It’s natural for individuals to immediately accept and befriend members of their own ethnic, religious, political or other identity- or interest-based communities. Fraudsters know this, and when perpetrating “affinity” schemes, they capitalize on these bonds. In some cases, perpetrators are actually members of the groups they’re exploiting. In others, the scam artists only feign affinity. Either way, their fraud schemes do more than fleece victims — they also violate fundamental standards of trust.

Making the Connection

Affinity fraud often involves scam artists and victims who already know each other — for example, through their church, country club or softball league. However, fraudsters may also purchase targeted lists that enable them to establish an affinity with victims. For example, a criminal could target armed service members nearing retirement, stay-at-home moms in affluent neighborhoods or recent immigrants from Central America.

Once perpetrators identify their target audience, they work to establish emotional connections with them. For example, when talking with service members on the verge of retiring, a fraudster might pose as a former army officer and empathize with a target’s concerns about adjusting to civilian life and a nonmilitary job. Then, the perpetrator might offer a one-time subscription to a nonexistent newsletter for former service personnel that purportedly helps them find civilian employment. After receiving payment for a subscription, the fraudster disappears.

“Once-in-a-Lifetime” Opportunities

Investment scams often have an affinity angle. Fraudsters might solicit large investments from their supposed “close friends” and associates to participate in “once-in-a-lifetime” opportunities.

A typical investment scam goes like this: The perpetrator offers exclusive, yet undervalued, beachfront property or a hot stock with the potential to go “through the roof.” Neither the beachfront property nor the hot stock exists outside the perpetrator’s imagination. The crook simply wants to appeal to the victim’s social or financial aspirations. To ensure they make the “sale” before the victim has second thoughts — or worse, uncovers the scheme — fraudsters usually exert time pressure and tell their victims to keep the offer confidential.

To amplify a potential investor’s fear of missing out, a fraudster might share phony statements detailing the returns of previous investors. In the case of Ponzi schemes, some previous investors might actually have made money — but only at the expense of later investors. This was true of the Ponzi scheme perpetrated by Bernie Madoff, who solicited many investments from friends and affinity group connections.

Protect Yourself

Most people identify with groups — whether the groups are those they’re born into or groups they’ve joined voluntarily. This means that most people are vulnerable to affinity fraud. Take the following steps to avoid becoming a victim:

Do your own research. Investigate offers that involve money, even if they come from friends, family members and colleagues. Ask the person to explain the investment or product in detail, as well as how he or she came to know about it. Research both the individual and the offer online. If the pitch-maker is a business owner or has a professional license, check with the Secretary of State’s office for your state and groups such as the Better Business Bureau for complaints.

Be skeptical of extraordinary claims. Whether the pitch-maker guarantees high returns for relatively low risk, or says a purchase will “change your life,” it usually pays to take a time-out. Only make your decision when you can make it rationally.

Get everything in writing. Be wary of any offer that isn’t documented. To avoid creating a paper trail that incriminates them, fraudsters usually decline to put their claims in writing. Or, they may put an offer in writing during a meeting but not allow you to leave with a copy.

Ask a professional’s opinion. Sometimes, the quickest way to expose a fraudulent investment is to explain it to someone else. Ask a trusted investment advisor, CPA or attorney for an opinion. Their professional code of conduct may prevent them from giving an official opinion, but they should be able to tell you what they would do in the same situation.

Only Human

It’s human instinct to want to please someone with whom you have a connection. Sophisticated fraudsters count on this. But if you feel uncomfortable with any aspect of a pitch, just say “no” and walk away. If you’re worried about social awkwardness, simply tell them you don’t have the money to spare or that family obligations prevent the expenditure. Anyone making an honest offer will understand and accept your explanation.

For more information about affinity fraud or if you think you’ve been scammed by an affinity fraudster, contact us.