Consumers conned out of millions with affinity fraud

Tracy Coenen

The concept behind an affinity fraud scheme is simple: Gain the trust of a group of people with something in common and scam them out of lots of money. The "groups" are often based on ethnicity, immigrant status, religious affiliation, college alumni association, or something along the same lines. These groups of people are often very trusting of one another, and if a scammer can get an "in" with the group, it is often easy to convince them to part with their money.

This week, executives of WexTrust Capital LLC in Chicago were arrested and charged by the feds with conspiracy to commit securities fraud. They're accused of running a Ponzi scheme since at least 2005, which cost consumers about $255 million.

Most of the 1,200 people defrauded by this scheme were Orthodox Jews, fitting nicely into the framework of an affinity fraud. A Ponzi scheme (also called pyramid scheme) like the one this company is being accused of running collects money from participants, pretends to invest the money, and pays "investment returns" to participants with money collected from people who are newer "investors." There are little to no real investments, and the scheme relies on the continuous recruitment of new participants to generate money to pay the early "investors."