An Affinity for Fraud

There are some who wear their religiosity on their sleeves. They never tire of telling people how devoted they are to their church or synagogue, how faithfully they attend services, and how God-fearing, spiritual and pious they are. Some go so far as to suggest others who don’t share their faith are headed hell-ward.

My father claimed he maintained a standard response to such people whenever and whenever he encountered them. He tightened his grip upon his wallet.

The more I read about affinity fraud, the more inclined I am to feel that he may have had a point. There’s nothing wrong with being religious, and much right about religious faith. But when coming face to face with those especially loud about their spiritual beliefs, it might be best to observe a fair degree of skepticism.

That’s doubly true if there is the prospect of a money-making venture to be had. The number of folks who have been fleeced in investments brought to them by members of their own church, synagogue or mosque is growing, according to organizations tracking the particularly nefarious scam known as affinity fraud.

It’s no coincidence that affinity fraud is particularly prevalent in a place like Utah, where people tend to know their neighbors, 65 percent of the population is Mormon and trust seems part and parcel of being a Utahn. Affinity fraud has grown so rampant there that they’ve even established a “Fraud College” to school folks on “fraud awareness, protection and education.”

People who perpetrate affinity fraud are, or purport to be, members of a group, whether religious denomination or church, an ethnic group, an immigrant community, racial minority or even a member of a country club.

Affinity fraudsters exploit the trust and camaraderie between members of such groups. They often first work to gain the trust of leaders of that congregation or group, recognizing those leaders command the ears and allegiance of those they lead. In many cases, the leaders themselves become victims of the fraud.

Members are persuaded to place their money into investment opportunities that may appear legitimate on the surface, but are in reality Ponzi schemes or some other type of sham transaction. Once the fraud has been perpetrated, those victimized are often reluctant to report the scam, preferring to keep the problem and any potential resolutions hammered out within the tight-knit church, group, or organization of which they’re members.

No lack of case studies

Examples of affinity fraud abound. Many claim Bernard Madoff’s fraud was an affinity fraud, because word of Bernie’s seemingly spectacular returns spread via word of mouth among a tight group of friends and relatives. Other examples are far more clearly affinity frauds.

The U.S. Security and Exchange Commission reports one recent example of affinity fraud was a $7.5 million Ponzi scheme that victimized members of the Los Angeles Persian-Jewish community. Rather than giving his investors the rich returns he touted, the fraudster tossed their money away on shopping sprees that netted him scads of jewelry, luxury cars and tickets to pricey big-time sporting events.

Then there was the $11 million investment scam targeting the gay community around Fort Lauderdale. The fraudster at its center wove tales of returns as high as 26 percent while wining and dining potential victims — who came to him through friends and relatives — at some of South Florida’s most upscale bistros.

Additional affinity frauds targeting African-American churchgoers, evangelical Christians, members of South Florida’s Cuban exile community, Hispanic groups seeking help establishing financing services firms and many other ethnic, religious or racial groups have been reported in recent years.

Together those frauds took their victims to the cleaners for millions if not tens of millions of dollars.

Fighting affinity fraud

The healthy dose of skepticism I alluded to at the outset of this column is one of the best defenses against affinity fraud.

Authorities advise being leery, doubtful, perhaps even cynical, about investment opportunities presented to you, not just by those in your church or synagogue, but by members of your fraternal or civic organization, workforce group and any other tight-knit coterie of which you might be member.

Before coughing up even one red cent of your own money, thoroughly check out both the investment opportunity and the background of the individual bringing you that investment. Be cognizant of the fact that the seemingly trustworthy person alerting you to the opportunity may have been duped into the conviction that it is above board, even if it is in reality a Ponzi scheme of Madoffian proportions.

If the individual bringing you the investment opportunity pledges returns that appear too good to be true, walk away. Take a similar stroll if the opportunity comes with the promise of little or no risk. In the lexicon of fraud, there’s no bigger red flag than investments guaranteeing sizable returns with no risk.

Another danger sign of fraud is the investment opportunity you’re told you simply have to act on immediately. No one delivering a legitimate investment offer will prevent you from taking time to closely examine the particulars of an offer, and no above-board opportunity will force you to rush into forking over cash.

Follow all of the above cautions regarding affinity fraud, and you’ll be tipped-off long before you’re ripped off.