How Do I Protect Myself From Affinity Fraud?

A man holding a "Fraud" sign board

Affinity fraud is like a wolf in sheep's clothing - it comes in all friendly and nice, but it's actually out to scam you. This sneaky form of financial fraud takes advantage of the trust within a group, using it to trick people and leave them in a bad spot. 

Basically, affinity fraud is when someone scams members of a specific group, like a religious or ethnic community, elderly folks, or professional group, by pretending to be one of them. They might push a Ponzi or pyramid scheme to reel people in. So, watch out for those "friendly" faces trying to pull a fast one on you!

An example of affinity fraud is when a con artist gains the trust of a group by initially selling to a few well-known members. These members receive the promised high returns, and then the scam is presented to other members with the previous buyers vouching for it. The early investors may be very excited about the scheme, but it can all fall apart once more investors are brought in.

When the victims eventually realize they have been scammed, they are hesitant to report it to the authorities. Instead, they try to handle the situation within the group. Con artists rely on this loyalty to continue their fraudulent activities.

Affinity Fraud Cases in The United States

One of the most notorious cases of affinity fraud in recent years was carried out by Bernie Madoff. He exploited his ties within Jewish communities to swindle people out of approximately $20 billion. Another example in the U.S. involved a scam that targeted members of the Church of Jesus Christ of Latter-day Saints, resulting in losses of $500 million between 2017 and 2022, according to the Winnipeg Free Press.

On January 4, 2024, the Wall Street Journal reported on the case of Stockbroker Mina Tadrus, who stands accused of orchestrating a $5 million Ponzi scheme. Tadrus allegedly targeted investors within his own community, specifically his relatives and fellow Egyptian Coptic Christians in Brooklyn, New York, and across the United States.

In his sales pitch, Tadrus promised annual returns of up to 30% by utilizing artificial intelligence for high-frequency trading. However, prosecutors claim that in reality, Tadrus used the funds to cover personal expenses such as meals at restaurants, car payments, and luxury shopping. The case of Tadrus, who has pleaded not guilty, is emblematic of a broader effort by law enforcement officials to crack down on affinity fraud.

When members of the Pennsylvania Amish and Mennonite communities were presented with the opportunity to invest with a familiar and trusted individual, many eagerly seized the chance. Philip Elvin Riehl, an accountant based in Berks County, Pennsylvania, promised to invest their funds in local businesses, ensuring a substantial return on investment. However, unbeknownst to the investors, Riehl was not authorized to handle their finances, and he conducted minimal due diligence on the companies he allocated their money to.

Tragically, approximately 400 Amish and Mennonite families, predominantly in Pennsylvania, collectively suffered losses amounting to $59 million, as reported by the FBI. As the financial devastation escalated, the Pennsylvania Department of Banking and Securities initiated an investigation and alerted the FBI to potential affinity fraud. Following a thorough inquiry, Riehl admitted guilt to charges of conspiracy and fraud in February 2020. Subsequently, in July 2020, he received a 10-year prison sentence.

Despite the significant losses incurred, many victims expressed forgiveness towards Riehl, despite the magnitude of their financial losses. For instance, one victim entrusted all her savings from a traditional 401k to Mr. Riehl for investment purposes, only to lose everything. Regrettably, this scenario was all too common among the victims of this fraudulent scheme.

On March 6, 2024, the Commercial Appeal reported that a Colorado pastor, Eligio Eli Regalado, and his wife, Kaitlyn Regalado, are facing fraud charges for allegedly orchestrating a cryptocurrency scheme that defrauded over 300 parishioners of $3.2 million. The pastor's marketing pitch included claims that "The Lord said: I want you to build this." However, as the scheme began to unravel, he suggested that either he misinterpreted God's message, or that God was not finished with the project.

According to The Commercial Appeal, the pastor had no prior experience in the financial or cryptocurrency sectors. The legal complaint against him and his wife alleges that they used a significant portion of the funds to support a lavish lifestyle, which included renovating their home, purchasing a Range Rover, luxury handbags, and jewelry.

The Colorado Securities Commissioner said the pastor "…took advantage of the trust and faith of his own Christian community and that he peddled outlandish promises of wealth to them when he sold them essentially worthless cryptocurrencies."

How Do You Protect Yourself From Affinity Fraud?

Encountering fraud perpetrated by a stranger may lead to financial loss, but when the perpetrator is someone you trust, the impact extends beyond mere monetary consequences to affect your emotions as well. One common tactic employed by fraudsters to deceive unsuspecting investors is the exploitation of trust through affinity fraud.

Simply because an individual is a member of your church, club, or business association, or shares your cultural or ethnic background, does not automatically warrant blind trust. You must approach investment opportunities with caution and thorough diligence, regardless of the individual presenting them. 

Moreover, trust should be established through transparency and credibility, rather than through shared affiliations or backgrounds.

Here are some tips to help you avoid falling for affinity fraud:
  • Always double-check any investment opportunities that come your way, no matter how trustworthy the source may seem.
  • Be wary of investments that promise guaranteed profits or seem too good to be true. If someone is promising you huge returns with no risk, it's probably a scam.
  • Ask for written documentation before investing in anything. Legitimate investment opportunities will have everything laid out in writing, while scammers will try to avoid putting anything on paper.
  • Don't jump into investing without doing your homework first. Just because someone else had success with a certain investment doesn't mean it will work out the same for you.
  • If you do decide to invest, make sure you do thorough research beforehand. Look into the company's history, management, and financials before making any decisions. You must know what you're getting into before putting your money on the line.
  • It is advisable not to solely depend on referrals from friends and family members when making investment decisions. Oftentimes, individuals may have fallen victim to scams due to lack of proper research, and inadvertently steer you in the wrong direction.
  • Avoid succumbing to pressure when it comes to making financial decisions. You need to take the necessary time to thoroughly comprehend the business and associated risks. Scammers often employ tactics to rush you into a decision, exploiting your fear of missing out on what they portray as a valuable and time-sensitive opportunity. This is done to limit the extent of your research and increase the likelihood of falling victim to their schemes.
By following the above guidelines and staying vigilant, you can safeguard yourself against falling victim to affinity fraud. Remember, your financial security is in your hands.
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