Investor Bulletin: 

Affinity Fraud

The SEC’s Office of Investor Education and Advocacy is 

issuing this Investor Alert to help educate investors about 

affinity fraud, a type of investment scam that preys upon 

members of identifiable groups, such as religious or ethnic 

communities or the elderly.

What is Affinity Fraud?

Affinity fraud almost always involves either a fake 

investment or an investment where the fraudster lies 

about important details (such as the risk of loss, the 

track record of the investment, or the background of 

the promoter of the scheme). Many affinity frauds are 

Ponzi or pyramid schemes, where money given to the 

promoter by new investors is paid to earlier investors 

to create the illusion that the so-called investment is 

successful. This tricks new investors into investing in 

the scheme, and lulls existing investors into believing 

their investments are safe. In reality, even if there 

really is an actual investment, the investment typically 

makes little or no profit. The fraudster simply takes 

new investors’ money for the fraudster’s own personal 

use, often using some of it to pay off existing investors 

who may be growing suspicious. Eventually, when 

the supply of investor money dries up and current 

investors demand to be paid, the scheme collapses and 

investors discover that most or all of their money is 

gone.

How Does Affinity Fraud Work?

Fraudsters who carry out affinity scams frequently 

are (or pretend to be) members of the group they 

are trying to defraud. The group could be a religious 

group, such as a particular denomination or church. It 

could be an ethnic group or an immigrant community. 

It could be a racial minority. It could be members of 

a particular workforce – even members of the military 

have been targets of these frauds. Fraudsters target 

any group they think they can convince to trust them 

with the group members’ hard-earned savings.

At its core, affinity fraud exploits the trust and 

friendship that exist in groups of people who have 

something in common. Fraudsters use a number of 

methods to get access to the group. A common way 

is by enlisting respected leaders from within the group 

to spread the word about the scheme. Those leaders 

may not realize the “investment” is actually a scam, 

and they may become unwitting victims of the fraud 

themselves. 

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 legal remedies. Instead, 

they 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.

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

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How to Avoid Affinity Fraud

Here are a few tips to help you avoid affinity fraud.

Even if you know the person making the 

investment offer, be sure to research 

the person’s background, as well as the 

investment itself – no matter how trustworthy 

the person who brings the investment 

opportunity to your attention seems to be. 

Be aware that the person telling you about the 

investment may have been fooled into believing 

that the investment is legitimate when it is not. 

Never make an investment based solely on 

the recommendation of a member of an 

organization or group to which you belong. 

This is especially 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.

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. 

Be skeptical of any investment opportunity 

that you can’t get put in writing. Fraudsters 

often avoid putting things in writing. Avoid an 

investment if you are told they do “not have the 

time to put in writing” the particulars about 

the investment. You should also be suspicious if 

you are told to keep the investment opportunity 

confidential or a secret. 

Don’t be pressured or rushed into buying 

an investment before you have a chance 

to research the “opportunity.” Just because 

someone you know made money, or claims to 

have made money, doesn’t mean you will, too. Be 

especially skeptical of investments that are pitched 

as “once-in-a-lifetime” opportunities, particularly 

when the salesperson bases the recommendation on 

“inside” or confidential information. 

Recent Affinity Fraud Schemes

The SEC’s Division of Enforcement regularly 

investigates and prosecutes affinity frauds targeting a 

wide spectrum of groups. Here are examples of some 

recent cases. 

SEC Charges Ponzi Scheme Promoter Targeting 

Primarily African-American Churchgoers

Ponzi scheme promoter sold promissory notes bearing 

purported annual interest rates of 12% to 20%, 

telling primarily African-American investors that the 

funds would be used to purchase and support small 

businesses such as a laundry, juice bar, or gas station. 

Promoter also sold “sweepstakes machines” that he 

claimed would generate investor returns of as much as 

300% or more in the first year. 

SEC Charges Company and its Owners with 

Conducting an Offering Fraud Targeting Christian 

Investors

Ponzi scheme promoters raised almost $6 million 

from nearly 80 evangelical Christian investors through 

fraudulent, unregistered offerings of stock and shortterm, high-yield promissory notes issued by their 

company, which was marketed as a voice-overinternet-protocol video services provider around the 

world. 

SEC Shuts Down Ponzi Scheme Targeting PersianJewish Community in Los Angeles

SEC obtained an emergency court order to halt an 

ongoing $7.5 million Ponzi scheme that targeted 

members of the Persian-Jewish community in Los 

Angeles. The SEC’s complaint alleged that the 

promoter, himself a member of the Persian-Jewish Los 

Angeles community, raised funds from 11 investors and 

used nearly $1.6 million investor funds to buy jewelry, 

high-end cars, and VIP tickets to sporting events. He 

lured investors with promises of exorbitant returns in 

purported pre-IPO shares of well-known companies. 

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

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SEC Charges South Florida Man in Investment Fraud 

Scheme

Fraudster raised nearly $11 million claiming returns as 

high as 26%. He typically met and pitched prospective 

investors over meals at expensive restaurants in and 

around Fort Lauderdale.  His clients typically came to 

him through word-of-mouth referrals among friends 

and relatives.  A significant number of the victims of 

his scheme were members of the gay community in 

Wilton Manors, Florida.

SEC Halts Affinity Fraud Aimed at the Hispanic 

community

Defendants raised $817,500 from investors 

representing to them that their funds would be used to 

develop a financial services firm serving the Hispanic 

community. The promoter used a large part of the 

investors’ money to engage unsuccessfully in high risk 

“day-trading” of stocks, pay personal living, travel and 

entertainment expenses or make other, unexplained 

expenditures with no connection to the purported 

start-up business activities.

SEC Charges Real Estate Developer in Miami Affinity 

Fraud

Miami-based developer conducted an affinity fraud 

and ponzi scheme involving real estate investments 

that raised $135 million from more than 400 investors, 

primarily from the South Florida Cuban exile 

community. Among other things, the developer 

paid existing investors with new investors’ funds and 

assigned the same real estate collateral to multiple 

investors. 

SEC Halts Online Affinity Fraud

Fraudster raised at least $2.4 million from at least five 

individuals in 2008 and 2009. He offered and sold 

promissory notes and convinced investors to grant 

him trading authority over money contained in online 

brokerage accounts. While doing so, he misrepresented 

his intended use of the money, the risks of his trading, 

the source of the money used to pay the guaranteed 

fixed returns, and falsely guaranteed repayment of 

investors’ principal.

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. 

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

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Investor Assistance (800) 732-0330

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 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 tollfree 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.

Investor Assistance (800) 732-0330 September 2012

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