Affinity fraud

Affinity fraud is a form of investment fraud in which fraudsters approach potential victims through a group or community organization that they belong to. These groups could be religious groups, ethnic groups, or even workforce communities like unions or the military.

Fraudsters will use their targets’ group identity to gain their trustTrust An account set up to hold assets for a beneficiary. A trustee manages the assets until the beneficiary reaches legal age.+ read full definition. They often volunteer with the group, attend social events for that particular group and may build relationships with group leaders to gain acceptance and endorsement.

For some groups, especially those with many new Canadians, the fraudsters may have been in Canada longer and present themselves as someone that other community members can trust and rely on. Once they have established strong relationships, they convince people to investInvest To use money for the purpose of making more money by making an investment. Often involves risk.+ read full definition in their scheme.

A common type of affinity fraud is a Ponzi or pyramid scheme. These schemes promise everything from making big money working from home to turning $10 into $20,000 in just six weeks. Or, you may be given the chance to join a special group of investors who are going to get rich quick on a great investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition.

Investors who get into the scheme early may receive high returns fairly soon from what they think are interest cheques. They’re often so pleased that they invest more money, or recruit friends and family as new investors. But the investment doesn’t exist, and the “interest cheques” are paid from the investors’ own money and money from new investors. Eventually, new people stop joining the pyramid. There’s no more money to pay out and investors stop seeing any returns. This is often when a fraudster will vanish, taking all the money with them.

How to avoid falling victim to an affinity fraud scheme

1. Check before you invest

One of the best ways to avoid investment fraud is to make sure that any person offering you an investment or investing advice is registered to do so. In general, anyone selling securities or offering investment advice must be registered with their local securities regulatorSecurities regulator A government agency that enforces the securities act in jurisdiction it has authority over. This act is made up of laws that establish rules for issuing and trading securities. The Ontario Securities Commission is the securities regulator for Ontario.+ read full definition. Checking registrationRegistration A requirement for any person or company trading investments or providing advice in Canada. Securities industry professionals are required to register with the securities regulator in each province or territory where they do business.+ read full definition is quick and easy, visit CheckBeforeYouInvest.ca for more information.

2. Get a second opinion

Be skeptical of unsolicited investment opportunities that you might receive over the phone, online or from acquaintances. Before you invest, call the Ontario Securities Commission or get a second opinion from someone you’ve confirmed is a registered advisor. You may also want to consult a lawyer or an accountant.

3. Take the time you need

Be suspicious of limited-time offers and high-pressure salespeople. You should never feel pressured to buy an investment on the spot. Take the time you need to make an informed decision.

4. Research the investment

Before you make any investment, understand how it works and the risks and fees associated with it. Don’t be afraid to ask questions and make sure that it fits with your financial goals.

5. Report investment fraud

Victims often don’t report affinity fraud for fear of embarrassment or backlash from the group. They may try to resolve problems within the group, which can leave other groups vulnerable to the same scamScam When someone tries to make money by misleading or tricking another person.+ read full definition.

How to report fraud

If you suspect that you have been approached by a fraudster or that you may have been a victim of a scam, please contact us immediately.

Key point

If you suspect that you have been approached by a fraudster or that you may have been a victim of a scam, contact the Ontario Securities Commission.

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