Two weeks ago a former Los Angeles police officer was arrested on investment fraud in regard to a phony real estate investment scam. Among the victims were thirteen present Los Angeles police department employees including four detectives who should have known better. This scam is a good example of what is called affinity fraud where people put undeserved trust in someone offering an investment opportunity because that person is “someone like me.” Affinity fraud works because people trust other people who may share a common bond. Bernie Madoff preyed upon Jewish charities and individuals who trusted them because he shared their religion. Brad Bleidt, another Ponzi schemer, scammed investors who trusted him because, like him, many of his investors were Masons. The list goes on and on. Scammers take advantage of every connection they can make with their victims to gain their trust and then steal their money.
Merely because someone may share a common bond with you, whether it is race, religion or membership in a fraternal organization, you cannot trust that person when it comes to investing your money. Remember my motto, “trust me, you can’t trust anyone.” Before investing in anything, you should confirm that the investment and the investment advisor are legitimate. You also should make sure that you truly understand the investment. Bernie Madoff’s victims did not understand the type of investing strategy he employed. If they did, they would have seen that it was flawed. You can find detailed information about how to evaluate investments and investment advisors in my book “The Truth About Avoiding Scams.”