Affinity fraud is the name for the type of 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.  Over the years I have reported on many instances of affinity fraud perpetrated against a wide variety of people.  Scammers take advantage of every connection they can make with their victims to gain their trust and then steal their money.  Recently, the Securities and Exchange Commission (SEC) successfully sued Earl Miller whose affinity fraud focused on people who shared his Amish heritage.  Miller advertised in Amish newspapers and arranged community meetings in Indiana and Michigan among the Amish communities proclaiming his Amish heritage to lure investors into his scam.  Miller lied to his clients about the nature of the investments and purported safeguards which he never implemented.  Ultimately, his investments failed costing 72 investors the entire 4.1 million dollars they invested with him.  While the federal court ordered Miller to repay his investors the money they lost plus interest and a civil penalty, it is not clear whether Miller will be able to comply with those orders.

TIPS

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.  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. Many investment advisers will not be required to register with the SEC, but are required to register with your individual state securities regulators.   You can find your state’s agency by going to the website of the North American Securities Administrators Association.   You should also check with the Financial Industry Regulatory Authority (FINRA) for information about the particular  investment adviser.

It is also important to remember that you should never  invest in something that you do not completely understand.  This was a mistake that many of Bernie Madoff’s victims made.  You also may want to check out the SEC’s investor education website at www.investor.gov.  Scammers can be very convincing and it may sound like there is a great opportunity for someone to make some money, but you must be careful that the person making money is not the scam artist taking yours. Additionally, investing with someone merely because you share the same heritage, nationality, religion or any other affinity is something you should avoid.

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