Safeguarding Trust: Protecting Yourself from Affinity Fraud

By Dr Pravin Bathe, Chief Legal and Compliance Officer at Angel One Ltd.

Encountering fraud caused by a stranger may only result in financial loss. However, when the source of the fraud is someone you trust, the impact goes beyond money and affects your emotion as well. One such common method used by fraudsters to deceive innocent investors is misusing their trust and plotting an affinity fraud.

Together, we shall delve into the concept of affinity frauds and unravel their inner workings. In addition, we will uncover practical tips that equip you to shield yourself against these scams.

Understanding Affinity Fraud
Affinity fraud is a deceptive tactic used by scamsters to target specific groups of people who share common characteristics, such as religion, ethnicity, or profession. These fraudsters pose as members of the targeted group and gain the trust of influential leaders or respected individuals within the community. After gaining trust they promote their fraudulent investment scheme, tricking others into joining.

The scam relies on exploiting the trust placed by community members. It typically operates through Ponzi or pyramid schemes, where new investor’s money is used to pay off earlier investors, creating a false appearance of success. This scheme is designed to entice new investors and deceive existing ones into thinking their investments are secure. In reality, the fraudsters typically misuse the investor’s money for personal gain.

Safeguarding Yourself From Affinity Fraud
When you’re part of a group or a community, it can be challenging to maintain independent loyalties. Nevertheless, when it comes to investments, it is important to recognise the
potential risks involved in them. Here are some ways to protect yourself from falling victim to affinity fraud –

1. Verify All Investment Opportunities
Regardless of the source’s credibility, its crucial to carefully evaluate every opportunity that comes your way. Remember, even if the person informing you about the scheme is trustworthy, it is wise to independently verify the offer’s authenticity. It is your hard-earned money at stake after all?

2. Avoid Unrealistic or Guaranteed-Profit Investments
Only a small number of investments are completely free from risks and they typically provide very minimal returns, which may not be appealing to most people. Therefore, if someone approaches you claiming unrealistic returns such as 3% or 5% per day or doubling the money in a short period without any risk, it should raise a red flag. Here’s a simple rule to remember: as the potential returns increase, so does the likelihood of risk of incurring losses.

3. Ask for Written Documentation for Any Investment Proposal

Legitimate investment schemes are properly documented in writing, while scamsters often avoid putting their scheme details on paper. Additionally, some fraudsters may specifically request that you keep the investment confidential. These signs should raise a concern in your mind.

4. Don’t Rush into Investing Without Research
Although someone you know may have achieved financial success or claims to have done so, it doesn’t guarantee that you will experience the same outcome. It’s important to exercise caution with investment schemes that are portrayed as a one-time opportunity.

Additionally, its advisable to avoid relying on someone claiming to have insider information or investing based on hot tips as claimed by others.

5. If You Must Invest, Conduct Thorough Research
Before considering stock recommendations, always conduct thorough research on the company, including its operations, management, and financials. Take a close look at the historical performance of its stock price as well. Additionally, ensure that your investment aligns with your risk profile and financial objectives. Avoid making investments solely based on recommendations from friends or seemingly trustworthy individuals.

Protect Your Investments: Stay Vigilant Against Affinity Fraud
Trust and affinity are vulnerable assets that demand utmost vigilance. It is crucial to safeguard ourselves against the dangers of affinity fraud. To make wise investment decisions, it is necessary to exercise a healthy dose of scepticism and keenly examine each opportunity. If you encounter a Ponzi or pyramid scheme, you must expose it without hesitation. And if any suspicious activity comes to your attention, promptly report it to the appropriate authority. Be a SAFE and VIGILANT investor!

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