What is affinity fraud?
"Affinity fraud is when someone abuses membership or association with an identifiable group to convince a potential investor to trust the legitimacy of the investment. Common affinity groups include religion, ethnicity, profession, education, common handicaps, language, age, and any other common likeness or shared characteristics that allow investors to trust members of the group."
From the Utah Division of Securities website.
In other words, it's when someone takes advantage of either being in a trusted group, or pretending to be in the group, to defraud other members of the group.
Okay, okay, I'll say it. Groups like wards and stakes in the Church of Jesus Christ of Latter-day Saints.
A ward is a geographical congregation where people come to a church building at the same time to worship together. It is not uncommon to refer to this congregation as a "ward family" and to call the Bishop, the ecclesiastical leader of the ward, the "father of the ward."
A stake is group of wards, where there are more ecclesiastical leaders who oversee the affairs and activities of the wards, either collectively or each individual ward. In some parts of Utah, wards can be quite small geographically, just a few streets. So in essence, next-door neighbors are going to to church together.
A ward is a geographical congregation where people come to a church building at the same time to worship together. It is not uncommon to refer to this congregation as a "ward family" and to call the Bishop, the ecclesiastical leader of the ward, the "father of the ward."
A stake is group of wards, where there are more ecclesiastical leaders who oversee the affairs and activities of the wards, either collectively or each individual ward. In some parts of Utah, wards can be quite small geographically, just a few streets. So in essence, next-door neighbors are going to to church together.
For more information on how wards and stakes are organized, click here.
Does affinity fraud in Utah only occur in wards and stakes? Of course not. It can happen in other churches, or among other groups like yoga or essential oils.
When it comes to affinity fraud, those in the same church can add an extra element of persuasion. They can use God and priesthood authority.
For example, there is a big difference to a ward member between these two statements.
"Your neighbor has invested in this company."
"Your bishop has invested in this company."
Bishops are believed to carry a "mantle" that allows them to receive revelation on behalf of the entire ward. Does that mean Bishops can receive revelation as to where congregants should invest their money? Of course not, but that line can feel blurry to some members.
Here is a pastor Eli Regalado admitting to his congregation that he committed fraud because God told him to.
How do we recognize affinity fraud?
A security is when there is an investment contract in a common enterprise with a reasonable expectation of profit based on the efforts of others (other than the investor).
A security fraud is when there is untrue, misleading, or omitted statements of material facts concerning the contract.
A security fraud is when there is untrue, misleading, or omitted statements of material facts concerning the contract.
Potential investors can contact the Division of Securities to find out if this person or enterprise is registered, licensed, and help with discloser documents.
Here is a list of questions that a potential investor should consider:
- Are you being offered the opportunity to invest because of your membership or relationship to an affinity group?
- Are respected group members or their names and positions being used to promote the investment?
- Are you being asked to make an investment decision based on your trust in the group whether it is being asked directly or merely implied?
- Is the person offering you the opportunity to invest emphasizing your membership in the group?
- Are you being asked to trust in the legitimacy of the investment because of your relationship or membership?
- Are you being encouraged to invest by the fact that other members of the group have invested?
- Are you being encouraged not to report any suspected fraudulent conduct by members in your group?
When a potential investor is proactive, they are 30% less likely to be a victim of fraud.
What are the common types of fraud?
I'm sure we're all aware of ponzi schemes and bitcoin schemes, but this is one that I didn't know had a name. Pig Butchering Scam.
Essentially the victim is a "pig" that needs to be "fattened up" before it is "slaughtered." Scammers can create fake mobile apps, websites, and other deceptions to look legitimate. This can happen through dating apps, phony profiles, crypto currencies, etc. The victim is primed with love bombing, manipulation, or other strategies. Then once they give their money, they scammer disappears.
Here's a quick 2-minute overview of what it is like. You can see easily why pig butchering and affinity fraud go hand in hand.
What are the red flags?
Here are some red flags to watch out for when someone approaches you with an investment opportunity:
- High pressure sales tactics
- Verbal investment agreement
- Paying for the investment with cash
- No disclosure documents
- No audited financials
- Not licensed with the Division of Securities
- Guaranteed returns
- High or double digit returns with low risk
- Sending your investment to your financial professional's personal bank account
- No specific discussion of commission or payment for investment services
How can we report fraud?
Utah has a whistleblower reporting program. To find out more, click here.
Knights of Scamalot
These are known as the Knights of Scamalot. They gives tips and ideas on how we can be W.I.S.E. against fraud.
W= Watch for red flags
I = Investigate and Research
S = Set Boundaries
E = Examine the Fine Print
Here's one of their videos.
You can find their entire playlist of videos on YouTube by clicking here.
Be safe out there!
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