2021-12-22 sec-litreleases pdf 678 KB 10,013 chars

SEC v. John Doe

raw: The SEC’s Office of Investor Education and Advocacy is

The SEC’s Office of Investor Education and Advocacy is, No. 7:21-CV-00238 (Dec. 22, 2021)

Caption
SEC v. John Doe
Exhibit of Marco "Sully" Perez and Permian Basin Proppants, Inc.
Source PDF JSON
summary

The SEC issued an investor alert regarding affinity fraud, highlighting enforcement actions against promoters who targeted religious and ethnic communities through Ponzi schemes.

paragraph

The SEC's bulletin details several recent enforcement actions, including a scheme targeting evangelical Christians that raised nearly $6 million through unregistered offerings. Other cited cases involve promoters targeting African-American churchgoers with promissory notes and sweepstakes machines promising returns up to 300%. The alert warns that these fraudsters exploit group trust to misappropriate funds for personal use.

narrative

The SEC’s Office of Investor Education and Advocacy issued an alert to educate the public on affinity fraud, a scam that exploits trust within religious, ethnic, or social groups. These schemes often take the form of Ponzi or pyramid structures where new investor funds are used to pay earlier participants to create an illusion of success. Recent enforcement examples include a $6 million fraud targeting evangelical Christians and a scheme targeting African-American churchgoers with high-interest promissory notes. The bulletin also references actions against frauds targeting the Persian-Jewish community in Los Angeles and the Cuban exile community. To avoid such scams, the SEC advises investors to research backgrounds, avoid promises of guaranteed high returns, and be skeptical of investments that cannot be put in writing. The agency continues to investigate and prosecute these fraudulent offerings to protect vulnerable communities.

Enriched metadata

Scheme
affinity-fraud (100%)
Case No.
7:21-CV-00238
Victim loss
$135,000,000
Victims
400
Classified affinity-fraud(confidence 100%). EDGAR detection: forms Form D· recall 58% / precision 2%. detection rule →
Parties
Securities and Exchange Commission
Keywords
affinity fraudinvestorsfraudinvestmentaffinityinvestorsecschememoneyponzi schemegroupcommunityinvestor educationeducation advocacyinvestor assistance

