There have been an uptick in the number of investment opportunities promising high returns for almost no risk.
Frequently, a family member or friend will approach you with these great deals. These "opportunities" may feel too good to be true. Unfortunately, they usually are.
The promise of easy cash
These investment opportunities are often really what are called "affinity frauds" in disguise. An affinity fraud is a scheme to defraud investors who are connected by a specific nationality, religion, social status or other characteristic shared by the victims. Affinity fraudsters often target their personal and professional relationships to initiate the fraud. After roping in a few individuals they typically urge them to contact their friends and family to ensnare them in as well.
The idea is that if you hear an investment deal that seems from a trusted source, you'll be more likely to partake. The people running these frauds may even give high returns to the initial members. This can convince them that the investment is legitimate.
These deals typically rely on word of mouth from reliable sources to get access to people's money.
Avoiding affinity fraud
There are a few things you can do to determine if a hot tip is really a good deal or a scam in disguise:
- Verify all investment sources through an independent source.
- Investigate the background of your potential investment partner.
- Request proof of past success.
- Ask your source to specifically list the potential risks. All investments carry risk.
If an opportunity promises no risks for a lot of reward, be on the lookout. The higher a potential return, typically the larger the risk. An investment with a double-digit return and low risk is the dream of all investors but these are incredibly rare. Much more common are frauds promising a low-risk, high-reward opportunity.
Taking steps to prevent affinity fraud
When you identify a potential affinity fraud, chances are it's already hurting a group of people you know well. These frauds tend to spread via social media and friend circles, which makes it even more important to act.
If your loved ones have been a victim of an affinity fraud, a knowledgeable attorney can help pursue damages. No one should lose their hard-earned money. When you see an affinity fraud, fight back.