Ethnic communities vulnerable to affinity fraud


Mr. and Ms. Xu, a couple who immigrated to Canada in 2007 didn’t know that they were put into heavily leveraged investments until debt records of high interest payments suddenly appeared in their bank accounts.


 Xu contacted their bank immediately and was shocked to find that the interest had been accumulated from a $200,000 loan they made to purchase mutual funds.  Unable to recall that they’d ever authorized such a loan, they suddenly remembered that Mr. Zhang, a financial advisor had approached them in the church, promoting a leveraging investment strategy.


Leveraging to invest is a high risky investment, which requires a strong financial base to sustain losses. The couple clearly remembered that they had firmly rejected Zhang’s offer. Sensing deception, the Xu met with Zhang and asked about the unauthorized loan, but was told that the loan was a result from a miscommunication. Seeing that the couple insisted on pulling out, Zhang intimidated them with costs – including extra fees and heavy investment loss.


However, the Xu’s were unable to avoid the inevitable. The falling value of their investments, coupled with accumulating interest payments and taxes have put the Xu’s in financial distress, and led to a dispute with Zhang and his firm. As the dispute escalated, it eventually landed on the desk of OBSI, an agency that serves as a third-party mediator to settle investment disputes. But Xu’s efforts to seek compensation have only resulted in a partial recovery of their loss.


But Zhang was unable to escape the authorities. An MFDA’s investigation has found Zhang had forged client signatures, altered client’s financial information. As a result, his license was permanently revoked and he was fined $75,000 in penalties.


The Xu’s story is only a tip of the iceberg in a growing trend of affinity fraud in the ethnic community. According to the CSA (Canadian Securities Administrators) information, a growing number of individuals with a Chinese last name appear on the regulator’s list that has been thrown out of the profession for foul play.


Typically, newcomers lack trust in the government and authorities. Facing a slew of challenges in the adopted country, they tend to rely on their own community members for investment advice. This has provided a perfect opportunity for con artists. Exploiting the trust and friendship that exists in groups of people, these fraudsters have drawn countless victims from the ethnic communities.


The fraudsters involved in affinity scams often are – or pretend to be – members of the group. Affinity scams often involve “Ponzi” or pyramid schemes where new investor money is used to pay earlier investors, making it appear as if the investment is successful and legitimate.


Because of the tight-knit structure of the community groups, outsiders may not know about the affinity scam. Stymied by language barriers, ethnic victims may try to work things out within the group rather than notify authorities or pursue legal remedies.


There are many victims to Ponzi schemes in the community. Some of them have lost millions of dollars and even entire life savings, and are still facing a dire financial situation.

美国威斯康星州证券管理主任、NASAA投资顾问部主席Patricia Struck在早先接受《大中报》采访时曾表示:“如果有人向你提出的投资方案好得出奇,那么就有可能是诈骗。投资者应该事先了解以下问题:我的投资去向何处?为什么这一投资能够产生所承诺的回报?”

 “If something offered by an investment sounds too good to be true, then it is too good to be true. Investors should ask: Where will you put my money? How will the investment generate the promised rate of return?” Patricia Struck, Wisconsin Securities Administrator, who also serves as the chair of NASAA investment advisor section, told Chinese News in an early interview.


Even as Ponzi schemes start to collapse, victims of affinity fraud are slow to admit that they’ve been swindled, worried about looking foolish for being blinded by greed, which is why schemes are sustained for so long, and the financial damages are so severe.

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