You’d think sophisticated investors would have the smarts and tools to look out for themselves. But then we all want to trust the family and close friends we count on to watch out for our best interests. Really, it’s not so surprising that Madoff’s family and trusted friends fell for his pyramid scheme but that the investment mogul had the nerve to offer it to them.
Turns out just about anyone can be a vitim of investment fraud, as the Canadian Securities Administrators discovered in their 2007 Investor Study: Understanding the Social Impact of Investment Fraud.
This study found that of the million or so Canadians who had at some point in their lives been a victim of investment fraud, more than half were introduced to the fraud by a friend, neighbour, co-worker, or family member. There’s a name for this—affinity fraud—and it involves any group of people well known to each other through connections like religion, ethnicity, work or social bonds and, yes, family. The way Madoff worked his Jewish connections through prestigious clubs, businesses, charities, educational institutions, and investment firms in New York and Florida is classic affinity fraud.
The key to affinity fraud seems to be that we lower our guard with people we trust. Even when we know the Fraud Warning Signs, we tend to miss them or turn a blind eye when someone close to us waves them in our face. Sometimes the person close to us isn’t the scammer at all, but someone who is innocently promoting a scammer’s “opportunity” not knowing what it is. When you’re on the receiving end, it may seem rude to be suspicious and it can be awkward saying “no”. But think what being scammed would do to the relationship.
How do you handle your guard with family and friends? Do you have a way of sniffing out bad stuff with them that’s different from how you protect yourself with people you know less well? Has a family member or close friend ever approached you with an investment opportunity? What happened then?
BTW: It you ever do come across an investment opportunity that doesn’t seem quite right, report it to the BC Securities Commission online, or call 604-899-6854 or 1-800-373-6393 (toll-free across Canada). The BCSC and other regulators rely on reports to help identify suspicious and illegal market activity. Your report can help them go after scammers and keep other unsuspecting investors from becoming victims.
If you have any concerns about a person or company offering an investment opportunity, please contact BCSC Inquiries at 604-899-6854 or 1-800-373-6393 or through e-mail at [email protected]. You can also file a complaint or submit a tip anonymous using BCSC’s online complaint form.
Last week we blogged about the video Informed Investing: Investment Fees, that we launched on October 9 to supplement the Guide to Investing: How to be an Empowered Investor. This week we are featuring the video Informed Investing: Using Registered Financial Advisor that discusses how to practice due diligence in researching a financial advisor or firm. […]
BCSC is stepping up its campaign to stop affinity fraud in the BC church community. Valley Chaplain Consultants (nicknamed God’s Fraud Squad) is organizing presentations in churches across BC entitled “Telling the Truth…Exposing Affinity Fraud.” The first two are in the Fraser Valley: Thursday, June 10, St Luke’s Catholic Church, 20285 Dewdney Trunk Road, […]