The optics of fraud: affiliations that enhance offender credibility
| DOI | https://doi.org/10.1108/13590791211243147 |
| Pages | 305-320 |
| Date | 13 July 2012 |
| Published date | 13 July 2012 |
| Author | Frank S. Perri,Richard G. Brody |
| Subject Matter | Accounting & finance |
The optics of fraud: affiliations
that enhance offender credibility
Frank S. Perri
County of Winnebago, Illinois, USA, and
Richard G. Brody
Anderson School of Management, University of New Mexico,
Albuquerque, New Mexico, USA
Abstract
Purpose – The purpose of this paper is to illustrate how a financial fraud practice, known as affinity
fraud, relies on building trust with victims based on shared affiliations or characteristics such as age,
race, religion, ethnicity or professional designations, for the purpose of exploiting the trust factor for
financial advantage.
Design/methodology/approach – Sources of information consisted of scholarly articles and
articles retrieved from the web.
Findings – Findings suggest that these fraud offenders rely on a myriad of persuasion techniques to
overcome offender skepticism coupled with victims engaging in a psychological concept known as
projection bias to evaluate the credibility of these offenders. These factors create a negative synergy
that dilutes the perceived need for due diligence normally required prior to engaging in securities
transactions. In addition, these offenders display a predatory quality, debunking the myth that fraud
offenders exhibit a homogenous crime group behavioral profile.
Practical implications – Social institutions that include both for profit and not for profit should
consider evaluating their interactions with those who share similar characteristics and affiliations that
attempt to offer goods or services by considering some of the factors contained within this article that
may dilute due diligence protocol.
Originality/value – This paper se rves to alert and educate ant i-fraud professionals, l aw
enforcement and policy makers of a predatory fraud practice that targets organizations exploiting
the inherent trust that these organizations rely upon.
Keywords Affinity fraud,Ponzi scheme, Projection bias, White-collar crime, Fraud,Criminals
Paper type Research paper
Introduction
Securities regulators at the federal, state, and international level have expressed concern
about the dramatic growth of affinity fraud, and since 1998 affinity fraud has been
ranked one of the top five investment practices (Fairfax, 2002-2003; NASAA, 2011).
Historically speaking, one nationwide survey found that between 1984 and 1989, affinity
fraud cheated 13,000 investors out of $450 million and from 1998 to 2001, over
90,000 investors in 28 states lost more than $2.2 billion in affinity fraud schemes
(Fairfax, 2002-2003). Recently, over the past several years, citizens of Utah alone who
belong to faith-based organizations have been defrauded through the practice of affinity
fraud of more than $1.5 billion dollars (Morgan, 2011).
Consider that every day, millions of individuals contribute their time, money
and goodwill to institutions that are established to benefit not only the members of the
particular organization but the wider community as well. These organizations are
typically, but not exclusively, non-profit and religious organizations. In addition,
The current issue and full text archive of this journal is available at
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The optics
of fraud
305
Journal of Financial Crime
Vol. 19 No. 3, 2012
pp. 305-320
qEmerald Group Publishing Limited
1359-0790
DOI 10.1108/13590791211243147
there are for-profit organizations that attempt to utilize their shared characteristics by
establishing bonds,an affinity, with customers based on race, ethnicity, age, professional
designation, or other characteristics. These organizations claim to be trustworthy and
honest brokers of their services because they share some of the characteristics listed
above. Often the fact that a person or organization sharessimilar characteristics to his or
her target audience is enough to make them appear more credible.
In this paper, the authors discuss the concept of affinity fraud, the ease with which it
is perpetrated, and the difficulty fraud victims encounter in reconciling the “special
trust” they believe they shared with this white-collar criminal. Furthermore, the authors
will debunk myths surrounding the affinity offender behavioral profile that victims may
subscribe to in order to illustrate how affinity fraud offenders possess the same
predatory traits as non-white-collar crime criminals that are typically referred to as
street or conventional crimes that involve property violations and violence.
Moreover, research has confirmed that affinity fraud offenders harbor negative
personality traits such as antisocial and psychopathic dispositions that enable them to
commit fraud with ease, without conscience, while leaving victims bewildered and, at
times, financially ruined. In addition, the authors apply the psychological concepts of
projection bias that victims engage into explain how their projection actually exposes
them to being exploited, and examine the techniques of persuasions used by these fraud
predators to manipulate their subjects to participate in their schemes.
Affinity fraud
Affinity generally refers to a sense of “kinship” or likeness based on characteristics
common to a specific group. Affinity fraud refers to investment scams that prey upon
members of identifiable groups, such as racial, religious and ethnic communities, the
elderly, professional groups, or other types of identifiable groups. The offenders who
promote affinity scams frequently are – or pretend to be – members of the group.
These offenders often enlist respected community or religious leaders from within the
group to spread the word about the scheme by convincing the leaders that a fraudulent
investment is legitimate and worthy of advancing the social and economic interests of
the group.
Once the leader has been convinced, the leader is used as the offender’s pawn to
convince his followers to invest with him or her because the offender is assumed to be
trustworthy. These scams exploit the special trust and friendships that exist in groups of
people who have something in common. The inherent trust individuals who belong to
specific groups with identifiable characteristics inure to others who belong to the same
group can be construed as strength because of the desire to rely on others by reducing the
amount of formality needed to attain certain goals. Unfortunately, the qualities of trust
and affinity that groups use to advance the economic and social well-being of their
members can be construed as a weakness to be exploited by those who may share these
traits. Offenders have ulterior motives of how to use these shared traits against those
who view them as strength. Relying on group trust is often so powerful in overcoming
people’s skepticism that both the financially unsophisticated and the seemingly
sophisticated fall victim to these scams.
Unfamiliar with how our financial markets work, too many people do not know
how to thoroughly research an investment and its salesperson. Affinity fraud poses a
danger since it undercuts the usual warnings about investment schemes promoted
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