How to recognize and avoid affinity fraud amongst your friends

Affinity fraud is a common form of investment fraud. It almost always involves either a fake investment or one where the scammer lies about the critical details, such as the risk of losing money, past investment results, or information about the people running the scheme.

Unfortunately, many Albertans are approached with fraudulent investment opportunities through friends and family who are considered trusted sources. While sometimes these sources are fully aware of their intent to deceive, other times they are unknowingly involved in a fraudulent deal. It is critical, therefore, that you know how to protect yourself from investment fraud no matter how confident you are in the source.

Those involved in organized groups such as community clubs, church groups, immigrant communities, seniors homes and on-line chat forums are at risk because these groups are often targeted by scam artists. If Mary from church, for example, just invested with someone who promised a large return on her money, chances are good that she will tell others in her church and social groups about this opportunity. Because Mary's friends trust her, they are likely to invest blindly without asking a lot of questions.

This type of fraud is identifiable and avoidable. By following this checklist, you could help to save yourself or a loved one, time, money and heartache:

• Never rely solely on referrals from friends and family members. If they have failed to do their own research and invested in a scam, they may unknowingly lead you down the same path.

• If it sounds too good to be true, it probably is. Don't be drawn in by promises of spectacular returns and low risk; these are classic warning signs of fraud.

• Don't be pressured into making a decision. Just because your uncle has made good returns on his investment in a “once in a lifetime opportunity” doesn't mean it is safe. Take your time to understand the business and the risks involved.

• Be wary of investments that are not put in writing. If you are being offered an investment and the promoter “doesn't have time” to provide details, this could be a sign of fraud. You should also be suspicious if you are told to keep the opportunity confidential.

• Check the promoter's background. Contact the Alberta Securities Commission to determine if the salesperson is registered to sell securities or if they've ever had enforcement action against them.

• Learn about other red flags: Find out more about investment fraud at www.checkfirst.ca.

Many people who fall victim to affinity fraud fail to report it because they feel ashamed, embarrassed or want to protect their friend or loved one who recommended the investment. This enables other people to fall victim to the same scam and makes prevention difficult. If you suspect you have been approached with a potentially fraudulent investment scheme, contact the Alberta Securities Commission