Affinity fraud: When is faith put to the test Published Aug. 20, 2010 By Debora Whipple Office of the Attorney General NJ Bureau of Securities Investor Education Director NEWARK, N.J. -- Affinity fraud is a type of securities fraud associated with being a member of a group or organization. It is a fraud that could sadly test one's faith in people. A scam artist commits affinity fraud by preying on a victim who is affiliated with a group or organization. The contact is made through relationships carefully developed by belonging to, or appearing to belong to, shared interests or groups. These might include religious groups, support groups, charities, professional, cultural or ethnic groups, a small coffee club or even your basketball team. There have even been cases where military retirees have used their past association as a way to scam those serving on active duty. Truly! Religious groups, clubs or organizations are comprised of people who have something in common. Con artists can pretty much count on being trusted because of simply belonging to the same group. Affinity fraud is difficult to spot since group members usually place a certain level of trust in other members. Scam artists can appear to be friends or professional allies having similar agendas. Investors who became victims often speak of the scam artist with words of confidence, such as "He was such an honest guy. He was a good guy." Even when an investor is warned all signs indicate a scam might be taking place, it can be difficult for a victim to accept that idea about someone who has seemingly become a friend. "You can trust me," says the con artist, "because I'm like you." One of the many investigations conducted by the New Jersey Bureau of Securities involved a scam that fell into the category of an affinity fraud. It was carried out by Jan Lewandowski, best known for being the leader of a Polish polka band. Not too threatening, right? Wrong. Lewandowski exploited Polish Americans' desire to maintain a connection with their cultural heritage, seeking investors while he was involved with Polish festivals and concerts. He also solicited individuals while they were on tours to Poland that he had organized. Lewandowski offered investors opportunities to purchase promissory notes issued by his companies, J.R.D. Productions and Jan Lewan Show Gifts, Inc. Lewandowski's shop, based in Hazelton, Pa., sold a range of imported goods from Poland, including dolls, books and amber jewelry. In exchange for a minimum investment of $2,000, investors were guaranteed returns of up to 20 percent. Almost to the end, Lewandowski continued to promise the "babcias" (the "grandmas") that their money was safe. However, it was not safe. The money was placed in Lewandowski's own accounts and used for his own personal expenses. This scam involved about 50 to 60 investors who lost their money investing with Lewandowski, who was always approachable and prompt to return phone calls. He did nothing but reassure investors that everything was okay. Most investors were so confident that they rolled over (reinvested) their investment dollars, back into his companies. Those who chose to receive interest payments received a check each quarter. Regardless of whether they rolled over their investment or took their profits out, the investors received regular account statements but did not know the statements were fraudulent. When the Bureau of Securities brought suit against Lewandowski for securities fraud, he declared bankruptcy. The Bureau ultimately got a $950,000 civil judgment against Lewandowski. What does this type of story mean to the investor who thinks he is safe and savvy? Well, investors should know affinity fraud victims often are educated professionals, those who are socially active (this helps the scam artist because you wind up telling your friends and spread the scam, unknowingly making your friends victims) and those who have money or a steady job - like you, our military men and women. The list of potential victims also includes new arrivals to the United States, members of long-established minority groups, all types of religious groups and you, our dear military. Note that the "new arrivals" group can include members of the military not familiar with the new area in which they find themselves living. They can be seen as prime targets since they are sometimes isolated from the surrounding community and their access to information may be limited by language or other barriers. This can create the perfect situation for being victimized even by members of your own group. Affinity fraud can be an easy money-making deal for the scam artist. It is not easily recognizable and since it is a fraud that comes under the disguise of a kinship, it becomes even more clouded because the victim often questions himself and might feel badly about his suspicions. Scams can appear to be trusted opportunities, especially when seen as advertisements in religious-oriented magazines, newspapers, cable television outlets or when heard on radio stations. The media has no responsibility to check the individual's legitimacy. It is, however, ultimately the responsibility of the investor. Everyone is able to check with the state securities regulator to see if the investment, or the person selling the investment, is registered and if they did anything wrong in the past that should be considered before working with them. Important stuff! How do you prevent being a victim? In New Jersey, the securities regulator is the New Jersey Bureau of Securities of the Office of the Attorney General. By calling the Bureau, you can check on the person or firm offering investments or investment advice and make sure they are registered to do business in the state. You can obtain information by calling the Bureau and asking for a "CRD report." The Central Registration Depository is a national database used by all state securities regulators that contains background information on registered representatives. Just by calling the Bureau of Securities toll-free at 1-866-I-INVEST and asking for the CRD report, you can obtain the educational background, work history, disciplinary history and place of current employment of the individual you are considering having handle your money. All of that is free and confidential, so the person you are checking does not know. A few tips on how to avoid becoming a victim of an affinity fraud: - Be wary of any investment that seems closely tied to a particular religious belief. - Be cautious if the promoter of an investment opportunity tries to capitalize on connections or leadership within a religious group. - Be wary of a new member who shows up with a sure-fire simple investment scheme. Find out about their background, if any, with the group. - Ignore false claims that religion-based investments or some other "opportunities" do not have to be regulated. Call 1-866-I-INVEST and check the investment and the person selling the investment, too. - Remember: written documents and websites can be fraudulent. The safest way to be sure that you are dealing with who you think you are dealing with is to call the Bureau of Securities and ask them for the free information contained in a CRD report. - Notify the Bureau of Securities if you think you have been scammed. Often investors don't notify authorities even after they recognize the scam and instead try to solve it within the group. Sometimes it's because they feel embarrassed or because of the loyalty angle that scam artists count on. For more information, visit the website www.njsecurities.gov to choose from several downloadable investing booklets. Questions can also be e-mailed to askbureauofsecurities@lps.state.nj.us. The Bureau also works closely with the JB MDL Warfighter and Family Readiness Center. For information about WFRC programs and services, call 754-3154. The Bureau does not make any recommendations for specific investments or referrals to broker-dealers, agents or investment advisers.