Extracted insights

Dollar amounts 7
  • $135.00M $135 million $100M–$1B
  • $11.00M $11 million $10M–$100M
  • $7.50M $7.5 million $1M–$10M
  • $6.00M $6 million $1M–$10M
  • $2.40M $2.4 million $1M–$10M
  • $1.60M $1.6 million $1M–$10M
  • $818K $817,500 $100K–$1M
Entities 21
  • person affinity fraud
  • person affinity frauds
  • company a number of methods to get access to the group
  • person earlier investors
  • person fake investment
  • person guaranteed returns
  • person important details
  • person investment pitch
  • person investment pitches
  • person investor alert
  • person legal remedies
  • person new investors
  • person no risks
  • person respected leaders
  • agency sec’s office of investor education and advocacy
  • agency the sec’s office of investor education and advocacy
  • person this investor alert
  • person those leaders
  • company within the group
  • unknown investment
  • unknown investments
Triples 200
  • SEC’s Office of Investor Education and Advocacy is issuing Investor Alert
  • affinity fraud preys upon members of identifiable groups
  • affinity fraud involves fake investment
  • fraudster lies about important details
  • affinity frauds are Ponzi or pyramid schemes
  • money is paid to earlier investors
  • fraudster takes new investors’ money
  • fraudster uses money for personal use
  • scheme collapses when supply of investor money dries up
  • investors discover most or all of their money is gone
  • Fraudsters are members of the group they are trying to defraud
  • Fraudsters target any group they think they can convince to trust them
  • affinity fraud exploits trust and friendship
  • Fraudsters enlist respected leaders
  • leaders spread the word about the scheme
  • leaders become unwitting victims of the fraud
  • regulators or law enforcement officials find it difficult to detect an affinity scam
  • Victims fail to notify authorities
  • Victims fail to pursue legal remedies
  • Victims try to work things out within the group
  • investor should research the person’s background
  • investor should research the investment itself
  • person may have been fooled into believing that the investment is legitimate
  • investor should not make an investment based solely on the recommendation of a member of an organization
  • investment pitch may be a fraud
  • investor should not fall for investments that promise spectacular profits
  • investor should be leery of any investment that is said to have no risks
  • Promises of quick and high profits are classic warning signs of fraud
  • The SEC’s Office of Investor Education and Advocacy issuing this Investor Alert
  • affinity fraud preys upon members of identifiable groups
  • affinity fraud involves either a fake investment or an investment where the fraudster lies about important details
  • affinity frauds are Ponzi or pyramid schemes
  • money is paid to earlier investors
  • the fraudster takes new investors’ money
  • the fraudster uses some of it to pay off existing investors
  • fraudsters target any group they think they can convince to trust them with the group members’ hard-earned savings
  • 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
  • fraudsters enlist respected leaders from within the group to spread the word about the scheme
  • those leaders may become unwitting victims of the fraud themselves
  • regulators or law enforcement officials find it difficult to detect an affinity scam
  • victims fail to notify authorities or pursue legal remedies
  • victims try to work things out within the group
  • fraudsters have used respected community or religious leaders to convince others to join the investment
  • the person making the investment offer should be researched the person’s background, as well as the investment itself
  • 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
  • investments promise spectacular profits or “guaranteed” returns
  • investments are said to have no risks
  • promises of quick and high profits are classic warning signs of fraud
  • SEC’s Office of Investor Education and Advocacy is issuing this Investor Alert to help educate investors about affinity fraud
  • affinity fraud preys upon members of identifiable groups such as religious or ethnic communities or the elderly
  • fraudsters lie about important details such as the risk of loss, the track record of the investment, or the background of the promoter
  • many affinity frauds are Ponzi or pyramid schemes
  • fraudsters take new investors’ money for the fraudster’s own personal use
  • fraudsters use some money to pay off existing investors who may be growing suspicious
  • fraudsters are or pretend to be members of the group they are trying to defraud
  • fraudsters target any group they think they can convince to trust them with the group members’ hard-earned savings
  • fraudsters use respected leaders from within the group to spread the word about the scheme
  • leaders may become unwitting victims of the fraud
  • victims fail to notify authorities or pursue legal remedies
  • investors should not make an investment based solely on the recommendation of a member of an organization or group
  • investors should not fall for investments that promise spectacular profits or guaranteed returns
  • investors should be extremely leery of any investment that is said to have no risks
  • SEC’s Office of Investor Education and Advocacy is issuing this Investor Alert to help educate investors about affinity fraud
  • affinity fraud preys upon members of identifiable groups such as religious or ethnic communities or the elderly
  • fraudsters lie about important details such as the risk of loss, the track record of the investment, or the background of the promoter
  • many affinity frauds are Ponzi or pyramid schemes
  • fraudsters take new investors’ money for the fraudster’s own personal use
  • fraudsters use some money to pay off existing investors who may be growing suspicious
