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When Friends Push Financial Fraud
All scams are offensive but affinity fraud is a particularly personal affront. Affinity fraud is a term for investment scams that prey upon members of specific groups, such as religious or ethnic communities, the elderly, or professional groups.
The scammers frequently are—or pose as—members of the group and exploit the tight-knit trust among a community of people who have something in common. Think of Bernard Madoff, who lured members of wealthy synagogues and temples to invest in his Ponzi scheme. More recently, the Securities and Exchange Commission (SEC) sued Roger Bliss of Bountiful, Utah, for bilking friends and neighbors, many of whom were members of his local Mormon ward, in an “investment club” run out of his home. This past summer, the SEC also charged Luca International, a San Francisco oil-and-gas company, and its CEO, Bingqing Yang, with running a $68 million Ponzi-like scheme targeting the Chinese-American community in California and Chinese and Japanese investors who were part of the EB-5 Immigrant Investor Program.
The Latest Target: Military Veterans
In a new twist, the Federal Trade Commission reports a rising trend for affinity fraud aimed at military veterans. Service members share especially strong bonds with their brothers- and sisters-in-arms, so a con artist with a military connection knows exactly what language to use and which levers to pull to inveigle his way into that close circle, build trust among veterans and clean them out. Recent scams targeting service members and their families included a former Marine who promised fellow military veterans sky-high returns on bogus investment deals and fraudulent charities eliciting donations from military and their families to help veterans.
Don’t Let It Happen to You
It’s easy to say, “This could never happen to me.” But as the facts unfortunately show, even the savviest investor can be blindsided by someone who inspires trust because they seem to share common beliefs, friends, or experiences.
To avoid affinity fraud or similar scams, follow this advice:
- Do your due diligence. Never make an investment based solely on the recommendation of a member of an organization or religious or ethnic group to which you belong. Even if the person recommending the investment is a trusted friend or someone you respect, they may have been fooled into believing that the investment is legitimate—even when it’s not.
- Ignore the hype. Promises of spectacular profits with little or no risk are classic warning signs of fraud. If an investment sounds too good to be true, then it probably is, and those “guaranteed returns” are likely to guarantee you nothing but grief.
- Don’t trust the name game. Does the organization use words like “veterans” or “military families” in their name or ads? Hone your antenna to pick up phrases that are part of your group’s vocabulary. They’re meant to make you feel at ease—and let down your guard.
- Get it in writing. Legitimate investors don’t mind filling out the proper forms; fraudsters prefer a handshake agreement. Clamp your wallet closed if someone tells you they “don’t have the time to reduce to writing” about the particulars. Similarly, be suspicious if you’re urged to keep the opportunity confidential.
- Take your time. Fraudsters are adept at pitching “once-in-a-lifetime” opportunities with a limited window to participate. Don’t be pressured or rushed into buying a “can’t miss” investment before you have a chance to fully investigate it.
It’s painful to suspect someone you ought to be able to trust. But it’s even more painful to have your trust exploited and pay a steep penalty. If you think you may be a target of an affinity fraud, contact the SEC at enforcement@sec.gov.
Consumer Reports has no relationship with any advertisers on this website. Copyright © 2006-2015 Consumers Union of U.S.
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