Investment Scams

Affinity fraud is the process of identifying a particular target group (usually based on ethnicity), and then using some common trait among the group, such as a concern about issues in a particular part of the world, to scam them out of money they will be “investing, through you, in stocks of companies in that region of the world.” The affinity fraud is a variety of confidence scam, in which the faith of the scam’s target in the scam artist is exploited to steal the money. Affinity fraud is quite common, and was recently prominently featured when Bernard Madoff, the former non executive Chairman of the NASDAQ, used his ponzi scheme investment portfolio to scam many Jewish charities, and many wealthy Jewish individuals, out of roughly 50 billion dollars.

Madoff became particularly infamous because of the degree to which his investors trusted him, and because of the sums of money involved. His investors knew him personally, and felt that his fund must be above board because he was known to reject investors who he felt were not sufficiently wealth (an indication that his fund was not desperate for cash). Prominent Jewish community leaders supported him, and he was beloved by the heads and finance chiefs of every major Jewish charity. Of course, the extent of the personal connection between the scam targets and the scam artist are not unique to this case. There have been many other cases of ponzi schemes being perpetrated against unsuspecting, trusting victims, by members of their community. In fact, one of the most common features of an affinity fraud is the scam artist’s membership in the very community he is trying to rip off.

Of course, personal connections are not always present. In the “slavery reparations fraud,” many African-Americans were sent letters telling them that any African-American born prior to the year 1928 would receive compensation “equal in value to 40 acres and a mule.” The letter asked the respondents to list their name, address, phone number, birth date, place of birth, and last, but not least, social security number. The goal was a simple, impersonal case of identity theft. Because the fraud was targeted specifically at African-Americans as opposed to the population as a whole, it constitutes an affinity fraud. The perpetrators were never caught. Of course, many other scam artists (like Madoff) are caught, either because their investors begin to wonder why they cannot withdraw money from their accounts, or because the illicit funds actually run out of cash.