STOPPING

AFFINITY FRAUD

IN YOUR COMMUNITY

How to avoid investment scams 

that target groups
WHEN A FRIEND, FAMILY

MEMBER, OR CO-WORKER

ENCOURAGES YOU TO INVEST

YOUR MONEY IN AN

OPPORTUNITY GUARANTEED

TO PAY A RETURN OF 10%

OR MORE PER YEAR,

WHAT SHOULD YOU DO?
U.S. SECURITIES AND EXCHANGE COMMISSION | 1

The SEC’s Office of Investor Education and Advocacy 

(OIEA) presents this guide of key strategies for 

protecting yourself and your community from the 

potentially devastating impact of affinity fraud.

Affinity Fraud

Affinity fraud refers to investment scams that target 

identifiable groups, often religious or ethnic communities. 

The fraudsters who promote affinity fraud frequently 

are—or pretend to be—members of the group. They 

often enlist respected leaders from within the group to 

spread the word about the scheme, by convincing them 

that a fraudulent investment is legitimate and worthwhile. Many times, those leaders become unwitting 

victims of the fraud. Fraudsters also may use social 

media to promote an affinity fraud and encourage group 

members to use social media to share information about 

a so-called investment opportunity with others.

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 affinity fraud. 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 invest.
2 | STOPPING AFFINITY FRAUD IN YOUR COMMUNITY

Many affinity frauds are Ponzi or pyramid schemes, 

where new investor money is used to make payments 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, the fraudster almost always steals investor money for personal 

use. When the supply of investor money inevitably dries 

up and current investors demand to be paid, the scheme 

collapses and investors discover that most or all of their 

money is gone.

Targets of Affinity Fraud

Fraudsters target any group they think they can convince 

to trust them with the group members’ hard-earned 

savings. The SEC has investigated and brought enforcement action against affinity frauds targeting a wide spectrum of groups, including groups and communities with 

common ties based on:

• Ethnicity;

• Religion;

• Sexual orientation;

• Military service; and

• Age (seniors).
U.S. SECURITIES AND EXCHANGE COMMISSION | 3

How to Avoid Affinity Fraud

The key to avoiding affinity fraud is using independent 

information to evaluate financial opportunities rather 

than trusting the judgment of a friend, family member, 

or co-worker. Even if you know the person making an 

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.

n Always check the background of an investment 

professional.

Federal and state securities laws require investment 

professionals and their firms to be licensed or registered. 

Ask anyone offering you an investment if he or she is 

licensed and then check out the answer with an independent source by visiting Investor.gov or calling the SEC’s 

toll-free investor assistance line at (800) 732-0330. 

A few minutes of your time may save you from sending 

your money to a con artist, bad financial professional, or 

disreputable firm. 
4 | STOPPING AFFINITY FRAUD IN YOUR COMMUNITY

Be Alert to Common Persuasion Tactics

The “Phantom Riches” Tactic—dangling 

the prospect of wealth, enticing you with 

something you want but can’t have. “These 

gas wells are guaranteed to produce $6,800 

a month in income.”

The “Source Credibility” Tactic—trying to 

build credibility by claiming to be with a 

reputable firm or to have a special credential 

or experience. “Believe me, as a senior vice 

president of XYZ Firm, I would never sell an 

investment that doesn’t produce.”

The “Social Consensus” Tactic—leading 

you to believe that other savvy investors have 

already invested. “This is how ___ got his start. 

I know it’s a lot of money, but I’m in—and so is 

my mom and half her church—and it’s worth 

every dime.”

The “Reciprocity” Tactic—offering to do a 

small favor for you in return for a big favor. 

“I’ll give you a break on my commission if you 

buy now—half off.”

The “Scarcity” Tactic—creating a false sense 

of urgency by claiming limited supply. “There 

are only two units left, so I’d sign today if I 

were you.”

Source: FINRA Investor Education Foundation
U.S. SECURITIES AND EXCHANGE COMMISSION | 5

n Research the investment.

Any offer or sale of securities must be registered or 

exempt from registration. When an offering is unregistered, investors may not have access to key information 

about the company’s management, products, services, 

and finances that registration requires. Check whether 

an offering is registered with the SEC by using the SEC’s 

EDGAR database (www.sec.gov/edgar/searchedgar/

webusers.htm) or contacting the SEC’s toll-free investor 

assistance line at (800) 732-0330.

If an offering is not registered with the SEC, check if it 

is registered with your state securities regulator. Contact 

information for your state securities regulator is available 

on the North American Securities Administrators 

Association’s website (www.nasaa.org/aboutus/contact-us/contact-your-regulator/).

Always read an investment’s prospectus or disclosure 

statement carefully. If you don’t understand the investment and how it may make money, think twice about 

investing.

n Be skeptical of recommendations made online or 

through social media.

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 recommen-
6 | STOPPING AFFINITY FRAUD IN YOUR COMMUNITY

dation is made online or through social media. 

An investment pitch made through an online or social 

media group of which you are a member (or that caters 

to one of your interests) may be a fraud.

Comparing the Risks With the 

Potential Rewards

The potential for greater investment returns typically 

comes with greater risk. Understanding this crucial 

trade-off between risk and reward can help you separate 

legitimate opportunities from unlawful schemes. 

Many investment frauds are pitched as high return 

opportunities with little or no risk. Ignore these 

opportunities or, better yet, report them to the SEC.

Report Potential Affinity Fraud to the SEC

If you suspect that a so-called investment opportunity 

may be an affinity fraud – or think that you may have lost 

money in an affinity fraud – contact the SEC Complaint 

Center (www.sec.gov/complaint/select.shtml).
U.S. SECURITIES AND EXCHANGE COMMISSION | 7

“Too Good To Be True” Investment 

Opportunities

If you’re not sure if an investment opportunity 

is “too good to be true,” consider these rules 

of thumb: 

No risk means low investment returns. 

If you are offered a “no risk” investment 

opportunity, compare its potential return 

with a financial choice that is truly guaranteed, 

such as a federally insured savings account. 

If the potential return of the investment 

opportunity is significantly higher, it could 

be fraudulent or contain risks you haven’t 

considered. 

High potential investment returns 

typically means high risk. The stock market 

has produced large investment gains as well 

as huge losses from year to year. Any investment opportunity that guarantees you’ll get 

substantially more than the average return 

of the stock market likely is a fraud.

Promises of consistent double-digit 

investment returns are consistently frauds.

The value of investments tends to go up 

and down over time, particularly for investments that offer higher potential returns. 

For example, it’s rare for the stock market to 

return its historical average in any given year.
8 | STOPPING AFFINITY FRAUD IN YOUR COMMUNITY

How to Contact the SEC 

The SEC’s Office of Investor Education and Advocacy 

provides a variety of services and tools to address the 

problems and questions you may face as an investor. 

We cannot tell you what investments to make, but we 

can help you invest wisely and avoid fraud. Here is how 

you can reach us:

U.S. Securities and Exchange Commission

Office of Investor Education and Advocacy

100 F Street, NE

Washington, DC 20549-0213

Telephone: (800) 732-0330

Fax: (202) 772-9295

Email: help@sec.gov

Twitter: @SEC_Investor_Ed

Facebook: facebook.com/secinvestoreducation

Website: www.Investor.gov

Contact information for the SEC’s Regional Offices can be 

found at: www.sec.gov/contact/addresses.htm.

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. 177 (06/16)