Affinity fraud is when someone abuses membership or association with an identifiable group to convince a potential investor to trust the legitimacy of the investment. Common affinity groups include religion, ethnicity, profession, education, common handicaps, language, age and any other common likeness or shared characteristics that allow investors to trust members of the group.
Rather than trusting a person or company due to a common affiliation with a given group, investors should obtain and review a disclosure document that explains the investment opportunity, the background of the management, the amount of money to be raised, the intended use of the money raised, and all the risks associated with making an investment.
Upon receipt, investors should review all disclosures with an independent accountant, attorney, or investment professional to receive an unbiased opinion of the investment and the person offering the investment.
CONCERNS WITH RELYING ON AFFINITY
When a person relies on another person solely their affinity with another person due to their common ethnicity, profession, religion
Any person or company that seeks to pool investor money has likely created a security that must be:
In many cases, investment opportunities that fail to properly follow register their securities and offer those unregistered securities to Utah investors are in violation of other securities laws as well.
The Division’s website offers tools for investors to Check Out an Investment Opportunity.
A person who promotes an investment opportunity may or may not need to be licensed with the Utah Division of Securities or Securities and Exchange Commission (SEC). A promoter may need to be licensed as a broker-dealer, broker-dealer agent, or issuer agent if they are effecting the securities transaction for compensation. If the manager of the investment opportunity uses investor funds to make investments in other securities, the manager may need to be licensed as an investment adviser or investment adviser representative.
In many instances where affinity fraud takes place and violations of securities laws occur, if the investors had researched the licensing requirements and licensing of the company and its agents beforehand, they would have uncovered many of the problems prior to investing.
The Division’s website offers tools for investors to Verify a License.
When trust becomes a substitute for diligent research of an investment, investors often fail to ask the right questions and promoters of the investment fail to adequately disclosure information to investors.
Demand disclosure documents that explain the investment opportunity, the background of the management, the amount of money to be raised, the intended use of the money raised, and all the risks associated with making an investment. These disclosure documents should be substantial (30 to 60 pages) and should be offered to you well in advance so that you can review the document and make an informed investment decision. You should read the entire document and maintain a copy for your file.