Tips to avoid becoming a fraud victim Published April 27, 2007 By Debora Whipple Office of the Attorney General, MCGUIRE AIR FORCE BASE, NJ. -- Affinity fraud. Know of it? It's a type of securities fraud associated with being a member of a group, such as belonging to a house of worship. However, affinity fraud involves a different kind of praying -- called "preying." It is a fraud that could sadly test one's faith in people. One definition found on the internet describes "affinity" as "a close connection marked by community of interests or similarity in nature or character ..." That definition provides the fundamental idea for one of the more commonly committed investment frauds used to scam victims. Affinity fraud occurs when a trusting, hopeful investor, the victim, connects with the fraudster -- the scam artist. 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, or appearing to belong, to the same place of worship, support group, charity, professional, cultural or ethnic group, coffee club or even through a veterans' organization. Religious groups, clubs or organizations are comprised of people, like most of us, who have something in common. Con artists pretending to be members of the groups, or who are members, can pretty much count on being trusted because of simply belonging to the same group. Scam artists count on this underlying trust because they know that for a member to distrust or be suspicious of a colleague, can go against what brought the group together in the first place. Affinity fraud is difficult to spot since members of a group usually trust other members. Scam artists can appear to be friends, acquaintances or people with the same agendas. Investors often speak of the scam artist with words of confidence such as, "He's such an honest guy. He's a good guy. He belongs to my church." When asked how they know this, the response usually goes something like, "He belongs to my group (club, church, card group.)" This translates into meaning, "He's trustworthy and honest." When an investor is warned that all signs that 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. We share the same interests and background, and I can make you money." An investigation of an affinity fraud was conducted by the New Jersey Bureau of Securities and it involved a scam carried out by Jan Lewandowski of J.R.D. Productions, best known for being the leader of a Polish polka band. Mr. Lewandowski exploited Polish Americans' desire to maintain a connection with their cultural heritage using opportunities presented at Polish festivals and concerts to seek investors. He also solicited individuals while they were on tours to Poland that he had organized. Mr. Lewandowski offered investors opportunities to purchase promissory notes issued by his companies, J.R.D. Productions and Jan Lewan Show Gifts, Inc. He presented a way for them to show their Polish pride by investing in "successful" businesses -- his. Mr. Lewandowski's shop, based in Hazelton, Pa., sold a range of imported goods from Poland including dolls, books and amber jewelry. Mr. Lewandowski also sold promissory notes to his customers. In exchange for a minimum investment of $2,000, investors were guaranteed returns of up to 20 percent. Almost to the end, Mr. Lewandowski continued to promise the "babcias" (the "grandmas") that their money was safe. However, it was not safe. The money was in Mr. Lewandowski's own accounts and used for his own personal expenses. There were 50 to 60 investors who lost their money by investing with Mr. Lewandowski. Mr. Lewandowski was always approachable. He was always prompt to return phone calls. He did nothing but reassure investors that everything was ok. Most investors were so confident that they rolled over their investment (principal and interest), but those who chose to receive interest payments, received a $10-or $12-check each quarter. Regardless of whether they rolled over their investment or took their profits out, the investors received regular account statements -- statements that were all fraudulent. Mr. Lewandowski was as creative with his music as he was with his finances -- everything was a fraud. When the Bureau of Securities brought suit against Mr. Lewandowski for securities fraud, he declared bankruptcy. The bureau ultimately got a $950,000 civil judgement against Mr. Lewandowski. Finally, in 2007, investors have begun to receive payments to partially compensate them for their losses. What does this type of story mean to the investor who wants to be savvy? Investors should know that with affinity fraud, the potential victims often include new arrivals to the United States, members of long-established minority groups and all types of religious groups. The "new arrivals" group could include members of the military not familiar with the new area in which they find themselves living. They can be seen as prime targets. Sometimes isolated from the surrounding community, their access to information is limited by language or other barriers. This isolation is often due to a lack of familiarity with the new surroundings, the lack of information for finding legitimate resources or even a language barrier can provide perfect situations for being victimized. Other victims include members of long-established minority groups who have worked years to accumulate savings and a certain standard of living. Often, these hard-working individuals want to give back to help others. This honorable gesture to do good provides a perfect set-up for con artists who share the same ethnic or cultural background but who are motivated by greed and want to benefit from someone else's hard work. Belonging to a house of worship, a temple, a church, a mosque or another group might provide the basis for a fraudulent claim of endorsement from the establishment. Investors have even complained about fraud and abuse by "born again" financial planners or givers of "divinely inspired" investment advice. Investors need to ask questions and should always be comfortable with reaching the state securities regulator (In New Jersey, the number is 1-866-I-INVEST) to get background information. Affinity fraud can be an easy money-making deal for the scam artist. Affinity fraud is not easily recognizable and since it is a fraud that comes under the disguise of a kinship or a friendship, it becomes even more clouded because the victim often questions himself and might feel badly about suspecting a friend. Scams can appear to be trustworthy opportunities even when seen as advertisements in religious oriented magazines, newspapers, cable television outlets or heard on radio stations. It is not the responsibility of the media to check the individual's compliance with securities regulators, it is the responsibility of the investor, the public. Everyone has access to checking with the state securities regulator to see if the investment, or the person selling the investment, is registered. Important stuff! It is the public's responsibility to check things out before getting involved. In New Jersey, the securities regulator is the N.J. Bureau of Securities, in the Office of the Attorney General. By calling the bureau of securities, a potential investor can check to be assured that the person or firm offering them investments or investment advice is registered to actually do business in the state. The public can obtain registration and disciplinary information on brokers and investment advisers by asking the bureau for something called a "CRD report." The Central Registration Depository is a national database used by state securities regulators that contains background information on registered representatives. By calling 1-866-I-INVEST, toll-free, and asking for the CRD report, members of the public can obtain the educational background, work history, disciplinary history and place of current employment of the individual they are considering have handle their money. A few tips on how to avoid becoming a victim of a scam: - 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 can be fraudulent and there are numerous situations where they show up. 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. Government agencies are in place to help protect the public, but the public has to use their services to obtain that protection. Call toll free, 1- 866- I - INVEST, to reach the bureau of securities before investing. Try it -- ask for a CRD report. For more information, visit the Web site www.njsecurities.gov to choose from several investing booklets that are downloadable. Questions can be e-mailed to askbureauofsecurities@lps.state.nj.us. The bureau does not make any recommendations for specific investments or referrals to broker-dealers, agents or investment advisers. The bureau also participates in educational workshops offered by the Family Support Center, Personal Financial Management Program. For more information on this and other services that McGuire can provide, call Erica Zeiger at (609) 754-5344.