BC residents have lost millions of dollars to individuals they believed they could trust.
Sometimes we depend on our family, friends, or co-workers for advice. Fraudsters know it and exploit the trust that exists within a family or community to defraud people. When a fraudster targets identifiable groups of people, we call it affinity fraud.
How Does Affinity Fraud Work?
To be successful, fraudsters need to earn the trust of an influential person in a group, family, or workplace. Once they establish this bond, 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 the investment is really a scam.
Many frauds of this type are Ponzi schemes – elaborate ploys in which the fraudster uses money from new investors to make payments to earlier investors.
What investors are shown is an attractive opportunity to make money. Only the fraudsters and their associates know the investment being offered is really a Ponzi scheme. They will go to great lengths to sell the investment opportunity, sometimes even creating fake financial statements to convince investors that their funds are growing at a phenomenal rate.
Believing their investment is successful, existing investors endorse it and convince others of its value. In the end, the supply of new investors runs out, the whole scheme collapses, and the fraudster makes off with most of the money.
Affinity Fraud on the Internet & Social Networking Sites
A fraudster can send positive news about an investment offer through web forums, groups on social media, and online marketplace sites. 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 online tools to set up in-person meetings with an individual or a group of people knowing that getting face time with people could enhance their chances of selling the investment scheme they are promoting.
Covering it Up
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 is time to wrap up the scheme and move on.
Look Out for These Affinity Fraud Warning Signs
Affinity fraud targets groups – clubs, associations, ethnic communities, or religious organizations. There are some common warning signs in affinity frauds:
- The fraudster may offer you “faith-based” investments exclusive to your religious group or organization.
- The fraudster will tell you religious-based investments are not regulated.
- An unregistered advisor or promoter claims affiliation to a certain faith or religious organization.
- The fraudsters will tell you not to seek independent advice about an investment or an advisor.
- A new person to your group is pushing a high-return, no-risk investment opportunity.
- Influential people in your group or organization are working with a person to promote an investment.
- Someone new to your group is name dropping or courting influential people to help them attract investors.
Watch Out for Friends or Family Members
You can help stop affinity fraud (or any investment fraud) by recognizing how it affects individuals – friends, family members, or people you associate with on a regular basis. Here is what to look for:
- A new friend or caregiver enters a person’s life and starts to advise on financial matters and investments.
- A friend, family member, or caregiver is putting pressure on a person to give them money or make an investment.
- Someone you know suddenly avoids social functions or group events.
- Friends and family tell you that a person you all know is avoiding them for financial reasons.
- Someone you know fails to take care of themself or keep up their home.
- You notice a friend or family member suddenly becomes concerned about money or their financial situation.
Recognize, Reject, & Report Investment Fraud
In British Columbia, report investment fraud or suspicious activity to the British Columbia Securities Commission (BCSC) Inquiries team. You can also report anonymously through the BCSC’s online complaint form page. Residents from other Canadian provinces and territories can find contact information for their securities regulator here.