Affinity Fraud - Examples

Examples

Affinity frauds can target any group of people who take pride in their shared characteristics, whether they are religious, ethnic, or professional. Agencies such as U.S. Securities and Exchange Commission have investigated and taken action against affinity frauds targeting a wide spectrum of groups. Some of the cases include the following:

• The slavery reparations scam.

• On November 16, 2007, Michael Owen Traynor a Bradenton, Florida, investment broker, who had found many of his clients though his church and private school social circles, was arrested on a first degree felony grand theft charge that he had stolen $6.5 million from his investors. It is believed Traynor stole funds from at least 34 clients in Sarasota, Manatee and Hillsborough counties between 2001 and February 2007. Traynor was subsequently sentenced to 12 years in Florida state penitentiary.

• "Armenian-American community loses $19 Million": The SEC's complaint alleges that this affinity fraud targeted Armenian-Americans with little investment experience, for some of whom English was a second language.

• "Criminal charges against South Florida man for $51.9 million fraud": African American victims of this investment scheme were guaranteed that their investments would generate a 30% risk-free and tax-free annual return.

• "'Church Funding Project' costs faithful investors over $3 Million": This nationwide scheme primarily targeted African-American churches and raised at least $3 million from over 1000 investing churches located throughout the United States. Believing they would receive large sums of money from the investments, many of the church victims committed to building projects, acquired new debt, spent building funds, and contracted with builders.

• "Baptist investors lose over $3.5 Million": The victims of this fraud were mainly African-American Baptists, many of whom were elderly and disabled, as well as a number of Baptist churches and religious organizations located in a number of states. The promoter (Randolph, who was a minister himself and who is currently in jail) promised returns ranging between 7 and 30%, but in reality was operating a Ponzi scheme. In addition to a jail sentence, Randolph was ordered to pay $1 million in the SEC's civil action.

• "More than 1,000 Latin American investors lose over $325 Million": The victims sought low risk investments. Instead, the promoter (who has been sentenced to 12 years in prison) misappropriated their funds and lied about how much money was in their accounts.

• "125 members of various Christian churches lose $7.4 million": The fraudsters allegedly sold members non-existent "prime bank" trading programs by using a sales pitch heavily laden with Biblical references and by enlisting members of the church communities to unwittingly spread the word about the bogus investment.

• "$2.5 million stolen from 100 Texas senior citizens": The fraudsters obtained information about the assets and financial condition of the elderly victims who were encouraged to liquidate their safe retirement savings and to invest in securities with higher returns. In reality, the fraudsters never invested the money and stole the funds.

• On December 11, 2008, Bernard Madoff, an American businessman, was arrested on charges of securities fraud, having been turned in by his own sons after allegedly telling them his business was a "giant ponzi scheme". According to the New York Post, Madoff "worked the so-called 'Jewish circuit' of well-heeled Jews he met at country clubs on Long Island and in Palm Beach.". Additionally, one of Madoff's middlemen was J. Ezra Merkin of Ascot Partners. According to Samuel G. Freedman of the New York Times, Merkin was prominent in the Modern Orthodox community. This allowed him to defraud institutions such as Yeshiva University, Kehilath Jeshurun Synagogue, the Maimonides School, Ramaz and the SAR Academy.

• On July 27, 2009, Earl Jones was arrested for fraud in Montreal. His clients were English speaking elderly in French speaking Quebec. On August 14, 2009, CTV and CBC Radio One News reported that investors with Hershey Rosen are also suspected of being defrauded. Like the Jones investors, they too are Anglophones in Francophone Quebec.