Affinity fraud: can it happen to you?

Affinity fraud refers to investment scams that prey upon members of identifiable groups, including religious, elderly, ethnic, and professional groups. The fraudsters are group members, claim to be members of the group, or enlist respected leaders within a group to spread the word about an investment deal.

These scams exploit the trust and friendship that exist in groups of people who have something in common.

Geoffrey Dexter was sent to gaol for ten years on ASIC charges for his part in defrauding 2,700 people in a $165 million investment scam, called the Wattle Group.

To promote the scam, Dexter used social groups and networks of people employed in the same organisation or professions. Friends, colleagues at work, members of the local bowling club and church groups listened to people they trusted, invested money and ended up losing their savings.

Many affinity scams involve Ponzi or pyramid schemes where new investor money is used to make payments to earlier investors to give the false illusion that the investment is successful. This ploy is used to induce or trick new investors to invest in the scheme and to lull existing investors into believing their investments are safe and secure.

What You Should Do:

• You should be wary of investment opportunities that guarantee a ridiculously high rate of return, even if you hear of them from people you trust. Families and friends may be gullible victims too. If it sounds too good to be true, it probably is!
• Don't be pressured into investing in anything. Ask questions and request for more information such as a Product Disclosure Statement (PDS). Take your time to think about it. If you are pressured to make an immediate decision, it is very likely that the investment scheme is illegal and a scam.
• Don't invest in anything that you don't understand.
• If you suspect that there is an affinity scam happening within your community, social or religious group, sound the alert immediately before more people fall victim. If you are not sure if it is a scam, report it anyway so that it can be investigated. If it turns out to be legit, great. If not, you have saved many people from financial ruin.

Related Articles:

• International investment schemes promoted in community and religious groups
• Return of the white shoes
• Fraudsters prey on the trust of church members