Investment adviser Li Lin Hsu was arrested last week by FBI agents on charges of scamming his clients out of 2 million dollars. According to the FBI, Hsu solicited her clients through ads in Chinese newspapers. However, instead of investing the funds provided to her by her clients, she merely operated a Ponzi scheme by which she used money from later investors to pay early investors, all the while using their money to fund her own lavish lifestyle. 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, such as family, religion or some other group affiliation.   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.
Before investing with anyone, you should investigate the person offering to sell you the investment with the Securities and Exchange Commission’s Central Registration Depository.  This will tell you if the broker is licensed and if there have been disciplinary procedures against him or her. Hsu had been barred as an investment adviser by FINRA and the SEC in 2016. Anyone doing their homework would have been able to find out this information and avoid investing with her. You can also check with your own state’s securities regulation office for similar information.  Many investment advisers will not be required to register with the SEC, but are required to register with your individual state’s securities regulators.   You can find your state’s agency by going to the website of the North American Securities Administrators Association.
As I often tell you, “trust me, you can’t trust anyone.” Affinity fraud is so prevalent, you must be extra careful when investing with someone that you would tend to trust because they share with you a similar background, nationality, religion or other affinity.
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