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December 5, 2002
"Affinity Fraud"
One of the fastest growing frauds in America today is what is known as "affinity fraud." Many scammers use their victim’s religious or ethnic identity to gain their trust -- knowing that it’s human nature to trust people who are like you -- and then steal their life savings. From "gifting" programs at some churches to foreign exchange scams targeted at Asian Americans, no group seems to be without con artists who seek to take advantage of the trust of others.
Everyone, in some way or another, is connected to a group or association. Our interests, backgrounds and other factors will naturally lead us to those organizations or affiliations that serve our needs. Race, culture and religious beliefs also play a role in identifying us as members of unique groups that we often come to trust -- sometimes, to our detriment. In a world of increasing complexity, many people feel the need for a shorthand way of knowing who to trust. This is especially true when it comes to investing money. Unfamiliar with how our financial markets work, too many people don't know how to thoroughly research an investment and its salesperson. So, many fall prey to affinity group fraud in which a con artist claims to be a member of the same ethnic, religious, career or community-based group. "You can trust me," says the scamster, "because I`m like you. We share the same background and interests. And, I can help you make money." Another equally effective pitch, if the con artist is not a member of the group, is to lull members into a misplaced trust by selling first to a few prominent members, then pitching the scam to the rest by using the names of those previously sold. The effect is the same: Once the connection to the group is understood, the natural skepticism of the individual member is overcome, and one more group name is added to the sales column. Once a victim realizes that he or she has been scammed, too often the response is not to notify the authorities, but instead to try to solve problems within the group. Swindlers who prey on minority groups play the "loyalty angle" for all its worth. With immigration at levels not seen since early this century, many new arrivals to our country are seen by financial swindlers as ripe for the picking. Immigrant groups are particularly vulnerable to this type of fraud because they are sometimes isolated from the larger community and their flow of information may be limited because of language and other barriers.- Here is a list of just a few of the recent affinity fraud scams, courtesy of
the North American Securities Administrators Association (NASAA):
- In Alabama, nine individuals have been charged with scamming parishioners
at the Daystar Assembly of God church in Prattville out of more than $3
million. Investors were told their money would be used to purchase
retirement properties in Florida. The income generated by the Florida
properties would be used to pay off the mortgage of the Prattville church and
build a religious theme park, investors were told. In reality, state
securities regulators allege, the money went to pay off investors in a
previous scam and to purchase equipment for unrelated businesses.
- The California Department of Corporations is investigating more than 20
cases of commodity dealers targeting various Asian communities in the Los
Angeles area for foreign currency and precious metals investments --
supposedly, being made on their behalf on the Hong Kong Exchange. In one
case, the department issued a Cease and Desist order in April and filed a
civil action for an injunction in the case of a Los Angeles company called
"Asia Mercantile, Inc." The company advertised in the China Daily News
for executive positions at a new bank in Shanghai, China. Victims were told
the company was looking for people without any experience in the banking
business, so they could be trained "from scratch." All 15 people attending the
subsequent seminar were from China. After three days of training, the
marketing manager said that every person expecting to get a job from the
"bank" in Shanghai had to put in practice what they had learned about
foreign currency exchange transactions by putting up money as a test to see
if they were qualified. The investments were touted as "no-risk"
money-making opportunities and ranged from $15,000 to $300,000. Investors
lost over 90% of the money invested.
- In Kansas, at least one dozen Wichita State University students from
Bangladesh have been left without cash -- and possibly without a chance to
finish their education -- by the alleged action of Asif Ameen. A former
stockbroker with Primeline Securities Corp., Ameen, who is also from
Bangladesh, is alleged to have absconded with the students' investments of
between $17,000 and $175,000 apiece. Investigators are looking into
allegations that at least 100 people from several states lost money, the
total, perhaps, reaching into the millions of dollars.
- In Florida, the Division of Financial Investigations took action against
Texas Club Investments and Associates (TCIA), a Hispanic-run organization
based in Miami that targeted Hispanics. Through advertisements in a local
Spanish-language newspaper which read, "Invest from $3,250 to $32,500 and
receive profits from $546 to $5,460 per month," Lazaro Rodriguez promised
returns of at least 9.8% per month from TCIA oil wells. In fact, there never
were any oil wells. According to subpoenaed bank records, funds were used by
the perpetrators to pay the returns promised to investors, were withdrawn by
them, or were used for purposes other than oil production. Almost all of the
investors suffered a net loss with the amount of loss depending upon when,
how much, and how many times they invested. Approximately $2 million was
solicited from about 400 clients. Ultimately, Lazaro Rodriguez was sentenced
to 5 years in prison, with 20 years probation, and ordered to pay $851,000
in restitution.
- In Maryland, Metropolitan Investments President Larry Bland appealed to
the African-American community to buy shares in his company, which, he said,
would benefit the community by providing health and other social services in
Metropolitan`s building. In fact, Metropolitan did not own the building and
used most of the investors' money for pyramid schemes and other purposes
unrelated to the social interests of the community. He was permanently
barred from engaging in securities transactions and ordered to pay a civil
penalty of $125,000.
- In Utah, Robert Fain preyed upon fellow members of the Assembly of God
Church in Ogden, Utah, through the use of church membership lists. Through
his company, Making Good Choices, Inc., Fain sold bogus "royalty interest"
in such inventions as a "Mess Free Bird Feeder" and "Vice Script" automobile
theft-prevention engraving system. Victims were promised returns of "25% to
100% for years to come." In most cases, no products were ever sold. Losses
by church members were approximately $200,000.
- In Arizona, a 31-year-old mother of three in Scottsdale, Arizona,
received $300,000 from a life insurance policy after her husband died of
AIDS. Not knowing what to do with the money, she invested it with Lay
Minister Frank Luca of the Eagle`s Nest Christian Embassy, where she was a
member. A pamphlet written by the church pastor describing Luca`s "Vision
Plan" for funding a new $2 million church building stated:
"For the past year, I have prayerfully sought the Lord for the plan and
direction he would have us take in regards to the financing costs of the
construction and improvements of the new building....The plan and direction
God has given us is strategic, sound and safe!...
In the love of Jesus,
Pastor Mike Maiden." Today, Ms. Short and her family, as well other many other former Eagle`s Nest parishioners, are devastated. Frank Luca pled guilty to operating a Ponzi scheme and has agreed to pay restitution of $11.4 million.
- How to Avoid Affinity Group Fraud:
- Beware of the use of names or testimonials from other group members. Scam artists frequently pay out high returns to early investors using money from later arrivals. Accordingly, early investors may be wildly enthusiastic about a scheme that may collapse entirely once you`ve invested.
- Obtain a prospectus or other form of written information that details the risks in the investment and procedures to get your money out.
- Ask for professional advice from a neutral outside expert not in your group -- an accountant, attorney or financial planner -- to evaluate the investment.
- Ask your state or provincial securities agency for help. Before investing any money, call your local securities agency in order to learn more about the salesperson and firm. The simplest inquiry is to ask if they are registered to do business in your state. And, "Is the investment allowed to be sold?" If one or the other is not registered, that is a sure warning to inquire further. Don`t take the word of a salesperson! Check out the investment yourself.
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