Ethnic Affinity Fraud:  Common Culture, Stolen Trust

Affinity fraud or, ethnic affinity fraud, is a type of investment fraud.  Whether in connection with a real estate deal, restaurant, or other business venture, fraudsters target members of a common background, such as religious, language, or ethnic groups, senior citizens, members of the military, sexual orientations, or professional groups and attempt to commit fraud.   According to the U.S. Securities and Exchange Commission, “at its core, affinity fraud exploits the trust and friendship that exist in groups of people who have something in common. Fraudsters use a number of methods to get access to the group. A common way is by enlisting respected leaders from within the group to spread the word about the scheme. Those leaders may not realize the ‘investment’ is actually a scam, and they may become unwitting victims of the fraud themselves. “

Affinity fraudsters exploit shared characteristics and connections that they build with the groups they hurt.   Unfortunately, the fraudsters are successful because of the cultural or common bond, and resulting trust, or because others in their community approve of the offender.  “The inherent trust individuals inure to others who belong to the same group can be construed as a weakness to be exploited by those who may share those traits but have ulterior motives.”  Perri, Frank S. and Brody, Richard, G. Affinity is Only Skin Deep:  Insidious Fraud of Familiarity, March/April 2013.

According to the 2010 Enforcement Report from the North American Securities Administrators Association, www.nasaa.org,  affinity fraud was one of the leading practices used in connection with distressed real estate schemes. 

In Northern Virginia, a high-profile affinity scam involved a local mortgage company, whose owner obtained multiple loans from members of the Indian and Pakistani community without their knowledge using social security and other personal information obtained previously when they had worked with the company to obtain refinance their loans.  Instead of using the new loans to pay off the old mortgage, the fraudster kept the bulk of the money for himself to fund an unsuccessful “Bollywood” movie.  In other cases, he obtained multiple mortgage loans on the same property.   The fraudster avoided detection by making monthly payments under the old mortgages, in hopes that the film would generate enough money to pay off the old loans.  When the Bollywood movie flopped, the money ran out, the unpaid mortgages were noticed for foreclosure, and the unknowing customers were financially devastated.    See Gowen, Annie, Bollywood Mirage: The rise and fall of Vijay Teneja (Washington Post, June 6, 2010).

According to the SEC, due diligence is essential to avoiding such scams, and the SEC website offers several tips are offered to avoid becoming a victim of affinity fraud. Notably, “fraudsters often avoid putting things in writing. Avoid an investment if you are told they do not have time to put in writing the particulars about the investment. You should also be suspicious if you are told to keep the investment opportunity confidential or a secret.”

Unfortunately, once money is paid, or property changes hand, the situation changes.   Often times, the victim is left working in the business, exhausting their credit, or paying out of pocket to salvage the deal or property, in hopes of one-day recovering their investment, while the scam artists blames the victim for such misfortune.

We have helped our clients escape such undesirable business, and identify and recover against the perpetrators of these scams.  We have represented individuals and families from different backgrounds and communities to sue and recover real estate and money, from artificial lending schemes, real estate scams, restaurant schemes, and other scam investments.