Affinity fraud, a new type of investment scam that preys upon members of identifiable groups, such as religious or ethnic communities, is being placed on high alert by The Securities and Exchange Commissionâ€™s (SEC) Office of Investor Education and Advocacy. Â The SEC released a specific Investor AlertÂ to help educate investors about the specific type of fraud last week.
Affinity fraud almost always involves either a fake investment or an investment where the fraudster lies about important details (such as the risk of loss, the track record of the investment, or the background of the promoter of the scheme). The people who carry out affinity fraud frequently pretend to be members of the group which they are trying to scam. â€śFraudsters target any group they think they can convince to trust them with the group membersâ€™ hard-earned savings,â€ť the SEC says.
The SEC notes that â€śaffinity fraud exploits the trust and friendship that exist in groups of people who have something in common.â€ť Because of the way affinity fraud scammers infiltrate a specific group, it can be difficult for law enforcement officials to detect any wrong-doing. The SEC has recommended five tips to help investors avoid affinity fraud and protect themselves:
- No matter how trustworthy someone who brings you an investment opportunity seems to be, make sure to research that personâ€™s background, as well as the investment opportunity itself. Also 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.Â This is especially true if the recommendation is made online.
- Be extremely cautions of investments that promise large, quick profits and no risks. Very few investments are risk-free or guarantee spectacular results.
- Always try to get an investment opportunity put in writing. Fraudsters often avoid putting things in writing. Also be wary is you are told to keep the investment opportunity confidential or a secret.
- Donâ€™t be pressured or rushed into buying an investment before you have a chance to research it. Do not fall for missing a â€śonce in a lifetimeâ€ť opportunityâ€ť. Make sure you know where the information is coming from and what the risks are