Most people are familiar with Bernie Madoff, operator of the largest Ponzi scheme ever. Investors in the Wall Street elite lost tens of billions of dollars to Madoff’s scheme until it finally collapsed at the end of 2008.

What you may not know, however, is that Madoff’s Ponzi scheme is also one of the largest examples of affinity fraud to date. A sizable portion of his victims came from the wealthy Jewish community of which he was a part. Madoff leveraged his status within that community, along with his affiliations on Wall Street, to gain the trust of his victims. As a result, they never felt the need to vet thoroughly the “investment opportunities” Madoff presented to them.

Affinity fraud is particularly dangerous because it is based around the trust between members in a community; and unfortunately, it is more pervasive than many investors think. No matter how trusted a recommendation is, investors should always conduct due diligence. Doing so can help them avoid falling victim to affinity fraud.

What Is Affinity Fraud?

Affinity fraud is a type of investment fraud that targets members of a specific group with a common bond. While Madoff exploited his ties with a religious community, affinity fraud can also occur within professional organizations, ethnic identities, and age groups. Essentially, any identifiable group whose members trust one another as a result of their group membership can be subject to affinity fraud. 

An affinity fraudster exploits this trust to lull their victims into a sense of security. For example, earlier this year a pastor was sentenced to six years in prison for his role in an investment fraud scam targeting members of his congregation. According to the Department of Justice, he used his status as a pastor to help convince victims they were making a legitimate investment. Instead, he pocketed the money and used it for his own personal gain.

How Affinity Fraud Happens

Affinity fraud starts with the fraudster gaining access to the targeted group. Like anyone else, stockbrokers may be involved with local professional groups, churches, or other community organizations. Sometimes, the fraudster actually is a member of the community they target. Other times, the fraudster merely pretends to be a member.

Affinity fraudsters may approach leaders within the community to seem more credible to other members. Presenting the investment opportunity through a discussion with the leaders allows the fraudster to exploit the trust community members share. In many cases, the community leaders themselves fall victim to the fraud as well.

When the fraudster pitches the investment, it’s usually in the form of either a pyramid scheme or a Ponzi scheme. In a Ponzi scheme, initial investors are paid returns using money contributed by later investors. In a pyramid scheme, early investors are encouraged to recruit other investors to get returns. With either type of investment scam, the fraudster doesn’t actually invest any of the investors’ money.

How to Avoid Affinity Fraud

Investors can avoid affinity fraud by taking the same precautions they should take for any investment. Investors should conduct their due diligence to properly vet an opportunity before money changes hands. This is especially important when investors know and trust the person making the recommendation. Here are some common signs that an investment may not be legitimate.

Never Invest Solely Because You Know the Person Recommending the Investment

What sets affinity fraud apart from other types of fraud is the exploitation of trust it uses. Even if the person is a competent stockbroker and someone you trust, take your time and approach any investment they offer just like you would any other investment. Ask yourself, Are they using their position as a leader as a reason why you should invest with them? If the answer is yes, then it is a good idea to investigate further before investing.

Avoid Promises of High or Guaranteed Returns

If a stockbroker in your community approaches you with an investment opportunity promising high or guaranteed returns, it is very likely fraudulent. When they make these promises, fraudsters may say they have inside information or a secret investment strategy.

Especially when these promises come from someone within your religious or ethnic community, it’s a big red flag for affinity fraud.

Avoid Opportunities Promised as “No Risk” Investments

Investing is inherently risky. While there are plenty of low-risk investment options, no strategy is truly without risk. Like other forms of investment fraud, affinity fraud scams make “no risk” promises alongside those of high or guaranteed returns.

Get Everything in Writing

Affinity fraudsters may be hesitant to document the investment when it is fraudulent. Legitimate stockbrokers will be able to provide a detailed outline of what they are offering you. Remember that if the opportunity seems to come out of nowhere, then it can disappear just as quickly.

Don’t Rush

Affinity fraudsters may say things to make you feel as though you need to give them your money right away or you will miss out. One of the worst investments you can make is one where you aren’t sure where the money is going or how you will get it back. Always take your time to investigate the opportunity, and never be afraid to walk away.

Use BrokerCheck

If the person who approaches you is a stockbroker themselves, you can use BrokerCheck to view their work and disciplinary histories. A BrokerCheck report will contain any required disclosures on the broker’s record, including certain liens and whether they’ve been subject to client disputes.

Be Aware of Email Spam

The Securities and Exchange Commission (SEC) warns that fraudsters increasingly use spam emails to market their bogus investment opportunities. If you receive an email advertising an investment to you and other members of your community, be careful, even if it appears to be from someone you know.

