What is affinity fraud?

Affinity fraud is a a type of investment scam that preys on a specific group such as a religious sect, ethnic community or professional group. Often, it is the leaders or prominent members of these groups that perpetrate these scams. Fraudsters prey on victims by exploiting the explicit trust shared among group members. You may recognize affinity frauds most commonly associated with cults or pseudo-religions, however some of the most vicious and damaging cases of affinity fraud target established groups. In the case of the recent SEC allegations, the pastor named in the complaint is the senior pastor of a large and established protestant church. Affinity fraud is such a widespread issue because it preys on our vulnerabilities. If you identify with a group, whether it’s a religious institution or a cultural sect, then you put a certain degree of trust and faith into it. In many ways, we let our guards down. And that’s a good thing; that’s why we are a part of these groups. Unfortunately, this also means that we leave ourselves exposed to certain risks.

Affinity fraud and the elderly

Unfortunately, senior citizens are one of the largest groups targeted by scammers in affinity fraud schemes. The elderly are generally more predisposed to investment scams as fraudsters are able to prey on decreased mental acuity or hearing and vision impairments. Here in Florida, affinity fraud is a prevalent issue. Florida is a breeding ground for scams like this and other forms of elder financial abuse, because of the state’s senior population. If you are a senior citizen or you have an elderly loved one that you believe may be at risk of investment fraud, there are a few measures you can take.

Preventing Elder Financial Abuse

• Be in the know
  • Make it a point of talking to your senior relative(s) about their finances, even if you are not a named trustee or account manager. Even casual discussion about investment plans or opportunities can go a along way in informing your loved one about potential risks.
• Understand contracts and statements
  • Make sure that you have completely read and understand all contract terms before signing any agreements.
• Check broker/advisor backgrounds
  • Know your or your loved one’s financial advisor or stock broker. Make sure they are trustworthy. You can check broker backgrounds on Investor.gov
• Review financial statements
  • Make sure you are not letting your financial statements go by without taking time to carefully review them. Look for any inconsistencies, erroneous charges or fees that you can’t account for.
• Inform them of common investment scams and how to spot them
  • You can check out a list of some of the most common types of senior scams here.
• Advise your loved one to appoint an account trustee or custodian

Protecting yourself against affinity fraud

It can seem difficult – especially if you belong to a religious group – to separate your allegiance to the group from your own personal welfare. However, you need to always be aware of potential risks when approached with any investment opportunity.

Here are some things to know in order to avoid falling victim to affinity fraud.

• Never just ‘take somebody’s word for it’
  • No matter what the investment opportunity is or who is offering it, you should never just accept it at their word. Even if it is the pastor of your church, group chapter president or any other respected individual making the offer; investigate the investment before you commit. Before you agree to any investment, make sure your know it inside and out.
• Don’t fall for “risk-free” or “guaranteed” investments
  • Any investor can tell you that there is no such thing as guaranteed returns or a 100% risk-free investment. Always keep this in mind even if an investment is being offered as an exclusive opportunity to your group.
• Get the details in writing
  • If any investment opportunity that can’t provide a detailed outline of the offering in writing, then you should be extremely skeptical. As with many a case, opportunities that seem to appear out of thin air will often vanish just as suddenly and without a trace. This can leave you holding the bag and no one being held accountable.
• You are in no rush to invest your money
  • Remember that if anyone pressures you to act on an investment opportunity. Make sure you first gain a proper understanding of the opportunity being offered. Give yourself time to investigate and consider an investment opportunity. Be especially wary of “once-in-a-lifetime” investments. You should never feel obligated to commit to an investment without proper knowledge.
• Practice cyber security
  • Fraudsters are increasingly using e-mail to perpetrate investment scams. As such, you need to be extra vigilant of reporting unsolicited e-mail offering “can’t-miss” investment. You can forward spam e-mails containing fraudulent investment opportunities to the SEC directly at enforcement@sec.gov.

Victim of affinity fraud? Know your recovery options

If you believe you or a loved one has been the victim of affinity fraud or other investment scam, then you have the right to recourse. You may even have recovery options. If you have questions about investment-loss recovery options after affinity fraud, then contact our team. We can discuss your options with you and provide guidance in recovering your assets. You can report suspected fraud to the SEC directly by following this link. You can also read more about protecting yourself from affinity fraud here.

Luring Investors with Day-Trading

The scammers lured investors with the low-risk nature of day-trading. By exaggerating low costs and fees and high leverage of day-trading, the phony firm managed to entice investors in more than 30 countries.

Targeting Inexperienced Investors

These scammers specifically targeted inexperienced investors in their scheme. Inexperienced investors are typically much more prone to investment scams. While no one should be intimidated by investing their finances, new and inexperienced investors should watch out for signs of fraud. Before making any commitments, investors should:

• Avoid investments promising low-risk/high-returns
  • In this case, inexperienced investors were lured by the day-trading firm offering high-leverage and low costs.
• Research the investment firm/broker for past deals
  • Two scammers operated a fraudulent firm, Nonko Trading, an unregistered brokerage firm. Investors can search the SEC’s database of registered broker-dealers and firms.
• Confirm Transactions and Investment Returns
  • These investors’ funds were never even routed to the market. Instead, they were sent directly to the scammers pockets. For investors who asked to close their accounts, scammers allegedly made “Ponzi-like” forms of repayment.
• Familiarize with Investment platforms and software
  • Nonko Trading perpetuated its scam through a false trading platform. Rather than using a live trading platform, the scammers used a training software that simulated securities trading.

