| Know It Olly

TL:DR Affinity fraud is a scam where fraudsters exploit trust within a specific group, like a church or community, to promote fake investments. They often pretend to be members of the group, making it easy to deceive. To protect yourself, always verify, research, and get a second opinion before investing.

What Is Affinity Fraud?

Affinity fraud is a scam where someone tricks a group of people into giving them money by pretending to be part of their group. The scammer either really is or pretends to be a member of the group, like someone in the same church, neighbourhood, or club. Because everyone in the group already trusts each other, it’s easier for the scammer to convince people that they have a great investment opportunity. Unfortunately, the “investment” is usually fake, and the scammer ends up running away with everyone’s money.

How Does Affinity Fraud Work?

Let’s break it down step by step:

Building Trust: The scammer starts by gaining the trust of the group. They might attend the same events, speak the same language, or even share the same beliefs. This makes everyone feel comfortable with them.
Promoting the Scheme: Once the scammer is trusted, they introduce an investment opportunity. It could be something like a chance to make a lot of money quickly or a special deal only for group members. Because the offer comes from someone within the group, people are more likely to believe it’s real.
Early Rewards as Bait: To make the scheme look legitimate, the scammer might give early investors some money back. This isn’t real profit, though—it’s just money from new investors. This trick makes people think the investment is working, so they invest more or encourage others to join in.
The Collapse: Eventually, the scam falls apart. When there aren’t enough new investors to keep the money flowing, the scammer takes off, leaving everyone else with nothing.

Who Gets Targeted?

Affinity fraud targets any group where members share something in common. Here are some examples:

Religious Groups: Scammers might target people who attend the same church or religious community, using their shared beliefs to gain trust.
Ethnic Communities: Immigrant communities are often targeted because they tend to stick together and rely on each other for support, making them more trusting of someone who seems to be “one of their own.”
Military Members: Even groups like veterans or military personnel have been targeted, with scammers pretending to be fellow servicemen or women.

Real-Life Examples of Affinity Fraud

One of the most famous cases of affinity fraud involved a man named Bernard Madoff. He managed a Ponzi scheme that tricked thousands of people, including many in affluent Jewish communities. Madoff promised them great returns on their investments, but it was all a lie. His scam collapsed during the 2008 financial crisis, leaving many people and organizations with nothing.

Another example includes a scam where a former Marine convinced fellow military members to invest in a hedge fund that didn’t exist. He used his background to make the investment seem trustworthy, but in the end, he just took their money.

Why Don’t People Report Affinity Fraud?

You might wonder why victims of affinity fraud don’t always go to the police or tell others what happened. There are a few reasons:

Embarrassment: People might feel ashamed that they were tricked, especially by someone they trusted.
Group Pressure: If a respected leader or member of the group endorsed the scam, victims might not want to cause trouble or go against the group.
Trying to Fix It Themselves: Some people believe they can work things out within the group without involving authorities, but this often leads to more problems and more victims.

How to Protect Yourself from Affinity Fraud

Here are some simple steps you can take to avoid falling for an affinity fraud scam:

Check Before You Invest: Always make sure the person offering you an investment is registered with your local securities regulator. In Canada, for example, you can use a website like CheckBeforeYouInvest.ca to see if they’re legitimate.
Get a Second Opinion: If someone you know offers you an investment opportunity, it’s okay to be skeptical. Get advice from a registered financial advisor, lawyer, or accountant before you decide to invest.
Avoid High-Pressure Tactics: If someone tells you that you need to invest quickly or you’ll miss out, be cautious. Real investment opportunities don’t usually come with such high-pressure tactics.
Research the Investment: Make sure you understand what you’re investing in, including the risks and fees. Ask questions until you’re comfortable, and don’t be afraid to walk away if something doesn’t feel right.
Report It: If you think you’ve been targeted by a scam, report it to the authorities. Even if you feel embarrassed, reporting the scam can help protect others in your community from falling for the same trick.

Stay Vigilant

Affinity fraud is a powerful and dangerous scam because it preys on trust. Scammers know that people are more likely to believe someone who seems to be just like them, whether it’s a fellow church member, a neighbor, or a colleague. By staying aware of the signs, asking questions, and doing your homework, you can protect yourself and your community from these deceitful schemes. Remember, it’s okay to trust, but it’s also important to verify before you invest.