Affinity Fraud

Affinity fraud has become an increasingly large problem in New York, as well as throughout the United States. But just what exactly is affinity fraud? The concept is simple, but what leads up to the fraud tends to be more complex.

What is Affinity 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. Race, culture, a common language 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 can be especially true when it comes to investing money. Unfamiliar with the financial markets, 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 is, or seems to be, a member of the same ethnic, religious, career or community-based group. In fact, the con-artist may even be a member of the family or someone else who the investor has known for a long time.

"You can trust me," says the scamster, "because I'm just 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 first selling to a few prominent members, then pitching the scam to others by using the names of those previous purchasers. The effect is the same: once the connection to the group is established, 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 affinity groups often play the loyalty angle to discourage complaints.

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. With the number of immigrants increasing dramatically, many new arrivals are potential victims of financial swindlers.

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 can also make these group members vulnerable to deceitful con artists who, despite sharing the same ethnicity or culture, are really motivated by greed.

Similarly, members of religious groups are frequently victims of affinity fraud because their cohesiveness and their inclination to support their co-religionists easy targets for swindlers who prey upon people of their own religion. Such swindlers come in all denominations.

New York Takes Action

The New York Attorney General's Bureau of Investor Protection and Securities receives a constant stream of complaints from surprised and perplexed victims of friends, neighbors, members of clubs and organizations, fellow church members, and even members of their own family. They often make such statements as: "I've known him all my life"; "I trusted her as if she were a member of my family"; "He was such a nice young man"; or "We had the same values and beliefs."

Recently, the Attorney General's Office obtained a court order against eight executives and employees of a company called ITF Enterprises, using an address at 67 Wall Street and at 410 Park Avenue, which targeted primarily vulnerable consumers of limited means from African-American and Dominican communities in New York City. The business had a veneer of credibility because of the use of mail drops at prestigious addresses and because the promoters of the scheme gave themselves titles, such as CEO and President, even though the company was not a corporation.

Among the victims were nurses aides, livery cab drivers and public servants. Their investments averaged from $2,000 to $20,000. One woman invested close to $160,000 after taking out a second mortgage on her house.

Out of the $3 million raised by this scheme, $1.5 million was used by the promoters for their own benefit. Among the uses of the money were $73,000 in personal expenses for electronics, entertainment and luxury items, including an $11,000 purchase at an Italian clothing store.

The Attorney General's Office obtained a court order freezing the remaining assets of the company and its principals.

How to Avoid Affinity Group 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.
    * Before investing any money, call the Attorney General's Office in order to learn more about the salesperson and firm. The simplest inquiry is to ask if they are registered to do business in New York and if the investment is allowed to be sold in New York. If the salesperson or the firm is not registered, that is a sure warning to inquire further. Don't take the word of a salesperson! Check out that person and the investment yourself.

For more information...

For more information contact the New York State Attorney General's Investor Protection Bureau at 28 Liberty Street, New York, NY 10005 or call 212-416-8222.