Friend or Fraud? Scams that Target Groups
By Angela C. Cichocki*
Office of the Kansas Securities Commissioner
For Kansas Senior Press Service
A project of the KU Center on Aging
The thought of being deceived by someone we trust probably leaves most of us feeling sick. That feeling gets worse when money is involved. Investment scams among people with close ties have reached epidemic proportions. It’s called affinity fraud.
Affinity fraud occurs when con artists target groups of people who have something in common. The common thread can be anything—age, gender, race, culture, religion or hobbies. They simply tell their unsuspecting victims that the investment goes along with their shared beliefs, values, or customs.
Kansas Securities Commissioner Chris Biggs said that Kansans are not immune to affinity fraud. “These scams are as infectious and stubborn as the common cold,” said Biggs. “They spread easily and never seem to go away.”
Folks who appeared honest and compassionate have stolen millions of dollars from friends, family members and business associates using all types of investment schemes.
Many affinity fraud cases involve multi-level “Ponzi” or pyramid schemes. The con is at the top of the pyramid and begins to recruit investors. Group leaders are often the first to hear the pitch. After a few people buy in, the con uses some of that money to make payments back to them. This makes the investment look successful. When the payments stop, unhappy investors discover that most—or all—of their money is gone.
Biggs explained that loyalty can make it difficult to detect affinity fraud. “Some people refuse to believe they have been scammed by someone close to them,” he said. “They hang on and hope for the big pay-off.”
An ounce of prevention is worth a pound of cure. If you are asked to make an investment or to recruit other investors, check it out first:
- Contact the Securities Commissioner at 1-800-232-9580. Verify that the salesperson or promoter is licensed to sell securities. Make sure that the investment has been properly registered, even if the company is in another state. This includes start-up companies and small businesses asking for investors
- Keep emotions in check. Before you invest in something that tugs on your heartstrings, get the facts. This is a business decision involving your hard-earned money. Make sure you know the risks
- Get information in writing. Since trust is the basis of affinity fraud, a con artist may tell you that written records are not necessary. Always ask for written information about the investment and read it carefully
- Start a paper trail. Never pay in cash or make checks payable to someone’s personal account. Get receipts for all transactions
If you suspect a scam, report it. The Securities Commissioner’s staff is available to give presentations to your group or organization. More investor education tips are available at http://www.securities.state.ks.us.
*Angela C. Cichocki is Director of Investor Education Office of the Kansas Securities Commissioner
The Office of the Kansas Securities Commissioner is charged with administration and enforcement of the Kansas Securities Act under Chapter 17 of the Kansas Statutes. The Office investigates and prosecutes securities fraud, the offer or sale of unregistered securities and the offer or sale of securities by unlicensed stockbrokers or investment advisers. For more information and investor education resources, visit http://www.securities.state.ks.us.
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