Affinity Scams, Part 1, an Introduction

"Finance is the art of passing money from hand to hand until it finally disappears."
Robert W. Sarnoff
President of NBC, President and Chairman of RCA
1918 - 1997

"Too many of us look upon Americans as dollar chasers. This is a cruel libel, even if it is reiterated thoughtlessly by the Americans themselves."
Albert Einstein
Theoretical Physicist, Nobel Prize winner 1921
1879 - 1955

"There is some magic in wealth, which can thus make persons pay their court to it, when it does not even benefit themselves. How strange it is, that a fool or knave, with riches, should be treated with more respect by the world, than a good man, or a wise man in poverty!"
Ann Radcliffe
Gothic Novelist, The Mysteries of Udolpho,
1764 - 1823

Affinity Scams are a form of fraud that employs unique and unexpected ways of gaining people's trust in order to rob them. A variation of white collar crime, it masquerades under a facade of respectability that the street thug who belongs to a gang, or a Sopranos-like mafia criminal lack. It is a crime of lies, and of theft. It is not any less criminal for the lack of violence; the harm it does is as great.

The most well-publicized instance in recent months was the long-running Ponzi scheme of Bernie Madoff. There are many others, large and small, including the alleged scam profiled by investigative reporter Dan Browning on the front page of the Sunday edition (8/30/09) of the Minneapolis Star Tribune. Although this story is only fully available in their print edition, they do provide this link which has some additional information online: http://www.startribune.com/local/55723222.html?elr=KArksUUUycaEacyU

Madoff's victims included charitable organizations, and the rich and famous; but not all victims of Affinity scams come from the wealthy or from among celebrities. There are many, many others on smaller scales of investment, people who lose everything they have to these swindlers. The appearance of affluence and their representations of expertise are their weapons to commit theft, instead of threats of violence, guns, or knives. It is easier to get people to like you, to trust you, to believe you care about them for these people. Unlike the violent criminal who operates in brief encounters, they operate over extended periods of time, sometimes over periods of years before the fraud comes to light.

Affinity scams have all kinds of ways to connect with people. Community access cable television, 'educational' library seminars, informational presentations at senior citizens centers and homes, so-called 'free lunch' seminars organized by cold calls. Other scam artists use the print media of newsletters, and syndicated columns on the economy and finance; some use various forms of broadcasting - programs on AM and FM stations, short wave broadcasts, internet broadcasting and podcasts. These scam artists appear in re-broadcasts on places like facebook and youtube, and are promoted on a multitudewebsites; hi-tech and low-tech are equally represented.

WHO do these scams target? People whose trust they gain, people they can impress with their credentials and claims, people who are less savy about how to check out their assurances, their expertise and their claims. They attack entire groups of people rather than individuals, groups who can be defined by ethnicity, by age, by politics, by religion, by profession, by cultural group identification, even by hobby or interests. The typical affinity scheme operates as a pyramid structure, often referred to as a ponzi scheme. In a ponzi or pyramid scheme, someone who has the trust of a group of people is solicited, stroked, lured into a venture with the affinity scammer.

That first individual is, every time, provided with returns that are larger than legitimate, but the recipient doesn't know that. Because the first 'investor', or participant by another name (the variations on the theme are nearly endless) is seen to be successful, others are encouraged to participate. The money from those secondary participants continues to pay returns for the fist, and the money from the third round of participants pays for the second. Always those profits, or other returns, are less -usually much less - than the totals handed over to the scammers. Some of these scams run for decadeds, like Madoff; others last only weeks, months, or a few years - more like the alleged affinity scam described locally by Dan Browning in the Star Tribune series of articles.

In this case, here in Minnesota, the individuals who handed over their money and their trust to individuals to 'invest' for them in foreign currency, which is unfortunately one of the most common types of transactions for abuse, are now filing a range of complaints, and civil litigation. As reported by Browning, there are a number of investigations into their business dealings by the SEC, the FBI, and other entities which could lead to criminal actions for fraud.

The promotion for that scam used a combination of christian broadcasting and ultra-right wing politics which focused on fear and conspiracy theories to enlist their investors. The money appears to have disappeared. Some of the individuals named in the -alleged - scam have gone to ground, away from contact. Others continue to operate under new investment promotions, continuing to use politically conservative radio programming to enlist new participants, even as the litigation and investigation proceeds on their previous dealings.

When we read the newspapers, and see individuals like Madoff hauled away in handcuffs, it seems incomprehensible to most of us how these scams could happen without being detected and prevented by regulation. It seems even more incomprehensible that intelligent people could be, frankly, conned so completely. Once you meet the victims, once you hear their stories, once these become real people with faces and families, it becomes more understandable how their trust was enlisted. It becomes less understandable than it was when I read the stories in the newspapers how the scam artists could swindle people without their conscience haunting them, without fear of the consequences stopping them; but they do, over and over and over.