by Kevin Kroskey, CFP®, MBA
You have likely seen the local headlines. An apparent $50 million investment fraud is unwinding in Northeast Ohio with a former high school basketball coach and self-proclaimed single-family real estate expert being accused of bilking investors in a Ponzi scheme. You probably think, “This can’t happen to me.” The victims likely felt the same but fell victim to fraud at the hands of someone they trusted. Learn common red flags and how to avoid them below.
Real Estate Affinity
Sadly, it’s a common theme. An individual who has earned the trust of a community uses that trust to commit and perpetuate fraud. This type of fraud, known as affinity fraud, tops the list of most used schemes.
Remember Bernie Madoff? He leveraged his Jewish faith to network within the Jewish community and at prominent Jewish country clubs in New York and Florida, decimating many wealthy community members and organizations.
A 2011 study investigating 329 major U.S. investment fraud cases discovered the most common affinity groups targeted were the elderly or retired, religious groups and ethnic groups. These three target groups accounted for 85% of all the affinity group cases in their study.
While affinity is an entry point, the supposed investment vehicles used are generally unregistered investment products, most commonly promissory notes or IOUs. These notes are usually linked to real estate because investors tend to feel comfortable investing in something they have…
