting, and avoiding, affinity frauds is neither new nor novel. It does, however, bear repeating: • If the investment sounds “too good to be true, it probably is.” • Consciously make the decision to increase your skepticism, not reduce it, if you are part of some “special” group to whom the investment opportunity is limited. • Be especially wary of any investment offer which is sold based on the self-proclaimed “righteousness” or “kindness” of the person making the offer. • Unabashedly avoid any investment offer which must be made for you to continue your membership in the group, or worse, which is touted as a measure of your “faith.” • Look for the telltale signs of a “Ponzi” scheme – “guaranteed” returns at rates far in excess of the general market, early adopters of the investment allegedly making large sums of money from small investments, and high pressure to get in right away. The human being is a social creature. We’ll never stop looking for ways to associate with people we like and respect; nor should we. However, with a little knowledge, and a bit of effort, we can prevent fraudsters from taking advantage of our natural inclinations to gather and enjoy each other’s company.
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