  • fraudsters are or pretend to be members of the group they are trying to defraud
  • fraudsters target any group they think they can convince to trust them with the group members’ hard-earned savings
  • fraudsters use respected leaders from within the group to spread the word about the scheme
  • leaders may become unwitting victims of the fraud
  • victims fail to notify authorities or pursue legal remedies
  • investors should not make an investment based solely on the recommendation of a member of an organization or group
  • investors should avoid investments that promise spectacular profits or guaranteed returns
  • investors should be wary of any investment that is said to have no risks
  • SEC’s Office of Investor Education and Advocacy is issuing this Investor Alert to help educate investors about affinity fraud
  • affinity fraud preys upon members of identifiable groups such as religious or ethnic communities or the elderly
  • fraudsters lie about important details such as the risk of loss, the track record of the investment, or the background of the promoter
  • many affinity frauds are Ponzi or pyramid schemes
  • fraudsters take new investors’ money for their own personal use
  • fraudsters use some money to pay off existing investors who may be growing suspicious
  • fraudsters are or pretend to be members of the group they are trying to defraud
  • fraudsters target any group they think they can convince to trust them with the group members’ hard-earned savings
  • fraudsters use respected leaders from within the group to spread the word about the scheme
  • victims fail to notify authorities or pursue legal remedies
  • investors should not make investments based solely on the recommendation of a member of an organization or group
  • investors should avoid investments that promise spectacular profits or guaranteed returns
  • SEC’s Office of Investor Education and Advocacy is issuing this Investor Alert to help educate investors about affinity fraud
  • affinity fraud preys upon members of identifiable groups such as religious or ethnic communities or the elderly
  • fraudsters lie about important details such as the risk of loss, the track record of the investment, or the background of the promoter
  • many affinity frauds are Ponzi or pyramid schemes
  • fraudsters take new investors’ money for the fraudster’s own personal use
  • fraudsters use some money to pay off existing investors who may be growing suspicious
  • fraudsters are or pretend to be members of the group they are trying to defraud
  • fraudsters target any group they think they can convince to trust them with the group members’ hard-earned savings
  • fraudsters use respected leaders from within the group to spread the word about the scheme
  • leaders may become unwitting victims of the fraud
  • victims fail to notify authorities or pursue legal remedies
  • investors should not make an investment based solely on the recommendation of a member of an organization or group
  • investors should not fall for investments that promise spectacular profits or guaranteed returns
  • investors should be extremely leery of any investment that is said to have no risks
  • SEC’s Office of Investor Education and Advocacy is issuing this Investor Alert to help educate investors about affinity fraud
  • affinity fraud preys upon members of identifiable groups such as religious or ethnic communities or the elderly
  • fraudsters lie about important details such as the risk of loss, the track record of the investment, or the background of the promoter
  • many affinity frauds are Ponzi or pyramid schemes
  • fraudsters take new investors’ money for their own personal use
  • fraudsters use some money to pay off existing investors who may be growing suspicious
  • fraudsters are or pretend to be members of the group they are trying to defraud
  • fraudsters target any group they think they can convince to trust them with the group members’ hard-earned savings
  • fraudsters use respected leaders from within the group to spread the word about the scheme
  • leaders may become unwitting victims of the fraud
  • victims fail to notify authorities or pursue legal remedies
  • investors should not make an investment based solely on the recommendation of a member of an organization or group
  • investors should not fall for investments that promise spectacular profits or guaranteed returns
  • investors should be extremely leery of any investment that is said to have no risks
  • Affinity fraud preys upon members of identifiable groups such as religious or ethnic communities or the elderly
  • Fraudsters lie about important details such as the risk of loss, the track record of the investment, or the background of the promoter
  • Affinity frauds are Ponzi or pyramid schemes where new investors' money pays earlier investors
  • Fraudsters take new investors' money for personal use
  • Fraudsters use respected leaders within groups to spread word about the scheme
  • Fraudsters exploit trust and friendship among group members with common characteristics
  • Victims fail to notify authorities or pursue legal remedies
  • Investors should not make investments based solely on recommendations from group members
  • Investors should avoid investments promising spectacular profits or guaranteed returns with no risk
  • SEC’s Office of Investor Education and Advocacy is issuing this Investor Alert to help educate investors about affinity fraud
  • affinity fraud preys upon members of identifiable groups such as religious or ethnic communities or the elderly
  • fraudsters lie about important details such as the risk of loss, the track record of the investment, or the background of the promoter
  • many affinity frauds are Ponzi or pyramid schemes
  • fraudsters take new investors’ money for the fraudster’s own personal use
  • fraudsters use some money to pay off existing investors who may be growing suspicious
