On behalf of Girard Bengali, APC on Tuesday, February 5, 2019.

Investing is all about minimizing your risk. Part of the way to do that is going through people you trust and listening to sound advice.

Unfortunately, there’s a specific kind of scam that uses friends and family to sell you on faulty investments. It’s called affinity fraud, and recognizing the signs can save you and your loved ones a lot of money.

What is it?

Affinity fraud is a scam that targets not individuals but entire groups of people. They find a few people in a community, religious group or family and enlist them. Those initial investors then spread the word about a hot new investment.

These people aren’t willingly propagating a scam, but rather see a good deal. Early investors usually get high returns to prove that the scam really is legitimate. That gives these initial investors confidence to bring in family, friends and co-workers.

Signs of possible affinity fraud

The insidious part of these scams is that people you trust are typically the ones pitching to you. It lowers your guard and may tempt you to pull the trigger on an investment that you otherwise wouldn’t. However, there are things you can watch for if you suspect an opportunity is too good to be true:

Unreasonably high rates of return: Investing is all about long-term growth. When a loved one approaches you with the promise of double-digit returns, be skeptical. Expecting massive, constant returns isn’t usually feasible. It always pays to do due diligence.

The promise of almost no risk: Just like in life, investing is never a sure thing. There will always be risks involved in any financial transaction. If you are being offered the chance to buy into an investment that promises returns with low to no risk, it may be an affinity fraud. If it feels too good to be true, look closely at it.

Limited time offers: While many investment opportunities are about timing, affinity frauds ramp this up to the extreme. Often, the person will warn you that you only have a day or two to decide about investing in their hot tip. This is because those running the fraud do not want to give investors the chance to investigate or uncover the nature of the scam.

Staying vigilant

By healthy skepticism and thoroughly vetting financial opportunities, you can avoid these scams. Recognizing a potential fraud can stop you and your loved ones from throwing away money.

If you suspect your relatives, colleagues or friends are being taken advantage of through an affinity scam, a knowledgeable attorney can help fight for their rights.

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