Affinity fraud occurs when a thief targets members of an identifiable group, like a religious group, senior citizens or an ethnic community, and then relies on his or her connection with members of the group to perpetrate investment fraud.1 Affinity scams very often involve pyramid schemes, called Ponzi schemes, where new investor money is used to pay earlier investors, so the schemes appear successful. When there is no more new investor money, or the fraudster has spent what money there was, there is no money to pay out and the scheme collapses, leaving investors with nothing.
Affinity fraud relies on the trust and friendship that exists in groups of people and the fact that the scam will be kept secret within the tight-knit structure of many groups.2
Affinity fraud has been around for generations and occurs quite frequently.
The Bernie Madoff case may be one of the most recognized, but Ponzi schemes are still proliferating. The latest milestone case brought by the Securities and Exchange Commission (SEC) involved the host of a money management program on three radio stations in North Texas. William Neil Gallagher, age 80, known on the radio as the Money Doctor, pled guilty on August 31, and was sentenced to three life terms in prison plus an additional 30 years for a Ponzi scheme that defrauded elderly retirees of at least $23 million.3
According to the SEC complaint, Gallagher paid for air-time and hosted retirement planning shows on three Dallas-area radio stations of which one was a Christian radio station. He made frequent religious references on his radio shows and used a tagline, “See you in church on Sunday,” when advertising his firm, the Gallagher Financial Group, on Christian radio.
He targeted retired Christian investors according to the SEC and according to Lori Varnell, chief of the Tarrant County Criminal District Attorney’s Elder Financial Fraud team, “he worked his way around churches preying on people who believed he was a Christian.”4 Gallagher, the author of four books, including “Burning: Passionate Prayers for Men on Fire” and “Jesus Christ, Money Master” offered clients a path to financial stability and a better life through “personal responsibility” and “less government,” with “the help of God.”5
Gallagher has been committing investment fraud since at least December 2014, as he offered and sold securities, claiming to be a fully-licensed advisor offering retirement advice and investments, while not holding any valid securities-industry credentials. He promised investors that they would receive guaranteed, risk-free returns on their investments ranging from 5 to 8 percent annually.
Gallagher purchased no assets but spent investor funds on Ponzi payments to investors and also used investor funds for personal and company expenses. He generated phony account statements showing false account balances. He eventually exhausted all investor funds. In court testimony elderly victims told of having to sell homes, borrow money from their children and take part-time jobs after losing their money with Gallagher.
There are some red flags that a purported investment may be part of a Ponzi scheme, including a guarantee of a high return on your investment and the fact that the person selling you the investment is either unlicensed or unregistered as a broker.6
Overly consistent returns are also a warning of a potential scam, as investments rise and fall with market conditions. No one can guarantee that your investment will generate consistent returns because of this fact. To avoid affinity fraud research both the investment and the person offering the investment, even if that person is someone you trust or a trusted community member. Be especially careful if an investment is offered via social media, a chat room or any other online source. Promises of quick and high profits, with little or no risk, are classic warning signs of fraud according to the SEC.7
Get your investment details in writing. If the person offering the investment refuses or gives you an excuse for not providing the information in writing, don’t invest. Be wary of pressure tactics, forcing you to act quickly. Go at your own pace. Do your research and don’t fall victim to others urging you to act quickly on a once in a lifetime opportunity.
Take action to protect your rights by contacting an experienced investment fraud attorney. It is critical in establishing a legal strategy that is effective and protects investor rights. If you have questions about investment fraud, financial schemes, broker misconduct, or about your broker’s management of your account, please contact our Securities Fraud Law Firm located in Detroit.
Our securities attorneys have more than 20 years of experience in helping countless individuals recover from investment losses. Call for a Free Case Evaluation today.
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1 Affinity Fraud by Adam Hayes, 11/26/2021
Link: https://www.investopedia.com/terms/a/affinityfraud.asp
2 Affinity Fraud
Link: https://www.investor.gov/protect-your-investments/fraud/types-fraud/affinity-fraud
3,5 Texas Radio Host Who Bilked Listeners Out of Millions is Sentenced to Life by Maria Cramer, 11/2/2021
Link: https://www.nytimes.com/2021/11/02/us/william-neil-doc-gallagher-ponzi-scheme-sentenced.html
4 ‘Money Doctor’ Sentenced to 3 Life Terms for Ripping Off North Texans in Ponzi Scheme, 11/1/2021
Link: https://dfw.cbslocal.com/2021/11/01/william-neil-doc-gallagher-sentenced-life-terms-ripping-off-texans-ponzi-scheme/
6 Ponzi Schemes, Other Investment Fraud on Rise During Pandemic, SEC Says by Greg Iacurci, 12/15/2020
Link: https://www.cnbc.com/2020/12/15/ponzi-schemes-other-investment-fraud-on-rise-amid-pandemic-sec-says.html
7Investor Bulletin: Affinity Fraud, 9/26/2012
Link: https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins-68