Washington State Department of Financial Institutions

Affinity Fraud

Topics Covered:

What is Affinity Fraud?

State securities regulators are warning investors to be on guard against a rise in affinity group fraud. What is affinity fraud? It’s simple, but the causes that give rise to it are often more complex.

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. Race, culture, and religious beliefs also play a role in identifying us as members of unique groups that we often come to trust -- sometimes to our detriment.

In a world of increasing complexity, many people feel the need for a short-hand way of knowing who to trust. This is especially true when it comes to investing money. Unfamiliar with how our financial markets work, too many people don’t 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 ethnic, religious, career or community-based group.

"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. Swindlers who prey on ethnic or religious groups play the loyalty angle for all its worth.

With immigration at levels not seen since early this century, many new arrivals to our country are seen by financial swindlers as ripe for the picking. Immigrant groups are particularly vulnerable to this type of fraud because they are sometimes isolated from the larger community and their flow of information may be limited because of language and other barriers.

Some members of other long-established minority groups have accumulated savings and achieved a certain standard of living through years of hard work. Often, they want to "give back" to the community in order to help others like themselves. However, such inclinations often make these group members sitting ducks for deceitful con artists who, despite sharing the same ethnicity or culture, are really motivated solely by greed.

Religious affinity group fraud also continues to be a widespread problem, according to state securities regulators. And swindlers who prey upon people of their own religion come in all denominations.

Among the Victims...

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