Affinity Fraud: What It Is, and What Investors Can Do to Protect Themselves When They Fall Victim
The U.S. Securities and Exchange Commission (SEC) has issued several warnings and alerts about affinity fraud over the past several years. Affinity fraud is a type of securities fraud that targets members of specific groups and populations. Typically, these fraud schemes prey on one of two factors—either (i) group members’ relative lack of sophistication with regard to investing or (ii) group members’ trust in their leaders, public figures or the general goodwill of the public at large.
According to the SEC’s data, affinity fraud costs investors hundreds of millions of dollars per year, if not more. It is a very real concern, and it is far more common than most people realize. As a result, if you believe that you may be a victim of fraud, you should not ignore your concerns. If you are a victim, you are entitled to recover your fraudulent losses, and you can—and should—hire an experienced securities fraud lawyer to help you.
Understanding Affinity Fraud in Investing
In the world of investing, affinity fraud is among the most egregious and most harmful forms of wrongdoing. As the SEC explains:
“At its core, affinity fraud exploits the trust and friendship that exist in groups of people who have something in common. . . . A common way [of committing affinity fraud] is by enlisting respected leaders from within the group to spread the word about the scheme. Those leaders may not realize the ‘investment’ is actually a scam, and they may become unwitting victims of the fraud themselves.”
But, leaders and community members can also perpetrate affinity fraud scams as well. It is not uncommon for scam artists to form or infiltrate groups with the specific purpose of executing a securities fraud scheme. The SEC acknowledges this as well, stating, “Fraudsters who carry out affinity scams frequently are (or pretend to be) members of the group they are trying to defraud. . . . Fraudsters [will] target any group they think they can convince to trust them with the group members’ hard-earned savings.”
We have seen affinity fraud schemes targeting the elderly, retirees, religious groups, individuals of particular races and nationalities and online groups—among many other groups of varying levels of formal organization. If you suspect that you may have been targeted for any reason, our lawyers can examine your situation and help you understand the options you have available.
Common Examples of Affinity Fraud Investment Schemes
Just as affinity fraud investment schemes can target a wide range of groups, they can also take many different forms. Some of the more common schemes include:
- Ponzi Schemes – In a Ponzi scheme, the perpetrator solicits funds from victims, claiming that the funds will be invested for significant returns. In reality, the supposed “returns” are paid using a portion of subsequent victims’ funds, and the vast majority of the funds go directly into the perpetrator’s pockets.
- Pyramid Schemes – Pyramid schemes are similar to Ponzi schemes, except the perpetrator relies on group members to encourage others to invest. Those who unknowingly recruit new victims typically receive a reward for doing so.
- Business Investment Schemes – Affinity fraud schemes frequently involve claims about new businesses that are poised to take off or existing businesses that have just come into new contracts or commercial opportunities. They may also involve businesses allegedly owned by members of the group. These business schemes frequently involve elements of a Ponzi scheme or pyramid scheme, and, in many cases, the purported business in which victims are investing doesn’t exist at all.
- Real Estate Investment Schemes – Real estate investment schemes targeting particular groups are also extremely common. If the property that is the subject of the scheme exists at all, it is usually extremely overvalued or not actually owned by the perpetrator.
- Fake Charity and Donation Schemes – In some cases, scam artists don’t solicit investments but instead solicit donations to charitable organizations—but the charities don’t actually exist. These efforts may be combined with elements of a pyramid scheme as well, making group members believe that they are helping a good cause when, in reality, they are helping a scam artist victimize their friends, colleagues or loved ones.
Again, these are just examples of some of the most common affinity fraud schemes. There are many more examples that involve targeting victims in person, by phone or online, and scam artists are constantly coming up with new ways to target vulnerable individuals and groups.
What To Do if You Are a Victim of Affinity Fraud
If you are a victim of affinity fraud—or if you are concerned that you may have fallen victim to an affinity fraud investment scheme—there are steps you can take to seek to recover your fraudulent losses. These steps include:
1. Collect as Much Documentation as Possible
If you have text messages, emails, letters, brochures or any other documents, be sure to keep these in a safe place. If you visited a website or saw something on social media, try to take screenshots or make printouts to preserve the information you were shown.
2. Take Detailed Notes
Do your best to take detailed notes. When did you start to have concerns? Why did you start to have concerns? Who was involved? You should not worry about implicating any of your friends, colleagues or family members, as there is a good chance that they may have been victimized, too.
3. Talk to a Securities Fraud Lawyer
To give yourself the best chance of recovering your fraudulent losses, you will want to speak with an experienced securities fraud lawyer right away. At Zamansky LLC, we offer completely free and confidential consultations, and we are more than happy to explain everything you need to know.
Contact Us for a Free Consultation with a Securities Fraud Lawyer at Zamansky LLC
Do you have concerns about affinity fraud? If so, we strongly encourage you to get in touch. Call 212-742-1414 or contact us online for a free and confidential consultation.