The individuals who steal from us are sometimes the ones we least suspect. They may be long-term trusted employees, family members, and even those who pretend to share our deepest values. The term “affinity fraud” refers to scams that prey upon members of identifiable groups, such as religious or ethnic communities, the elderly, or professional groups. These scammers exploit the bonds of trust and friendship that may exist in tight-knit groups of people who share something in common.
“These are greedy individuals who will stop at nothing,” said John Huber, the U.S. Attorney for the District of Utah and a member of The Church of Jesus Christ of Latter-day Saints. “What’s so disconcerting is that these criminals approach us at church or through associations at our work or referrals from friends. They are silver-tongued devils—wolves in sheep’s clothing who will take our money and we’ll never see it again.”
Affinity fraud is prevalent throughout the United States and is especially common in Utah among members of the Mormon church. However, many other religious organizations have suffered the effects of affinity fraud. In December 2013, it was discovered Jacob Fetman, the chief financial officer of Aish Hatorah New York, a Jewish Orthodox charity, stole $20 million from the charity over a period of 17 years. The amount totaled approximately three times the charity’s annual budget, or more than five times the charity’s net assets. Fetman’s theft stands out for the staggering amount stolen. According to the ACFE 2020 Report to the Nations’ survey of religious groups reporting fraud, the median loss is $73,000.00.
How Does Affinity Theft Occur?
Defrauding individuals in church settings can be particularly effective for scammers because the fraudsters can reach an entire congregation. Scammers also may rely on internet sites, religiously affiliated media, conferences, and social gatherings. Affinity fraud starts by establishing trust.
According to the U.S. Securities and Exchange Commission:
“The fraudsters who promote affinity scams frequently are — or pretend to be — members of the group. They often enlist respected community or religious leaders from within the group to spread the word about the scheme by convincing those people that a fraudulent investment is legitimate and worthwhile. Many times, those leaders become unwitting victims of the fraudster’s ruse.”
After the fraudster has convinced religious leaders, the leaders are used as pawns to convince followers to either invest in the scam, donate monies, or otherwise participate. The scammer relies on the element of trust, a seemingly shared background and set of interests, and portrays themselves as someone who just wants to help.
“These perpetrators, with a smile on their face and a twinkle in their eye, approach with a handshake and a hug, with intent and with persistence, to violate the trust of their victims and to take their life’s earnings,” says Attorney Huber.
Many affinity scams involve “Ponzi” or pyramid schemes, where new investor money is used to make payments to earlier investors to give the illusion the investment is successful. This tricks new investors to invest in the scheme. It lulls existing investors into believing their investments are safe. In reality, the fraudster almost always steals investor money for personal use, such as in the infamous case of Bernie Madoff who ran the largest Ponzi scheme in history, worth approximately $65 billion.
How to Avoid Affinity Fraud
All too often, individuals realize they have been scammed after it’s too late. However, there are ways to minimize the risk of falling prey to affinity fraud:
- Do your homework. Avoid making an investment based solely on the recommendation of an organization or religious group to which you belong. Consider that the person telling you about the investment may have been duped into believing the investment is legitimate.
- If it sounds too good to be true, it probably is. Be wary of investments that are billed as “once-in-a-lifetime opportunities” or pledge spectacular profits or “guaranteed” returns. Promises of fast and significant profits can be warning signs of fraud.
- Be skeptical about investment opportunities that are not in writing. This may be a sign of a scam.
- Don’t be pressured or rushed into buying into an “opportunity” before you have the chance to check out everything.
- Fraudsters are increasingly using the internet to target specific religious groups through spam emails. As with any unsolicited email from someone you don’t know, avoid clicking on any links or becoming involved in a “can’t miss” investment.
- Check to see if your state has a white-collar crime registry. In Utah in 2015, the state legislature passed a law establishing such a registry – which publishes names and photographs of individuals convicted of financial fraud claims.
As a forensic accounting firm, SDC CPAs often sees cases in which trusted individuals have caught people unaware and walked away with money that doesn’t belong to them. Educating yourself about affinity fraud and being cautious can help mitigate or even prevent falling prey to such scams.