Affinity fraud is one of the big forms of fraud being perpetrated today — big because it is becoming more common and because it involves groups of people, most notably new immigrants, religious and minority groups, and social clubs.
It’s also one of the most insidious forms of fraud because it preys on people’s basic need for human companionship and trust in people who share similar ethnic backgrounds, values, principles and interests.
“Affinity fraud is definitely one of the two big forms of fraud out there today, the other being Ponzi schemes,” said Tom Hamza, president of the Investor Education Fund.
The pattern of most affinity frauds is very similar.
The perpetrator joins a group or community of some kind — often a church — and gains the trust of its members. This individual convinces members to invest in a scheme and then walks away with the money.
Affinity fraud among religious groups and church congregations has grown rapidly over the last few years.
Church groups, congregations and denominations are particularly vulnerable because it’s human nature to trust someone who purports to be religious.
Affinity fraud has been a major problem over the last few years in British Columbia’s Fraser Valley, where 300 investors were swindled out of more than $11 million through an affinity scam perpetrated by a defrocked pastor.
It became such a problem that, in 2003, a Catholic priest and Presbyterian minister approached the B.C. Securities Commission and created God’s Fraud Squad to draw attention to the problem and educate the estimated 200 churches and 30 denominations in the region.
Minority groups also are very susceptible to affinity fraud.
Members of long-established minority groups in Canada may have accumulated savings and achieved success and want to give back to their community to help others like themselves. This generosity can make them easy prey for fraudsters.
One of the biggest affinity cases in Canada involved the closely knit Ismaili community, many of whom were induced by one of their own people to invest $75 million in a scheme involving a product to whiten teeth.
New immigrants are another susceptible group.
Often they are isolated from the larger community and are unfamiliar with Canadian laws and customs regarding investments. As well, they may not be able to get information and advice about proposed investments because of language and cultural barriers, making it very difficult for them to distinguish between legitimate and fraudulent offers.
Security regulators advise people to watch out for investments or advisers who exploit a religious connection or seem to be closely tied to a particular religious belief. Religious financial planners should hold the same standards as other financial planners, and an investment opportunity that is only available to members of a specific church or faith does not make sense.
Don’t trust any claim that religion-based investments are not regulated. Most investments are regulated by securities laws and must be registered for sale.
If in doubt, ask for a prospectus or other written information. Scam artists don’t like paper trails. A legitimate sales person must provide detailed written materials outlining the nature of the investment, the risks involved, financial statements and any restrictions on getting your money out.
And always remember the golden rule: if it sounds too good to be true, it probably is.
Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors. He can be reached at email@example.com.