Affinity Fraud

Affinity frauds are investment fraud schemes that target members of specific communities, religious affiliations or ethnic groups.

Fraudsters ingratiate themselves into the group, often by posing as enthusiastic new members. They enlist support from well-respected leaders and rely on word-of-mouth recommendations among friends and family.

The fraudsters prey on the high level of trust among tight-knit and insular communities. By exploiting the responsibilities and relationships of their unwitting victims, they may create the impression that other members of the community are complicit, further reducing the likelihood that law enforcement or litigation will be pursued after the fraud is exposed.

Bernie Madoff whose scheme netted nearly $20 billion before collapsing in 2008 perpetrated the largest-ever affinity fraud. His fraud solicited funds from several overlapping societal circles, including Jewish charitable organizations, Jewish educational institutions and wealthy Jewish communities in the U.S. and Israel. The fraud also targeted members of exclusive country clubs and golf courses from Long Island, NY to Palm Beach, FL frequented by Madoff and his family members and associates. The scheme spread across professional networks by money managers with feeder funds who touted Madoff's purportedly reliable returns. Madoff's reputation had been partly built on the false financial reporting he and his assistants had meticulously fabricated for his funds, but the more critical and compelling component to his success as a fraudster was the extent of his personal and professional connections in seemingly exclusive communities.

Other affinity frauds have targeted church congregations, civic organizations, ethnic communities and social circles. Affinity frauds are often Ponzi schemes, in which a portion of proceeds from new participants is used to pay "profits" to the original investors, and the rest of the money is pocketed by the promoter.
 

About the Author

is president of Hudson Intelligence, a private investigation agency specializing in the investigation of complex fraud and financial crimes.


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