Affinity fraud – breaking the silence

It took a year for her to lose her savings – and a year for her to tell anyone. My friend had for months been wiring money to a man in Malaysia who claimed he was being held in a detention centre. He said he desperately needed the money to pay lawyer fees, but promised to pay the money back (with interest) as soon as he got back to Canada. Of course, he said he was a millionaire but that he couldn’t access his money until he got back to Canada because his bank account was frozen (there was a fake website with a fake bank balance to back up this claim).

The man’s story sucked in several women in my friend’s tight-knit community of new Canadians, many of whom are on tight budgets and send money back home to support their families.

No one wanted to go to the authorities because they feared consequences – deportation, job loss, jail and backlash from other members of the community.

In the end, they ate up their losses and moved on. I don’t think my friend will ever truly recover financially – or emotionally.

According to the Canadian Anti-Fraud Centre, 9,977 people reported being victims of fraud in 2010. But that is just a drop in the ocean when you consider only 5% of victims ever report it.

This is especially true when scammers target members of a specific community: cultural, religious or social. Once a fraudster gains the trust of a few, the scam spreads quickly through the group like a disease.

It’s called affinity fraud, and unfortunately it happens all the time.

Consider the epic case of Bernie Madoff, who scammed billions from multiple circles – country club members, wealthy elite, and significant foundations and endowments. People told their friends, families and colleagues about the great returns they were getting and – bingo – his scam spread across the U.S. In fact, it’s probably the largest cases of affinity fraud in history.

But there are other smaller cases that happen all the time: like my friend, for example – nowhere close to billions but devastating all the same.

So how can you improve financial knowledge and avoid getting scammed by someone in your circle? Here are a few rules of thumb:

Don’t let anyone pressure you into giving them money now
No matter how desperate someone tells you they are or how great the opportunity might sound, do not succumb to pressure to hand over your money without giving it a lot of thought. Scammers want your cash – and they want it fast – so you don’t have too much time to think and reconsider. Time pressure is your first clue that something’s not right.

Don’t let your guard down
If you’re being offered an investment opportunity on the recommendation of someone you know well, treat it as you would any other kind of investment. Research the investment, check registration with the Ontario Securities Commission (OSC), talk to a registered adviser, and make sure you investigate it thoroughly to make sure it’s legitimate – no matter how close you are to the person telling you about the opportunity.

Get it in writing
Legitimate investments should have a paper trail (e.g., prospectuses, financial statements, annual reports). If you can’t get anything in writing about the opportunity, don’t invest. If you do get information in writing, verify it with a credible source (see previous point on not letting your guard down).

Break the silence
Silence is golden for scammers – they prey on your shame and fear. Tell a friend or (even better) someone outside of your circle to get some perspective. And, above all, contact the authorities right away. You can start with the police in your area – the Toronto Police Service has a financial crimes unit, for example. The OSC can also help you understand your options; their toll-free number is 1-877-785-1555. Talking about it is the first step toward stopping a scammer – and ensuring they don’t harm anyone else.

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