The optics of fraud: affiliations that enhance offender credibility
| DOI | https://doi.org/10.1108/13590791211266359 |
| Pages | 355-370 |
| Published date | 05 October 2012 |
| Date | 05 October 2012 |
| Author | Frank S. Perri,Richard G. Brody |
| Subject Matter | Accounting & finance |
The optics of fraud: afïŹliations
that enhance offender credibility
Frank S. Perri
County of Winnebago, Winnebago, Illinois, USA, and
Richard G. Brody
Anderson School of Management, University of New Mexico, Albuquerque,
New Mexico, USA
Abstract
Purpose â The purpose of this paper is to illustrate how a ïŹnancial fraud practice, known as afïŹnity
fraud, relies on building trust with victims based on shared afïŹliations or characteristics such as age,
race, religion, ethnicity or professional designations, for the purpose of exploiting the trust factor for
ïŹnancial advantage.
Design/methodology/approach â Sources of information consisted of scholarly articles and
articles retrieved from the web.
Findings â Findings suggest that these fraud offenders rely on myriad 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 proïŹle.
Practical implications â Social institutions that include both for proïŹt and not for proïŹt should
consider evaluating their interactions with those who share similar characteristics and afïŹliations that
attempt to offer goods or services by considering some of the factors contained within this paper that
may dilute due diligence protocol.
Originality/value â 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 upon which these organizations rely.
Keywords Fraud, Crimes,Trust, AfïŹnity fraud, Ponzi scheme,Projection bias, White-collar crime
Paper type Research paper
Introduction
Securities regulators at the federal, state, and international level have expressed
concern about the dramatic growth of afïŹnity fraud, and since 1998 afïŹnity fraud has
been ranked one of the top ïŹve investment practices (Fairfax, 2002-2003; NASAA,
2011). Historically speaking, one nationwide survey found that between 1984 and 1989,
afïŹnity 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 afïŹnity fraud schemes
(Fairfax, 2002-2003). Recently, over the past several years, citizens of Utah alone who
that belong to faith-based organizations, have been defrauded through the practice of
afïŹnity fraud of more than $1.5 billion (Morgan, 2011).
Consider that every day, millions of individuals contribute their time, money and
goodwill to institutions that are established to beneïŹt not only the members of the
particular organization but the wider community as well. These organizations are
typically,but not exclusively, non-proïŹt andreligious organizations. In addition,there are
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The optics
of fraud
355
Journal of Financial Crime
Vol. 19 No. 4, 2012
pp. 355-370
qEmerald Group Publishing Limited
1359-0790
DOI 10.1108/13590791211266359
for-proïŹt organizationsthat attempt to utilize their shared characteristicsby establishing
bonds, an afïŹnity,with customers based on race, ethnicity, age, professionaldesignation,
or other characteristics.These organizations claim to be trustworthy and honest brokers
of their servicesbecause they share some of the characteristics listedabove. Often the fact
that a person or organizationshares similar characteristics to his or her targetaudience is
enough to make them appear more credible.
In this paper, the authors discuss the concept of afïŹnity fraud, the ease with which it
is perpetrated, and the difïŹculty fraud victims encounter in reconciling the âspecial
trustâ they believe they shared with this white-collar criminal. Furthermore, the
authors will debunk myths surrounding the afïŹnity offender behavioral proïŹle that
victims may subscribe to in order to illustrate how afïŹnity 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 conïŹrmed that afïŹnity 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 an d,
at times, ïŹnancially 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 use to manipulate their subjects to participate in their schemes.
AfïŹnity fraud
AfïŹnity generally refers to a sense of âkinshipâ or likeness based on characteristics
common to a speciïŹc group. AfïŹnity fraud refers to investment scams that prey upon
members of identiïŹable groups, such as racial, religious and ethnic communities, the
elderly, professional groups, or other types of identiïŹable groups. The offenders who
promote afïŹnity scams frequently are â or pretend to be â members of the group. These
offenders often enlist respected community or religiousleaders from within the group to
spread the word about the scheme by convincing the leadersthat a fraudulentinvestment
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 offenderâs 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 speciïŹc groups with identiïŹable characteristics inure to others who belong to the
same group can be construed as a 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 afïŹnity that groups use to advance the economic and social
well-being of its members can be construed as a weakness to be exploited by those that
may share those traits. Offenders have ulterior motives of how to use those shared
traits against those who view them as a strength. Relying on group trust is often so
powerful in overcoming peopleâs skepticism that both the ïŹnancially unsophisticated
and the seemingly sophisticated fall victim to these scams.
Unfamiliar with how our ïŹnancial markets work, too many people do not know how
to thoroughly research an investment and its salesperson. AfïŹnity fraud poses a danger
since it undercuts the usual warnings about investment schemes promoted by strange rs
(Reed, 2007). In these cases, fraudulent investments may come to oneâs attention as the
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