Fraudsters work their way into groups their target belongs to and work to gain their trust. After they create strong relationships, they convince people to invest in their scheme. Find out how to avoid affinity fraud.
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What is affinity fraud?
Fraudsters will use their targets’ group identity to gain their trust. Once they have established strong relationships, they convince people to invest in their scheme.
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 invest 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 investment.
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 do you avoid affinity fraud?
There are a few steps you can take to avoid affinity fraud:
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 regulator. Checking registration 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 scam.
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.
- Local (Toronto): 416-593-8314
- Toll-free (North America): 1-877-785-1555
- Email: inquiries@osc.gov.on.ca
Summary
If you’ve been approached by someone with an investment opportunity — no matter how trustworthy they may seem — you should:
- Check before you invest – make sure that the person offering you an investment or investing advice is registered to do so.
- Ask for a second opinion with a registered advisor, the Ontario Securities Commission and consider consulting a lawyer or accountant.
- Take as much time as you need to make an informed decision – you shouldn’t feel pressured to buy investments.
- Research the investment and understand its risks and fees.
- Report investment fraud if you suspect you’ve been approached by a fraudster.
