Affinity Fraud

Exploiting Trust & Friendship

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

How Does it 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 con artist makes off with most of the money.

The Internet & Social Networking

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 an individual or a group of people. The fraudster knows that getting face time with people could enhance their chances of selling the investment scheme they are promoting.

Watch our podcast about social networking sites to get a better idea of how fraudsters can use social media to run a successful affinity scheme.

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.

Learn to recognize affinity fraud by familiarizing yourself with the Affinity Fraud Warning Signs. For more information, check out our Fraud Among Friends info sheet.