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Affinity Fraud

Did you enter a professional relationship with your broker because you trusted them? Did this trust form over time because of a common affinity group?

Affinity Fraud

Affinity fraud is defined as fraud specifically committed against members of a unified group. Examples include schemes that target the elderly (as seen below), religious institutions, persons of a particular ethnicity, or professional organizations. These types of cases unfortunately begin with a sense of belonging and trust, as you find yourself identifying within a certain group of people due to similarities. If you entered a financial relationship with your broker because of an affinity connection, and there seems to be some misconduct present, your broker may have engaged in affinity fraud. A New York affinity fraud law firm like Malecki Law can review your relationship with your broker at no cost. Because of your comfort in an affinity group, you may let your guard down and have an increasing trust in other members of the group. Unfortunately, this is exactly when fraud strikes. For example, James Gonedes, a former Marine, trusted Clayton Cohn, another former Marine, to invest his inherited money when Cohn became an investment adviser sometime after serving. Cohn continuously represented that Gonedes’ accounts were doing well, when in fact, the opposite was true. Cohn was actually losing Gonedes’ money due to poor investment decisions and self-dealing.

The SEC points out that fraudsters are generally either involved in the affinity group, or worse, pretend to be a member of the affinity group. Moreover, the SEC indicates that fraudsters “may enlist respected leaders from the group to spread the word about the scheme, convincing them it is legitimate and worthwhile.” If you fell victim to this, you are not alone. You need an affinity fraud attorney in New York at Malecki Law to analyze your relationship with your broker and your overall situation. The SEC added that “many times, those leaders become unwitting victims of the fraud they helped to promote.” Further, the SEC highlighted that affinity fraud “scams exploit the trust and friendship that exists in groups of people. Because of the tight-knit structure of many groups, outsiders may not know about the affinity scam. Victims may try to work things out within the group rather than notify authorities or pursue legal remedies.”

Ponzi Schemes Tend to Go After Affinity Groups

Investors can easily fall prey to Ponzi schemes for a variety of reasons, including affinity fraud. Perpetrators of affinity fraud typically rely on a shared ethnicity or religion to earn a victim’s trust. Investors are often led to believe that the Ponzi schemer is doing something special for them, making the victim feel fortunate to have gotten involved. Because of their implicit trust, investors can be reluctant to ask about exactly how the money will be invested for fear of sounding foolish or impolite. Even those who do ask questions may simply be told that it is “very complicated” and accept that as a satisfactory response. Affinity fraud lawyers in New York at Malecki Law ask the challenging questions and get to the heart of the matter.

Seniors as a Targeted Affinity Group

It has been noted that financial scammers often try to trigger and evoke strong emotional responses or establish an emotional connection with their elderly victims. Seniors are also often at risk of affinity fraud, where groups of senior citizens in a community are led to believe that a crooked investment or scheme is right for them. People are too polite with their brokers and tend to blur the line between a professional relationship and a personal relationship.

How Can You Avoid Affinity Fraud?

The SEC provides a few avenues investors can follow to avoid affinity fraud:

  • “Even if you know the person making the investment offer, be sure to research the person’s background, as well as the investment itself – no matter how trustworthy the person who brings the investment opportunity to your attention seems to be. Be aware that the person telling you about the investment may have been fooled into believing that the investment is legitimate when it is not.” 
  • “Never make an investment based solely on the recommendation of a member of an organization or group to which you belong. This is especially true if the recommendation is made online. An investment pitch made through an online group of which you are a member, or on a chat room or bulletin board catered to an interest you have, may be a fraud.”
  • “Do not fall for investments that promise spectacular profits or “guaranteed” returns. Similarly, be extremely leery of any investment that is said to have no risks. Very few investments are risk-free. Promises of quick and high profits, with little or no risk, are classic warning signs of fraud.” 
  • “Be skeptical of any investment opportunity that you can’t get put in writing. Fraudsters often avoid putting things in writing. Avoid an investment if you are told they do “not have the time to put in writing” the particulars about the investment. You should also be suspicious if you are told to keep the investment opportunity confidential or a secret.” 
  • “Don’t be pressured or rushed into buying an investment before you have a chance to research the “opportunity.” Just because someone you know made money, or claims to have made money, doesn’t mean you will, too. Be especially skeptical of investments that are pitched as “once-in-a-lifetime” opportunities, particularly when the salesperson bases the recommendation on “inside” or confidential information.”

Available at: https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins-68

If you met your broker through a common affinity group, trusted them because of that commonality, and ultimately sustained damages, you may have been a victim. Unfortunately, it might be too late for you. You need to contact a New York affinity fraud law firm like Malecki Law, to assess whether you have been a victim of affinity fraud.

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