Learning From Experience

The fact is, all investors are susceptible to risks. The lesson to be learned is that due-diligence and practical investing goes a long way in minimizing unnecessary investment risks, like fraud. While one must learn from personal experience, there is a network of resources out there to help inexperienced investors and empower them by learning through shared experience. Savage Villoch Law, PLLC has more than 20 years of experience defending investors and financial securities consumers. If you need help defending your financial security, contact us today.

Pyramid/PONZI Scheme

Now, this one should be familiar to everyone. Pyramid schemes, also called Ponzi schemes may be the most popular form of investment fraud. Pyramid schemes are perpetuated by duping investors into selling the same product or service to mostly friends and family.

Promissory Notes

Promissory notes are a type of debt-investment. In turn for an investor’s loan to a company/party, the investor is paid back a fixed return on the original amount from the company/party. Though it can be a good, legitimate investment option, many people fall victim to risks that are too low and returns that are too high.

Currency Trading

Trading currencies is an exotic and appealing form of investment. Due to it’s complex nature though, it can be a huge potential investment risk

Precious Metals

Like trading currencies, investing in precious metal can be appealing, but investors should be wary of the risks. It is not easy for investors to guarantee reserve amounts of precious metals they have invested in. This makes it easy for scammers to set up fraudulent investment schemes.

Unregistered Securities

Don’t be fooled by how good a potential investment appears. Investment scams happen most often because the provided documents and correspondence outlining the investment looks real enough. Don’t settle for looks, make sure to thoroughly vet your investments. Though these represent popular top investment scams, fraudsters are always coming up with new methods for cheating investors. Make sure you properly discuss any new investments with a trusted broker and your bank before committing any finances. The Securities and Exchange Commission offers a variety of tools and resources for investors If you feel you are the victim of an investment scam, contact Savage Villoch Law today and we will assess your situation.

These should be calculated risks, though; risks based on performance projections of whatever is being invested in. Though financial investments should not include those unforeseen or unaccounted for risks like fraud, investors are constantly facing it. In the event that your financial investments fall prey to fraud, there are several ways to recover lost funds. Here are 5 possible ways victims of investment scams and fraud can recover their lost financial investments.

Disgorgement Funds

If the SEC successfully charges an individual or entity with investment fraud, they may set-up a disgorgement fund. A disgorgement fund serves a away to redistribute funds to wronged parties. The SEC will order the guilty party to give-up any ill-gotten funds and assets. Additionally, the SEC may instate monetary fines and penalties on the guilty party which may be allocated to a fair fund. Fair funds may also be distributed to wronged parties as further compensation.

Receiverships

In a lawsuit, the SEC may request the court to provide a receiver. A receiver is an officer of the court who recovers and protects assets and finances from the defendant during the case. If the SEC is found in favor, those funds held by the receiver may be distributed to investors.

Brokerage Account Protection

Brokerage account protection is a preemptive measure to insure financial investments. The SEC imposes several broker-dealer regulations that serve to protect consumers and investors. The Consumer Protection Rule requires that broker-dealers keep customers’ cash and securities separate from their own. This ensures that an investors financial investments are readily available to be returned. Financial investments made with broker-dealers who are members of the Securities Investor Protection Corporation (SICP) are protected up to $500,000, with up to $250,000 in cash protected.

Corporate Bankruptcy

If you are an investor in a company that files bankruptcy, you are entitled to specific rights. These rights are dependent on if your are a stock or bondholder. If you hold investments in a company that has filed bankruptcy, it may be wise to contact a financial attorney to find out what you are entitled to.

Private Class Actions

Apart from SEC-filed suits, private parties may file class action lawsuits seeking relief for lost financial investments.

Avoiding Investment Scams:

• Spam email promising high returns for investing in clean-up or relief efforts
• Pump-and-dump schemes: circulation of false or misleading news that promotes a certain product or service, inflating its stock and then dumping it before the trend peaks
• Ponzi schemes: investment scams that use investor money to pay-off prior investors
• Always ask thorough questions before involving yourself in an investment opportunity
• Avoid schemes that promise fast, high returns
• Make sure to know exactly what you are getting in a claim payout. If receiving a lump-sum payment, know beforehand what the money will need to cover for you and your family

You have enough to worry about following a storm or disaster. Don’t let the threat of investment scams be one of them. Protect yourself and your finances. If someone approaches you with an investment opportunity following Hurricane Matthew or another natural disaster, contact Savage Villoch Law, PLLC and make sure your investment is protected.

• Unregistered investment professionals
  • Visit investor.gov to check registration status of any firm or individual recommending or selling an investment
• High returns, little to no risk
  • No investment is without risk. If it sounds to good to be true, it probably is.
• Unsolicited offers
  • Whatever social media platform or mode of communication used, do not respond to any investment opportunities directed at you if the sender is not recognized. Be especially careful of offers claiming “inside” or “confidential” investment information.
• “Pump-and-dump” Scams
  • These scams pump up stock prices based on falsified rumors about product effectiveness, inciting buying-frenzy, and then shares are quickly dumped before hype fades. Microcap and penny stocks are especially susceptible. Little trading information is publicly available on microcap companies making it easing to falsify information.
• Trading suspensions
  • Find out if the SEC has suspended trade of a company’s stock here
• Investment research
  • As with any investment opportunity, investors should thoroughly research a company before acting. Avoid investment fraud by checking with the SEC for updates and resources or consult an investment attorney to find out more before deciding to invest.