Affinity Fraud

When a scam artist targets a group of people who know each other, we call it an affinity fraud. The investment schemes they promote may change or vary over time, but the methods they use to target groups are often the same.

Exploiting trust and friendship

Sometimes we depend on our family, friends, or co-workers for advice. When a scam artist targets groups of people, we call it affinity fraud.

To be successful, scam artists need to earn the trust of an influential person in a group, family, or workplace. Once they establish this bond (and this can take time), they use this connection to get their hands on the money of other people in the group. In some cases, they may even pay the influencer to help them out, never telling the person that the investment is really a scam.

To find out more about the specific groups fraud artists target, visit our Common targets page in this section.

A new frontier for scams

The internet offers scam artists access to millions of people, and they are taking full advantage of it. A fraudster can send positive news about the investment offer through web forums, groups on social networking websites, blog platforms, and promotional websites. Once the investment catches on, investors may start to share or talk about the information online, drawing others into the scheme.

The fraudster may also use the tools the web offers to set up face-to-face meetings with you or a group you belong to. Like any good salesperson, the fraudster knows that getting face time with people could enhance their chances of selling the investment scheme they are promoting.

You may want to watch our podcast about social networking sites to get a better idea of fraudsters can use the social web to run a successful affinity scheme.

What are they selling?

Typically, affinity frauds involve a pyramid or Ponzi scheme. This is a ploy, often very elaborate, in which the con artist uses money from new investors to make payments to earlier investors. Believing their investment is successful, existing investors enthusiastically endorse it and convince others of its value. As the scam runs its course, the supply of new investors inevitably runs out, the whole scheme collapses, and the fraud artist makes off with most of the money.

Remember, Ponzi schemes are the back end or administrative part of the scheme, which only the fraud artists and their associates know about. Fraudsters don’t ask investors to invest in a Ponzi scheme. Instead, they sell fictitious investments that exhibit one or more of the warning signs of a scam. Familiarize yourself with these schemes and the red flags of a scam by visiting our Common investment schemes section and our Fraud warning signs section.

Covering it up

Unfortunately, once a scam takes root in a group or family setting, it’s difficult for authorities to uncover it. People don’t want to lose their money, nor do they want to report one of their own to authorities. Instead, they try to work things out as a group, which warns the fraudster that it’s time to wrap up the scheme and move on.

Securities regulators and other authorities cannot act without the cooperation of victims. Con artists understand and exploit this reluctance to report. The fraudsters keep the money, moving on to repeat the scam with other groups in new places.

Report it

Even if you are not considering an investment or haven’t given your money to a person selling the investment, take the time to bring suspicious activity to the attention of securities regulators. Your care and attention may save a friend, family member or member of your community from falling victim to a scam artist.

In BC, contact BCSC Inquiries. You can also anonymously report suspicious activity through InvestRight’s Report a scam webpage.

Residents from other Canadian provinces can find contact information for their provincial securities regulator at
www.securities-administrators.ca.