Affinity Fraud: Beware of Swindlers Who Claim Loyalty to Your Group

* Office of the Attorney General [to Jan 2010]
The Office of the Attorney General is warning investors to be on guard against a rise in affinity group fraud.

Everyone, in some way or another, is connected to a group or association. Our interests, backgrounds, and other factors will naturally lead us to those organizations or affiliations that serve our needs.

In a world of increasing complexity, many people feel the need for a shorthand way of knowing whom to trust. This is especially true when it comes to investing money. Unfamiliar with how our financial markets work, too many people do not know how to thoroughly research an investment and its salesperson, so many fall prey to affinity group fraud in which a con artist claims to be a member of the same group or organization.

"You can trust me," says the scamster, "because I'm like you. We share the same background and interests. And I can help you make money."

Another equally effective pitch, if the con artist is not a member of the group, is to lull members into a misplaced trust by selling first to a few prominent members, then pitching the scam to the rest by using the names of those previously sold. The effect is the same; once the connection to the group is understood, the natural skepticism of the individual member is overcome, and one more group name is added to the sales column.

Once a victim realizes that he or she has been scammed, too often the response is not to notify the authorities but instead to try to solve problems within the group.

How to avoid affinity fraud:

• Beware of the use of names or testimonials from other group members. Scam artists frequently pay out high returns to early investors using money from later arrivals. Accordingly, early investors may be wildly enthusiastic about a scheme that may collapse entirely once you've invested.

• Obtain a prospectus or other form of written information that details the risks in the investment and procedures to get your money out.

• Ask for professional advice from a neutral outside expert not in your group – an accountant, attorney or financial planner – to evaluate the investment.

• Ask your provincial securities agency for help. Before investing any money, call your local securities agency in order to learn more about the salesperson and firm. The simplest inquiry is to ask if they are registered to do business in your province. And is the investment allowed to be sold. If one or the other is not registered, that is a sure warning to inquire further. Don't take the word of the salesperson! Check out the investment yourself.

Media Contact: Island Information Service