Affinity fraud

Affinity fraud is a form of investment fraud in which the fraudster preys upon members of identifiable groups, such as religious or ethnic communities, language minorities, the elderly, or professional groups. The fraudsters who promote affinity scams frequently are – or successfully pretend to be – members of the group. They often enlist respected community or religious leaders from within the group to spread the word about the scheme, by convincing those people that a fraudulent investment is legitimate and worthwhile. Many times, those leaders become unwitting victims of the fraudster's ruse.
These scams involve exploitation of the trust and friendship that exist in groups of people who have something in common. Because of the tight-knit structure of many groups, it can be difficult for regulators or law enforcement officials to detect an affinity scam. Victims often fail to notify authorities or pursue legal remedies, and instead try to work things out within the group. This is particularly true where the fraudsters have used respected community or religious leaders to convince others to join the investment.
Many affinity scams involve Ponzi schemes or pyramid schemes, where newly received investor money is used by the fraudster to make payments to earlier investors to give the illusion that the investment is successful. This ploy is used to trick new investors to invest in the scheme and to lull existing investors into believing their investments are safe and secure. In reality, the fraudster almost always steals investor money for personal use. Both types of schemes depend on an unending supply of new investors; when the supply of investors inevitably dries up, the whole scheme collapses and investors discover that most or all of their money is gone.
Examples.
Affinity frauds can involve the targeting of any group of people who take pride in their shared characteristics, whether they are religious, ethnic, or professional. Agencies such as the U.S. Securities and Exchange Commission have investigated and taken action against affinity frauds targeting a wide spectrum of groups. Some of the cases include the following:
On December 11, 2008, Bernard Madoff, an American businessman, was arrested on charges of securities fraud, having been turned in by his own sons after allegedly telling them his business was a "giant ponzi scheme". According to the New York Post, Madoff "worked the so-called 'Jewish circuit' of well-heeled Jews he met at country clubs on Long Island and in Palm Beach." Additionally, one of Madoff's middlemen was J. Ezra Merkin of Ascot Partners. According to Samuel G. Freedman of "The New York Times", Merkin was prominent in the Modern Orthodox community. This allowed him to defraud institutions such as Yeshiva University, Kehilath Jeshurun Synagogue, the Maimonides School, Ramaz and the SAR Academy.
On July 27, 2009, Earl Jones was arrested for fraud in Montreal. His clients were English-speaking elderly in Quebec where the majority speak French as their first language. On August 14, 2009, "CTV" and "CBC Radio One News" reported that investors with Hershey Rosen are also suspected of being defrauded. Like the Jones investors, they too are English-speaking Quebeckers.
A 2012 article in "The Economist" reports that Utah is believed to have the highest per-capita rate of affinity fraud in the U.S. due to about two-thirds of the state's residents being members of the LDS Church among whom such crimes tend to flourish. Authorities estimate affinity fraud cost Utahns an estimated $1.4 billion in 2010 alone, an average of about $500 per resident. Salt Lake City attorney Mark Pugsley (who specializes in representing white-collar fraud cases) reports that Utah County is the hotbed of financial fraud in the state, particularly the roughly 25-mile corridor from Alpine through Provo. Pugsely suggests a number of factors explain the high rates of affinity fraud in Utah, including members of the LDS Church (also known as Mormons) tending to be overly trusting of those who are or present themselves as members of the church's leadership and thus failing to conduct standard due diligence for investments. In 2017, a statement from the FBI noted that Utah consistently ranked high in the states with "the most significant white-collar crime cases" and that Utah state legislature established an online registry for convicted fraudsters, hoping to prevent repeat offenses and inform the public.