Beware 'affinity fraud,' BBB
An exclusive investment opportunity can sound very appealing, but Better Business Bureau and BC Securities Commission would like to advise people to pay attention if that opportunity appears to be targeting those close to you.
“The friends and family you trust could be the target of a fraud artist,” says Lynda Pasacreta, BBB President and CEO. “People who run scams work hard to join groups or become trusted advisors to people of influence and that people often take the word of a friend.”
Investment opportunities that target those close to you are called “affinity fraud”, fraud that occurs among friends, families, church groups, ethnic communities and workplace colleagues—in short, anywhere that people trust each other based on common beliefs and interests.
“Affinity fraud occurs in groups where people trust each other based on common beliefs,” says Lang Evans, BC Securities Commission enforcement director. “It can happen anywhere, but most often we see it in Christian churches and ethnic communities in the Lower Mainland.”
A recent local example involves Sung Wan (Sean) Kim. Kim was a registered investment advisor who began offering “off-book” investments to some of his clients. He was a member of a Korean church in East Vancouver, and conducted his “off-book” business in a second Burnaby office.
Over a 30-month period, Kim exploited his reputation as a businessman in the local Korean community and the Korean-language church to gain the trust of 36 Korean-speaking investors who gave him almost $16 million.
As BCSC documents show, Kim lied to the investors about how their money would be invested, about the returns their money would earn, and forged BCSC documents to legitimize his scheme. Far from investing their money, he deposited it into his personal bank account.
Evans says that investment fraud can be financially and spiritually devastating—all the more so when it involves relationships of trust. It can wipe out savings, ruin good health, embitter family and church relationships, and destroy trust.
To avoid these devastating effects, pay attention to the following five warning signs. Watch out if you are told:
- The investment is exclusive and available only to ‘those in the know’ or those within the particular faith or culture.
- To keep the investment a secret.
- That religious-based investments are not regulated. Religious-based investments are no different from other investment products.
- That you have to make a decision immediately.
- That you or other investors shouldn’t seek independent advice.