Affinity fraud increasing among the elderly

by Alexis Young

Often at home alone, and happy to talk to anyone willing to stay on the phone with him, Dale Alexander was not about to pass up the opportunity to make an effortless $8,000. As it turns out, he was the victim of a wretched scheme.

Alexander’s case illustrates something prosecutors call “affinity fraud.” It is a scam that victimizes members of tight groups, such as religious or ethnic communities, professional organizations or the elderly into putting money toward a deceitful investment.

Utah has seen an increase in affinity fraud cases among the elderly. “The number of complaints coming into the Division of Securities has certainly increased during the economic downturn,” said Keith Woodwell, director of the Utah Division of Securities.

“The con artist made the investment seem worthwhile” by guaranteeing the money and claiming that it was only a limited-time offer, Alexander, 75, said. “He confessed he had a big wad of cash in hand, and it soon could be mine.”

Alexander had to meet the con artist within an hour at a local McDonald’s with $8,000 cash. If he made it within that time frame, the con artist would match the $8,000.

When they met, the con artist snatched the money and ran like the wind. “I should have never fallen for it in the first place, but I didn’t dare go after my money. I didn’t know if he had a gun,” Alexander said.

Affinity fraud targeting seniors has become a serious problem. Both federal and state laws have recognized this problem, and there are now enhanced penalties for con artists who target seniors and convince them to invest their retirement savings. During the time of an economic downturn, senior citizens want to ensure the future of their retirement.

“The recession has had a negative impact on the savings of many seniors, making them more vulnerable to con artists who prey on the fear of declining stock portfolios,” Woodwell said.

The large majority of fraud cases that the Division of Securities investigates involve some form of affinity fraud, or some kind of relationship between the perpetrator and the victim before the scam happens. Unfortunately, some affinity fraud cases do involve family members taking advantage of one another and the inherent trust involved in the family relationship.

“Older adults are notorious for scams, and family is most likely to scam each other,” said Scott Wright, director of the Gerontology Interdisciplinary Program at the Center on Aging at the University of Utah.

According to national estimates, only 1 in 10 cases of affinity fraud are reporte

“Numerous seniors remain quiet when they have been a victim,” Woodwell said. “No one likes to admit to themselves or others that they have been taken advantage of. This horror is perhaps even greater for seniors who do not want to be seen as incompetent of managing their own financial affairs.”

The Division of Securities actively publicizes all major cases and has an ongoing investor education program. The division organizes public service announcements and works alongside the media to help educate the public. On a regular basis, the division staff speak to various community groups about how to recognize and avoid affinity fraud. In addition, a statewide tour began in fall 2009 to help protect people against identity theft.

To avoid becoming an affinity fraud victim, the Division of Securities has straightforward advice.

“If an investment opportunity sounds too good to be true, it almost certainly is,” Woodwell said. “If you know someone through an existing social network, it is not a reason to invest with that person. You should check out an investment offer before you invest.”

The Division of Securities can help because it has access to national databases.  Staff check to see if the person making the offer is properly licensed as an investor and if he or she has a history of complaints or other problems.

Like Dale Alexander, many seniors are home alone and happy to talk to someone. The next thing they know, they are giving away financial information, only to be left penniless. If you believe you have been a victim of affinity fraud, contact the Division of Securities at (801) 530-6600 or file a complaint online.