The United States Securities and Exchange Commission defines affinity fraud as follows:
Affinity fraud refers to investment scams that prey upon members of identifiable groups, such as religious or ethnic communities, the elderly, or professional groups. The fraudsters who promote affinity scams frequently are — or pretend to be — members of the group. They often enlist respected community or religious leaders from within the group to spread the word about the scheme by convincing those people that a fraudulent investment is legitimate and worthwhile. Many times, those leaders become unwitting victims of the fraudster's ruse.
These scams exploit the trust and friendship that exist in groups of people who have something in common. Because of the tight-knit structure of many groups, it can be difficult for regulators or law enforcement officials to detect an affinity scam. Victims often fail to notify authorities or pursue their legal remedies, and instead try to work things out within the group. This is particularly true where the fraudsters have used respected community or religious leaders to convince others to join the investment.
Some members of The Church of Jesus Christ of Latter-day Saints, like members of other faiths and close-knit communities, have in the past fallen victim to this type of fraud. Sometimes the perpetrators are their fellow Church members. Members of The Church of Jesus Christ of Latter-day Saints are taught to be honest in their dealings with others, and those who are guilty of carrying out these scams can be given the most serious discipline the Church can impose, including excommunication. Because some dishonest individuals have used affinity fraud to prey upon members of their own faith groups, leaders of The Church of Jesus Christ of Latter-day Saints have warned Church members plainly and frequently to beware of these types of scams.
In February of 2008 the First Presidency of The Church of Jesus Christ of Latter-day Saints issued a letter to be read in all its congregations in the United States and Canada, which stated:
Reports of fraud schemes and unwise investments prompt us to again counsel members with respect to prudence in managing one’s financial affairs.
We are concerned that some Church members ignore the oft-repeated direction to prepare and live within a budget, avoid consumer debt, and to save against a time of need. Consideration should also be given to investing wisely with responsible and established financial institutions. We are also concerned that there are those who use relationships of trust to promote risky or even fraudulent investment and business schemes.
While all investments carry an element of risk, that risk can be managed by following sound and proven financial principles: first, avoid unnecessary debt, especially consumer debt; second, before investing, seek advice from a qualified and licensed financial advisor; and third, be wise.
We encourage leaders to regularly teach and reemphasize these principles.
Additionally, Church leaders in other settings, including local congregations, have continually warned Church members over the years about the dangers of risky investments and fraud.