INVESTOR ALERT

Affinity Fraud
The SEC’s Office of Investor Education and Advocacy is issuing How Does Affinity Fraud Work?
this Investor Alert to help educate investors about affinity
Fraudsters who carry out affinity scams frequently are
fraud, a type of investment scam that preys upon members of
(or pretend to be) members of the group they are trying
identifiable groups, such as religious or ethnic communities
to defraud. The group could be a religious group, such
or the elderly.
as a particular denomination or church. It could be an
ethnic group or an immigrant community. It could be
What is Affinity Fraud?
a racial minority. It could be members of a particular
Affinity fraud almost always involves either a fake workforce—even members of the military have been
investment or an investment where the fraudster lies targets of these frauds. Fraudsters target any group they
about important details (such as the risk of loss, the think they can convince to trust them with the group
track record of the investment, or the background of the members’ hard-earned savings.
promoter of the scheme). Many affinity frauds are Ponzi
or pyramid schemes, where money given to the promoter At its core, affinity fraud exploits the trust and friend-
by new investors is paid to earlier investors to create the ship that exist in groups of people who have something
illusion that the so-called investment is successful. This in common. Fraudsters use a number of methods to get
tricks new investors into investing in the scheme, and access to the group. A common way is by enlisting
lulls existing investors into believing their investments respected leaders from within the group to spread the
are safe. In reality, even if there really is an actual word about the scheme. Those leaders may not realize
investment, the investment typically makes little or no the “investment” is actually a scam, and they may become
profit. The fraudster simply takes new investors’ money unwitting victims of the fraud themselves.
for the fraudster’s own personal use, often using some
of it to pay off existing investors who may be growing Because of the tight-knit structure of many groups, it
suspicious. Eventually, when the supply of investor can be difficult for regulators or law enforcement officials
money dries up and current investors demand to be to detect an affinity scam. Victims often fail to notify
paid, the scheme collapses and investors discover that authorities or pursue legal remedies. Instead, they try to
most or all of their money is gone. 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.

Investor Assistance (800) 732-0330 www.investor.gov

How to Avoid Affinity Fraud n Be skeptical of any investment opportunity that
you can’t get in writing. Fraudsters often avoid
Here are a few tips to help you avoid becoming a victim of
putting things in writing. Avoid an investment if
an affinity fraud scam.
you are told they do not have time to put in writing
the particulars about the investment. You should also
n Even if you know the person making the investment
be suspicious if you are told to keep the investment
offer, be sure to research the person’s background,
opportunity confidential or a secret.
as well as the investment itself—no matter how
trustworthy the person who brings the investment
n Don’t be pressured or rushed into buying an
opportunity to your attention seems to be. Be aware
investment before you have a chance to research
that the person telling you about the investment may
the “opportunity.” Just because someone you know
have been fooled into believing that the investment is
made money, or claims to have made money, doesn’t
legitimate when it is not.
mean you will, too. Be especially skeptical of
investments that are pitched as “once-in-a-lifetime”
n Never make an investment based solely on the
opportunities, particularly when the salesperson
recommendation of a member of an organization
bases the recommendation on “inside” or confidential
or group to which you belong. This is especially
information.
true if the recommendation is made online. An
investment pitch made through an online group
of which you are a member, or on a chat room or
bulletin board catered to an interest you have, may
be a fraud.

n Do not fall for investments that promise

spectacular profits or “guaranteed” returns.
Similarly, be extremely leery of any investment that
is said to have no risks. Very few investments are
risk-free. Promises of quick and high profits, with
little or no risk, are classic warning signs of fraud.

