Fraud artists target groups and associations from within

August 9, 2010 The groups may be different, but the tactics are the same. Known as “affinity fraud”, the perpetrator targets members of a group or association, exploiting their trust to steal their money. Common targets include ethnic, religious, professional or seniors groups, but any group is vulnerable.

Fraud artists often become members of the group in order to gain trust. They know that members of a group are more likely to trust another member, believing that they have their best interests in mind. Unfortunately, it is this very trust that causes people to fall victim to fraudulent investments.

“In our investigations, we have found that this can be especially true in religious congregations or church groups,” says Greg Gard, Manager, Enforcement. “It is not uncommon for fraud artists to target the leaders of these groups, who then become unwitting participants in the scheme by promoting the investment to others.”

Sometimes affinity frauds also rely on elements of Ponzi schemes to keep the ruse going for extended periods. The fraud artist solicits investors with an investment opportunity promising high returns for very low or no risk. Investors who get in early typically receive “interest cheques” soon after they invest. They may be so pleased with the quick returns that they reinvest, or recruit friends and family as new investors.

The investment may be questionable-or it may not exist at all. The catch is that the “interest cheques” are paid from the investor’s own money and the contributions of new investors. When the supply of new investor money ends, the scheme falls apart and investors are left with little or nothing from their investment.

Here are some tips to help you and groups you belong to avoid becoming victims:
  • Check out the investment and the person or company selling it by contacting the Ontario Securities Commission.
  • Don’t rely on the testimony of others, regardless of how well you know them. Seek investment advice from a registered financial adviser who is not associated with your group or organization.
  • If it sounds too good to be true, it probably is. Guarantees of high returns with low risk are warning signs of fraud.
  • Don’t be pressured or rushed into investing. Be sure you understand exactly what is being offered, and the risks and costs that are associated with it.
If you have questions or are suspicious about an investment opportunity, contact the Ontario Securities Commission for assistance.

To learn more, read the brochure Protect your money: Avoiding frauds and scams.