Affinity Fraud

When scam artists target a specific social, religious, or ethnic group.

The allegations surrounding Wall Street financier Bernard L. Madoff’ssupposed $50 billion Ponzi scheme have highlighted the issue of affinity fraud, described by the U.S. Securities and Exchange Commission thus:

Affinity fraud refers to investment scams that prey upon members of identifiable groups, such as religious or ethnic communities, the elderly, or professional groups. The fraudsters who promote affinity scamsfrequently are – or 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 exploit 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 their 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.

The Los Angeles Times, noting that many of Madoff’s alleged victims were Jewish charities, quoted a boardmember of the Jewish Federation of Greater Los Angeles, which may have lost $6.4 million: ”There is no greater shandathan stealing from friends, family and those who gave him such trust and confidence.” Shanda is a Yiddish word for disgrace.