Investor Assistance (800) 732-0330 www.investor.gov

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Recent Affinity Fraud Schemes laundry, juice bar, or gas station. Promoter also sold “sweep-
stakes machines” that he claimed would generate investor
The SEC’s Division of Enforcement regularly investigates
returns of as much as 300% or more in the first year.
and prosecutes affinity frauds targeting a wide spectrum
of groups. Here are examples of some recent cases.
SEC Charges Company and its Owners with Conducting
an Offering Fraud Targeting Christian Investors.
SEC Halts Pyramid Scheme Targeting Dominican and
Ponzi scheme promoters raised almost $6 million
Brazilian Immigrants.
from nearly 80 evangelical Christian investors through
The SEC obtained a Court order freezing millions of
fraudulent, unregistered offerings of stock and short-term,
dollars tied to a pyramid scheme that primarily targeted
high-yield promissory notes issued by their company,
Dominican and Brazilian immigrants, and also preyed
which was marketed as a voice-over-internet-protocol
upon Chinese, Vietnamese, and Haitian immigrant com-
video services provider around the world.
munities. The complaint alleged that the pyramid scheme
promoters falsely promised investors annual returns of
SEC Shuts Down Ponzi Scheme Targeting Persian-Jewish
200 percent or more in exchange for recruiting new
Community in Los Angeles.
participants and placing meaningless advertisements on
SEC obtained an emergency court order to halt an
free Internet ad sites for a purported multilevel marketing
ongoing $7.5 million Ponzi scheme that targeted
company selling telephone service based on “voice over
members of the Persian-Jewish community in Los Angeles.
Internet” (VoIP) technology.
The SEC’s complaint alleged that the promoter, himself
a member of the Persian-Jewish Los Angeles community,
SEC Charges Operators of Pyramid Scheme Targeting
raised funds from 11 investors and used nearly $1.6
Asian and Latino Communities.
million investor funds to buy jewelry, high-end cars, and
Pyramid scheme organizer used companies posing as
VIP tickets to sporting events. He lured investors with
multi-level marketing companies selling computer cloud
promises of exorbitant returns in purported pre-IPO
services to raise more than $65 million, primarily from
shares of well-known companies.
investors in Asian and Latino communities in the U.S.
and abroad. The defendants falsely promised investors
SEC Charges South Florida Man in Investment Fraud
a return of 100 percent or more in 100 days.
Scheme.
Fraudster raised nearly $11 million claiming returns as
SEC Charges Boiler Room Operators for Football-Related
high as 26%. He typically met and pitched prospective
Investment Scam Targeting Seniors.
investors over meals at expensive restaurants in and
Fraudsters used high-pressure sales tactics to lure seniors and
around Fort Lauderdale. His clients typically came to
other investors, misrepresenting that their money would be
him through word-of-mouth referrals among friends
invested in a company that was developing ground-breaking
and relatives. A significant number of the victims of his
technology for the National Football League to use in the
scheme were members of the gay community in Wilton
Super Bowl and falsely promising them guaranteed invest-
Manors, Florida.
ment returns. The boiler room operators took nearly all
investor funds for personal use and for payments to sales
SEC Charges Real Estate Developer in Miami Affinity Fraud.
agents they had hired to solicit investors.
Miami-based developer conducted an affinity fraud and
Ponzi scheme involving real estate investments that raised
SEC Charges Ponzi Scheme Promoter Targeting Primarily
$135 million from more than 400 investors, primarily
African-American Churchgoers.
from the South Florida Cuban exile community. Among
Ponzi scheme promoter sold promissory notes bearing
purported annual interest rates of 12% to 20%, telling other things, the developer paid existing investors with
primarily African-American investors that the funds would new investors’ funds and assigned the same real estate
be used to purchase and support small businesses such as a collateral to multiple investors.

Investor Assistance (800) 732-0330 www.investor.gov

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What Should You Do If You Suspect
Affinity Fraud?
If you think you may be aware of a possible affinity
fraud—or may have lost money in an affinity fraud—
please contact the SEC through the SEC Complaint
Center, http://www.sec.gov/complaint/select.shtml.
You can also contact your state’s securities administrator.
You can find links and addresses for your state regulator
by visiting the North American Securities Administrators
Association’s website, http://www.nasaa.org/about-us/
contact-us/contact-your-regulator/.

Additional Information
For additional educational information about affinity fraud, see our publication “Stopping Affinity Fraud
in Your Community” available here on Investor.gov, the SEC’s website for retail investors.

For more information about fraudulent investment schemes involving affinity fraud, review our Investor
Alerts available on Investor.gov: Beware of Pyramid Schemes Posing as Multi-Level Marketing Programs,
Investment Scams Exploit Immigrant Investor Program, and Social Media and Investing - Avoiding Fraud.

For information on investing generally, including how to help avoid fraud, visit Investor.gov or the Office
of Investor Education and Advocacy’s homepage on SEC.gov. You can also follow us on Twitter at
@SEC_Investor_Ed.

Finally, if you would like to speak directly with one of our staff about this or other investing issues, please
contact us toll-free at (800) 732-0330.

The Office of Investor Education and Advocacy has provided this information as a service to investors. It is neither
a legal interpretation nor a statement of SEC policy. If you have questions concerning the meaning or application
of a particular law or rule, please consult with an attorney who specializes in securities law.

SEC Pub. No. 167 (6/14)