Legal Definitions - Investor Protection Guide: Affinity Fraud

Affinity Fraud refers to a deceptive scheme that specifically targets members of a recognizable group of people. This group might be defined by shared characteristics such as a common religion, ethnic background, professional affiliation, or even a particular hobby or interest.

The perpetrators of affinity fraud often belong to the targeted group themselves, or they may pretend to be members. They exploit the inherent trust and camaraderie that exists within such communities to persuade individuals to invest in fraudulent schemes. Because victims often hesitate to report fellow group members to authorities, preferring to resolve issues internally, affinity fraud can be particularly challenging for regulators and law enforcement to detect and stop.

Here are some examples illustrating how affinity fraud operates:

• Example 1: A Religious Community

  A seemingly trustworthy member of a local church, known for their devout faith and community involvement, begins promoting an "exclusive investment opportunity" in a new, faith-based charity venture. They promise generous returns that will also benefit the church's mission. Many congregants, trusting this individual due to their shared religious beliefs and standing within the community, invest their savings. However, the venture is a sham, and the funds are diverted for the perpetrator's personal use.

  This illustrates affinity fraud because the perpetrator leveraged the strong bonds of trust and shared faith within a specific religious community to defraud its members.

• Example 2: A Professional Association

  An individual who is an active participant in a professional association for engineers starts pitching a "groundbreaking tech startup" investment to fellow members during networking events. They emphasize their shared professional background and claim that their insider knowledge of the industry guarantees high returns for those who invest early. The startup, however, is entirely fictitious, and the money collected from the engineers is stolen.

  This demonstrates affinity fraud as the scammer targeted individuals within a specific professional group, exploiting their common career background and the trust typically found among colleagues in the same field.

• Example 3: An Online Hobby Group

  Within a popular online forum dedicated to vintage comic book collectors, a long-standing and respected member announces a unique opportunity to invest in a "consortium for acquiring rare, unreleased issues." They claim to have exclusive access through their network of contacts and promise significant profits when these issues are eventually sold. Other collectors, who have built a sense of community and trust with this member over years of online interaction, send money to participate, only to find that no such consortium exists, and their funds are gone.

  This is an example of affinity fraud because the perpetrator exploited the shared interest and established trust within a specialized online community of hobbyists to solicit fraudulent investments.