Affinity fraud
These scams exploit the trust and friendship that exist in groups of people who have something in common.
Many affinity scams involve ponzi or pyramid schemes where new investor money is used to make payments to earlier investors to give the false illusion that the investment is successful. Both types of schemes depend on an unending supply of new investors - when the inevitable occurs, and the supply of investors dries up, the whole scheme collapses and investors lose most, if not all, of their money. See some examples below.
How to avoid being a victim in an affinity fraud
Check out everything no matter how trustworthy the person is
Never make an investment based solely on the recommendation of a member of an organisation, or religious or ethnic group to which you belong. Investigate the investment thoroughly and check the truth of every statement you are told about the investment.
Do not fall for investments that promise spectacular profits or 'guaranteed' returns
If an investment seems too good to be true, then it probably is. Generally, the greater the potential return an investment offers, the greater the risks of losing money on the investment.
Be sceptical of any investment that is not fully documented in writing
Legitimate investments are usually in writing. Avoid an investment if you are told they do 'not have the time to reduce to writing' the particulars about the investment. You should also be suspicious if you are told to keep the investment opportunity confidential.
Don't be pressured or rushed into buying an investment
Just because someone you know made money, or claims to have made money, doesn't mean you will too. Also, watch out for investments that are pitched as 'once-in-a-lifetime' opportunities, especially when the promoter bases the recommendation on 'inside' or 'confidential information.'
Some examples of affinity fraud
Community and religious groups
Investing on the advice of friends - a warning!
Scams targeting non-English speaking communities
Social networking fraud
FIDO Website: Printed 03/18/2010