$21,000,000 Final Judgment for Civil Theft
$8,500,000 Stockbroker Bond Fraud Settlement
$7,800,000 Stockbroker Option Fraud Settlement
$6,000,000 Stockbroker Bond & Bond Fund Fraud Settlement
$5,800,000 Arbitration Award for Stockbroker Fraud
$4,300,000 Class Action Ponzi Scheme Settlement
$3,500,000 Corporate Trustee Mismanagement Settlement
$3,350,000 Stockbroker Bond & Bond Fund Fraud Settlement
$3,200,000 Arbitration Award for Mortgage-Backed Securities Fraud
$2,700,000 Arbitration Award for Stockbroker Negligence & Aiding Theft
$2,500,000 Stockbroker Bond & Bond Fund Fraud Settlement
$2,450,000 Stockbroker Bond & Bond Fund Fraud Settlement
$2,300,000 Stockbroker Bond & Bond Fund Fraud Settlement
$1,900,000 Elder Abuse & Undue Influence Settlement
$1,800,000 Arbitration Award for Structured Product Fraud
$1,500,000 Stockbroker Bond & Bond Fund Fraud Settlement
$1,450,000 Arbitration Award for Stockbroker Fraud
$1,400,000 Stockbroker Bond & Bond Fund Fraud Settlement
$1,300,000 Stockbroker Bond & Bond Fund Fraud Settlement
$1,250,000 Stockbroker Bond & Bond Fund Fraud Settlement
$1,200,000 Stockbroker Bond & Bond Fund Fraud Settlement
$1,200,000 Structured Product Fraud Settlement
$1,100,000 Structured Product Fraud Settlement
$1,100,000 Stockbroker Bond & Bond Fund Fraud Settlement
$1,100,000 Stockbroker Bond & Bond Fund Fraud Settlement
$1,000,000 Arbitration Award for Stock Rating Fraud
$1,000,000 Structured Product Fraud Settlement
OVER $140 MILLION RECOVERED FOR CLIENTS Contact Our Lawyers for Nationwide Help
Should I Hire an Affinity Fraud Lawyer?

Victims of affinity fraud are often hesitant to report it because they fear doing so might damage their community. However, the issue is unlikely to resolve properly on its own; victims of affinity fraud may be able to recover their losses, but only if they report the fraud and hire an attorney.

If you are the victim of fraud by a person you trust, like a pastor, stockbroker, or another community leader, you may have a claim for affinity fraud. If you’re ready to step forward, an affinity fraud attorney can evaluate your options going forward. In addition, an affinity fraud lawyer can help you navigate the fallout within your community that may result from disclosing the fraud.

How to Report Affinity Fraud

The SEC, along with several state-level organizations, allows members of the public to submit tips or complaints of fraud. The SEC offers separate complaint systems for general complaints and for whistleblowers. If you’re unsure what you should report, hire an affinity fraud attorney first.

Hear From Our Clients

At The Law Offices of Robert Wayne Pearce, P.A., we believe the ultimate barometer of our success is surpassing the expectation of our clients.

The following clients have direct knowledge of our firm's processes from the inside and experienced our fierce advocacy.

Hear From Our Clients

  • “Robert Pearce is part of that unusual breed of lawyers that are able to create empathy with clients and thoroughly adopt their cause”

    No half efforts here. He and his group of professionals are outstanding strategists that can execute with precise fervor and unyielding determination. Theirs is a huge wave of facts, research, precedents and preparation, that has impressed me in its thoroughness and creativity, and most importantly with the results. No stone goes unturned and no effort is ever spared. In my book, he and they are those of a very rare kind that one wants to keep for a very long time.

    - Ramon Flores-Esteves -
  • “Just like the song from HAMILTON, it's so nice to have Bob Pearce on your side.”

    Just like the song from HAMILTON, it's so nice to have Bob Pearce on your side. He is the consumate plaintiff's lawyer: smart. dedicated, fully able to try a case but a great negotiator in a mediation. He did a wonderful job for us, fully supporting us through the process and more than holding his own against a large national law firm.

    - Maurice Z. -
  • "Mr. Pearce and his staff exceeded all of our expectations."

    Mr. Pearce and his staff exceeded all of our expectations. We were able to reach a settlement that was of our complete satisfaction, all within a very smooth, professional and efficient process. Mr. Pearce is now not only our lawyer but our family friend. We highly recommend him and his team!

    - Severiano L. -
  • "For the best fighting chance, Robert Pearce is the lawyer you want in your corner."

    This law firm is the real deal. We were so lucky that they took our case as they have so much experience in securities and all the wrongdoing that happens in these investment companies where they mislead you and your money (as in our case) into schemes that are not what you think they are. Mr. Robert Pearce is one of the best lawyers around, a truly professional who will fight for you and will tell you as it is all the time. We could not have gone thru this experience if it was not for all the advice, guidance and support he and all of his staff and associates brought to the game. For the best fighting chance, Robert Pearce is the lawyer you want in your corner.

    - Astrid M. -
  • "He never felt intimidated and his study of the case and perseverance prevailed at all times."

    Attorney Robert Pearce was our lawyer in a case against a Brokerage Firm and I'm witness to his ability and intelligence to deal with lawyers from the most prominent law firm in New York which was the key to recovering much of our losses cheered by their negligence. He never felt intimidated and his study of the case and perseverance prevailed at all times.

    - Jose A. C. -
  • "In the end, Bob and I had the last laugh when the arbitrators awarded me almost 6 million dollars."

    No lawyer except Bob said I had a chance of winning. When UBS Lawyers laughingly offered me zero to settle the dispute, Bob became even more determined to prove everybody wrong. Bob was extremely prepared, and always a step ahead of the opposing attorneys throughout the arbitration. In the end, Bob and I had the last laugh when the arbitrators awarded me almost 6 million dollars.

    - J. Blanco -
  • "Every meeting and phone call was made with dedication and desire to help our family every step of the way."

    Robert's team is excellent. They are very competitive in what they do and they are very responsible. Every meeting and phone call was made with dedication and desire to help our family every step of the way. Their professionalism, responsibility and empathy assured us that we were in good hands. Recommend to everyone.

    - Mayra A. -

Has Your Organization Been Infiltrated By Fraudsters?

If you or someone you know has been the victim of affinity fraud, we can help. The attorneys at The Law Offices of Robert Wayne Pearce, P.A., have over 40 years of experience representing investors nationwide.

We know how difficult it can be to report fraud within a tight-knit community. That’s why we’re happy to speak with you about your case to go over your options. Contact us today online or give us a call at 561-339-0037 to schedule a free consultation.