Watch out for affinity fraud and Investment scams!

Let’s say a respected member of your church/synagogue/ mosque has been making big money on his investment in connection with another member of the church from another area. Sounds great! You want in on this as you know this guy and the new guy is from another parish in a nearby city. Sweet. Sign me up so I can make more to retire sooner. Not so fast!

Affinity fraud is a type of fraud perpetuated by a conman who ingratiates himself with respected members of that church group or ethic group. They may do this with several well know members. Those members in turn make money and tell other members of the group about the investments in some special asset. They introduce the guy from the other church/parish/temple to the group. All hang out together for some time. Trust is built over time and friendships are built all belong the same denomination, LDS group, ethnic group or racial group. Eventually other members feel comfortable enough to invest given other church members have done so well. What could go wrong?

A lot can go wrong. The goal of the fraudster is to build relationships with members and become a “friend” and community member. Once the conman has gathered enough investors he takes off with the money never to be seen again. The group is often afraid or ashamed to go to the police for fear of upsetting the group so the conman get away with it.

Affinity frauds are often Ponzi schemes. See my prior post on this topic. That means they pay off the initial investors with later investors and try to get the earlier investors to reinvest.

Affinity frauds are found in

  • LDS churches
  • Jewish groups: Bernie Madoff was one such person as shown below
  • New immigrant groups of a particular ethnicity like Armenians or say people from Nigeria
  • Baptist churches
  • Senior citizen groups
  • English as a second language groups so they can prey on naïve immigrants looking to strike it rich

How to protect yourself from these scams

  • Investigate the background of the new member carefully. If you call the other parish have they heard of him or her? No? Well that’s a problem
  • Investigate how the money is made. What is the mechanism? What do they put the money in?
  • If the answer are vague or opaque stay away. Fund managers are not vague with clients.
  • What is their track record? Are results too consistent or too good to be true? That is a concern.
  • Does the “friend” live a lavish lifestyle?
  • Is there a legal binding investment contract? Have an attorney or CPA review the documentation.
  • Is there a “special sauce” to the investment? If so, that sounds suspect.
  • Is the investment offered by a reputable investment firm?

If you already in?

Try to withdraw some money for an emergency. Ideally all of it with the promise to reinvest once the item has been dealt with. If you get it great! If not, that’s a red flag.

Don’t be afraid or ashamed to call the police or other authorities if you have been conned. This is fraud and is a crime. That is the only chance you have to recover your money or what is left of it.

Lock him up boys! Korean police arrest a local conman.

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