Protecting Your Investments Against Affinity Fraud

In a recently filed complaint,The SEC charged a prominent pastor in a scheme to defraud investors out of millions of dollars. Using his religious clout and reputation, the pastor leveraged investments out of devoted followers, mainly elderly. Between 2013 and 2014, the SEC alleges that Kirbyjon Caldwell, Pastor of the Windsor Village Methodist Church and Gregory Alan Smith, a financial planner previously barred by FINRA managed to dupe investors out of nearly $3.5 million. Caldwell and Smith used most of the funds to cover personal expenses. They funneled the remaining funds to off-shore accounts. The case represents a pervasive issue for financial and securities regulators: affinity fraud.

What is affinity fraud?

Affinity fraud is a a type of investment scam that preys on a specific group such as a religious sect, ethnic community or professional group. Often, it is the leaders or prominent members of these groups that perpetrate these scams. Fraudsters prey on victims by exploiting the explicit trust shared among group members. You may recognize affinity frauds most commonly associated with cults or pseudo-religions, however some of the most vicious and damaging cases of affinity fraud target established groups. In the case of the recent SEC allegations, the pastor named in the complaint is the senior pastor of a large and established protestant church. Affinity fraud is such a widespread issue because it preys on our vulnerabilities. If you identify with a group, whether it’s a religious institution or a cultural sect, then you put a certain degree of trust and faith into it. In many ways, we let our guards down. And that’s a good thing; that’s why we are a part of these groups. Unfortunately, this also means that we leave ourselves exposed to certain risks.

Affinity fraud and the elderly

Unfortunately, senior citizens are one of the largest groups targeted by scammers in affinity fraud schemes. The elderly are generally more predisposed to investment scams as fraudsters are able to prey on decreased mental acuity or hearing and vision impairments. Here in Florida, affinity fraud is a prevalent issue. Florida is a breeding ground for scams like this and other forms of elder financial abuse, because of the state’s senior population. If you are a senior citizen or you have an elderly loved one that you believe may be at risk of investment fraud, there are a few measures you can take.

Preventing Elder Financial Abuse

• Be in the know
  • Make it a point of talking to your senior relative(s) about their finances, even if you are not a named trustee or account manager. Even casual discussion about investment plans or opportunities can go a along way in informing your loved one about potential risks.
• Understand contracts and statements
  • Make sure that you have completely read and understand all contract terms before signing any agreements.
• Check broker/advisor backgrounds
  • Know your or your loved one’s financial advisor or stock broker. Make sure they are trustworthy. You can check broker backgrounds on Investor.gov
• Review financial statements
  • Make sure you are not letting your financial statements go by without taking time to carefully review them. Look for any inconsistencies, erroneous charges or fees that you can’t account for.
• Inform them of common investment scams and how to spot them
  • You can check out a list of some of the most common types of senior scams here.
• Advise your loved one to appoint an account trustee or custodian

Protecting yourself against affinity fraud

It can seem difficult – especially if you belong to a religious group – to separate your allegiance to the group from your own personal welfare. However, you need to always be aware of potential risks when approached with any investment opportunity.

Here are some things to know in order to avoid falling victim to affinity fraud.

• Never just ‘take somebody’s word for it’
  • No matter what the investment opportunity is or who is offering it, you should never just accept it at their word. Even if it is the pastor of your church, group chapter president or any other respected individual making the offer; investigate the investment before you commit. Before you agree to any investment, make sure your know it inside and out.
• Don’t fall for “risk-free” or “guaranteed” investments
  • Any investor can tell you that there is no such thing as guaranteed returns or a 100% risk-free investment. Always keep this in mind even if an investment is being offered as an exclusive opportunity to your group.
• Get the details in writing
  • If any investment opportunity that can’t provide a detailed outline of the offering in writing, then you should be extremely skeptical. As with many a case, opportunities that seem to appear out of thin air will often vanish just as suddenly and without a trace. This can leave you holding the bag and no one being held accountable.
• You are in no rush to invest your money
  • Remember that if anyone pressures you to act on an investment opportunity. Make sure you first gain a proper understanding of the opportunity being offered. Give yourself time to investigate and consider an investment opportunity. Be especially wary of “once-in-a-lifetime” investments. You should never feel obligated to commit to an investment without proper knowledge.
• Practice cyber security
  • Fraudsters are increasingly using e-mail to perpetrate investment scams. As such, you need to be extra vigilant of reporting unsolicited e-mail offering “can’t-miss” investment. You can forward spam e-mails containing fraudulent investment opportunities to the SEC directly at enforcement@sec.gov.

Victim of affinity fraud? Know your recovery options

If you believe you or a loved one has been the victim of affinity fraud or other investment scam, then you have the right to recourse. You may even have recovery options. If you have questions about investment-loss recovery options after affinity fraud, then contact our team. We can discuss your options with you and provide guidance in recovering your assets. You can report suspected fraud to the SEC directly by following this link. You can also read more about protecting yourself from affinity fraud here.