Banking Commissioner Warns Against Affinity Fraud
November 12, 1997
State Banking Commissioner John P. Burke today warned Connecticut residents to be on guard against an increasingly common financial securities scam known as affinity group fraud. In this type of rip-off, victims fall prey to swindlers who claim that their shared membership in an ethnic, minority or religious group makes them especially worthy of trust.
"A shared ancestry, race or religious denomination with someone is not reason enough to automatically trust that person with your money," said Burke. "African-Americans, Hispanics and Asians, along with other groups, are being targeted every day by financial swindlers who, despite having the same ethnicity, culture or religious beliefs, are really motivated by only one thing -- and that’s greed."
With the numbers of immigrants at levels not seen since early this century, many new arrivals to this country are seen by financial swindlers as ripe for the picking. Once a victim realizes that he or she has been scammed, too often the response is not to notify the authorities, but to instead try to solve the problem within the group.
Con artists recognize that the close-knit nature of many groups makes it less likely that a scam will be detected and that victims will be more likely to forgive one of their own. Affinity fraud also undercuts the usual warnings about investment schemes promoted by strangers. Here, investors may be approached following a contact from a friend, colleague or someone who inspires trust.
"Most financial advisers and salespeople who happen to be a members of minority or religious groups are honest. And with the number of investment choices available, people feel comfortable turning to someone with the same background for help," Burke said. "Unfortunately, swindlers play the affinity angle for all it's worth. Even if someone tells you, ‘Trust me, I’m like you,’ always investigate before investing your money," he cautioned.
Burke suggested these tips to guard against affinity fraud:
- Beware of testimonials from other group members. Scam artists frequently pay out high returns to early investors using money from later arrivals.
- Obtain a prospectus or other form of written information that details the risks in the investment and procedures to get your money out. Ask for professional advice from an outside expert not associated with the salesperson or financial adviser -- an accountant, attorney or other financial planner -- to evaluate the investment.
- Contact the Securities Division to learn more about the salesperson and firm. The simplest inquiry is to ask if they are registered to do business in Connecticut and if the investment is allowed to be sold. Don’t take the word of a salesperson! Check out the investment yourself.
The Securities Division is releasing an investor alert on affinity fraud that includes tips for investors to consider before parting with their money.