Affinity fraud is not a singular specific type of fraud but is rather defined as any and all frauds targeted towards members of an identifiable group of individuals such as those with a common religion, ethnic heritage, background, or interests. The perpetrators of affinity fraud may pretend or may be members of the targeted group. They exploit the groups' inherent common trust to recruit victims for a fraud. Because victims often attempt to resolve issues directly with defrauders instead of notifying authorities, affinity fraud is difficult to detect.
Pyramid and Ponzi schemes are two fraud types which defrauders might use to recruit people based on some common background or interest to take advantage of people.
Investors should be wary of investment opportunities that promise high returns even if those were introduced by people they trust. An investment should never be purchased under pressure. Before purchasing any investment, investors should perform due diligence by conducting their own research or consulting their professional investment advisors. Suspicious fraud activities may be reported to the SEC.
For more information, see:
- Affinity Fraud, Securities and Exchange Commission (SEC): https://www.sec.gov/investor/pubs/affinity
- The SEC explains affinity fraud and provides tips for avoiding it.
- Investor Protection Guide: Pyramid Scheme, Legal Information Institute (LII): http://www.law.cornell.edu/wex/investor_protection_guide_pyramid_scheme
- Cornell University’s LII describes a pyramid scheme.
- Ponzi Scheme, Legal Information Institute (LII): http://www.law.cornell.edu/wex/ponzi_scheme
- Cornell University’s LII defines a Ponzi scheme.
- Questions and Complaints, Securities and Exchange Commission (SEC): https://www.sec.gov/complaint/select
- The SEC accepts reports on suspicious fraud activities.
See e.g., Securities and Exchange Commission v. Motty Mizrahi et al. (Cal. 2020).
[Last updated in March of 2023 by the Wex Definitions Team]
- Keywords