Financial investments consist of immediate investments, such as stocks and bonds, and indirect investments, such as mutual funds. Criminal fraud happens when an individual plans to or actually deceives another through false representation.
As a result, the intended victim relies on the false declaration to their monetary detriment. When financial investment and criminal fraud are united, it can result in several different financial scams. One such financial scam is called affinity fraud.
Affinity fraud is an investment scam in which a person preys on an identifiable group of individuals. The person promotes the investment scam while pretending to be a group member. This fraud is so named because the victim may feel an “affinity” or closeness with the individual 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 individuals include:
- Professional groups;
- Ethnic communities; and
- Religious groups.
Affinity fraud scams often involve exploiting the connections and trusts that might exist within these identifiable groups. Also, due to the intimate nature of some groups, affinity fraud schemes can sometimes be challenging to detect.
They can also be challenging to report, as some victims may feel pressure not to file a report from the group. Victims can sometimes be a part of the fraud or scam, as they can occasionally be manipulated in ways that they are not aware of.
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 scheme’s perpetrator. The cash is then used to pay someone who invested their funds earlier. They often hinge on misconceptions that their invested capital will thrive and provide significant returns.
In reality, the scheme is based on various manipulation methods to trick new investors into providing 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 they are acquainted with, like a close friend’s kid who is studying abroad but needs funds to avoid danger. Through the advent of technology, there are more ways for affinity scams to occur.
What Makes a Ponzi Scheme Different from a Pyramid Scheme?
In a pyramid scheme, payouts come from recruiting new members to the system. In a Ponzi scheme, there is no need to recruit new members, and payouts come directly from the scheme’s operator.
A Ponzi scheme usually claims that the pledged returns are based on some investment approach, such as insider connections or a novel idea. Pyramid schemes explain that returns come from new investors.
Ponzi schemes can last longer than pyramid schemes because they rely on reinvestment, not just on new investors.
Are Ponzi Schemes Legal?
No. Ponzi schemes are not legal and are criminal fraud. If you suspect that you have been the victim of a Ponzi scheme, you should contact the police or the Federal Trade Commission.
What Should I Do If I Suspect an Investment Is A Ponzi Scheme?
With the growth of the internet and online investments, Ponzi schemes are becoming more and more common. Thus, before making any investment, you should take the time to explore the facts and make sure that the investment is not fraudulent.
Steps you can take to protect yourself include:
- Find out what you are investing in and how profits are being earned
- Contact the Federal Trade Commission and see if the investment is valid
Use your common sense – if an investment sounds too good to be true, it likely is.
How Does This Type of Scam Occur?
The person, who is or pretends to be part of the group, will first persuade a respected member of the group for support. For example, the target may be a religious or community leader. They will tell somebody about the new fraudulent investment opportunity on the scammer’s behalf.
In many examples, the trusted leader will unknowingly be a scam victim. Individuals invest their funds into the fraudulent scheme. The person 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 cash stolen or involved, affinity fraud is normally filed as a felony charge. This may result in severe criminal penalties, including criminal fines and fees and sentences in a prison facility of over one year.
In addition to the criminal consequences, it is also typical for the victims of affinity fraud to file private civil claims for damages stemming from the fraud scheme. Affinity fraud claims can sometimes involve the theft of millions of dollars; class action lawsuits can occasionally be filed if many individuals were affected by the affinity fraud.
How Can I Avoid Becoming a Victim of Affinity Fraud?
Most victims of affinity fraud were drawn due to the prospect of an attractive investment opportunity. Therefore, affinity fraud can be controlled by thorough research and preparation when looking into a new investment opportunity.
Some steps to take to avoid further being a victim of affinity fraud can include:
- Research investment opportunities thoroughly before taking action;
- Question investment options that appear to exist solely based on membership in a particular group;
- Look into the background and credentials of the individual making the investment suggestion. If something feels “off,” avoid working with them;
- Be mindful of investments that promise “guaranteed” results or returns or that make promises that are spectacular or too good to be accurate;
- Sidestep investment options that aren’t verified in writing. Honest investments are usually in writing, and affinity fraudsters may intentionally avoid using documents and written items;
- Avoid making decisions when you feel pressured or rushed to take action. Mistakes are often made, and scams are accomplished when individuals make investments without taking the time to understand them; and
- Be especially alert for scams online, which come to you through email channels. Scammers are increasingly using digital means to reach affinity fraud victims. Be especially wary when opening unsolicited emails from parties you don’t recognize.
A trusted individual 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?
Fraud attorneys provide various services to aid their clients in receiving a successful resolution to fraud matters. Many useful benefits stem from hiring a fraud lawyer to handle a case. For one, a fraud attorney is already familiar with the law and can conduct an in-depth investigation into complex areas of the law that are hard to understand without the proper training.
With extensive experience and comprehending this legal research, a fraud attorney can advise their client on any questions or concerns about a case. For example, a civil fraud lawyer may tell their client that it is not worth the cost of pursuing a lawsuit because of how little they may recover in damages.
There are also particular legal requirements and procedures that the average individual may not know of. These can include criminal defenses that can reduce or eliminate legal penalties, types of damages a civil plaintiff can recover, or how to draft specific legal documents like a complaint or brief.
Affinity schemes are serious white-collar crimes, and a conviction of involvement in an affinity scheme can subject you to a severe criminal sentence. They can also have a very negative impact on your professional reputation. If you are accused of or charged with this scam, talk to a local fraud attorney.