  • fraudsters are or pretend to be members of the group they are trying to defraud
  • fraudsters target any group they think they can convince to trust them with the group members’ hard-earned savings
  • fraudsters use respected leaders from within the group to spread the word about the scheme
  • leaders may become unwitting victims of the fraud
  • victims fail to notify authorities or pursue legal remedies
  • investors should not make an investment based solely on the recommendation of a member of an organization or group
  • investors should not fall for investments that promise spectacular profits or guaranteed returns
  • investors should be extremely leery of any investment that is said to have no risks
  • Affinity fraud preys upon members of identifiable groups such as religious or ethnic communities or the elderly
  • Fraudsters lie about important details such as the risk of loss, the track record of the investment, or the background of the promoter
  • Many affinity frauds are Ponzi or pyramid schemes where new investors' money pays earlier investors
  • Fraudsters take new investors' money for personal use
  • Fraudsters use respected leaders within groups to spread word about the scheme
  • Fraudsters exploit trust and friendship among group members with common characteristics
  • Victims fail to notify authorities or pursue legal remedies
  • Investors should not make investments based solely on recommendations from group members
  • Investors should avoid investments promising spectacular profits or guaranteed returns with no risk
  • SEC’s Office of Investor Education and Advocacy is issuing this Investor Alert to help educate investors about affinity fraud
  • affinity fraud preys upon members of identifiable groups such as religious or ethnic communities or the elderly
  • fraudsters lie about important details such as the risk of loss, the track record of the investment, or the background of the promoter
  • many affinity frauds are Ponzi or pyramid schemes
  • fraudsters take new investors’ money for the fraudster’s own personal use
  • fraudsters use some money to pay off existing investors who may be growing suspicious
  • fraudsters are or pretend to be members of the group they are trying to defraud
  • fraudsters target any group they think they can convince to trust them with the group members’ hard-earned savings
  • fraudsters use respected leaders from within the group to spread the word about the scheme
  • leaders may become unwitting victims of the fraud
  • victims fail to notify authorities or pursue legal remedies
  • investors should not make an investment based solely on the recommendation of a member of an organization or group
  • investors should not fall for investments that promise spectacular profits or guaranteed returns
  • investors should be extremely leery of any investment that is said to have no risks
  • SEC’s Office of Investor Education and Advocacy is issuing this Investor Alert to help educate investors about affinity fraud
  • affinity fraud preys upon members of identifiable groups such as religious or ethnic communities or the elderly
  • fraudsters lie about important details such as the risk of loss, the track record of the investment, or the background of the promoter
  • many affinity frauds are Ponzi or pyramid schemes
  • fraudsters take new investors’ money for the fraudster’s own personal use
  • fraudsters use respected leaders from within the group to spread the word about the scheme
  • fraudsters exploit the trust and friendship that exist in groups of people who have something in common
  • victims fail to notify authorities or pursue legal remedies
  • investors should not make investments based solely on the recommendation of a member of an organization or group
  • fraudsters promise spectacular profits or guaranteed returns
  • SEC’s Office of Investor Education and Advocacy is issuing this Investor Alert to help educate investors about affinity fraud
  • affinity fraud preys upon members of identifiable groups such as religious or ethnic communities or the elderly
  • fraudsters lie about important details such as the risk of loss, the track record of the investment, or the background of the promoter
  • many affinity frauds are Ponzi or pyramid schemes
  • money given to the promoter by new investors is paid to earlier investors to create the illusion that the so-called investment is successful
  • the fraudster takes new investors’ money for the fraudster’s own personal use
  • fraudsters are or pretend to be members of the group they are trying to defraud
  • fraudsters target any group they think they can convince to trust them with the group members’ hard-earned savings
  • fraudsters use respected leaders from within the group to spread the word about the scheme
  • victims fail to notify authorities or pursue legal remedies
  • investors should not make an investment based solely on the recommendation of a member of an organization or group
  • investment pitches may be a fraud when made through online groups, chat rooms, or bulletin boards
  • promises are classic warning signs of fraud when they promise spectacular profits or guaranteed returns
  • SEC’s Office of Investor Education and Advocacy is issuing this Investor Alert to help educate investors about affinity fraud
  • affinity fraud preys upon members of identifiable groups such as religious or ethnic communities or the elderly
  • fraudsters lie about important details such as the risk of loss, the track record of the investment, or the background of the promoter
  • many affinity frauds are Ponzi or pyramid schemes
  • money given to the promoter by new investors is paid to earlier investors to create the illusion that the so-called investment is successful
  • the fraudster takes new investors’ money for the fraudster’s own personal use
  • fraudsters are or pretend to be members of the group they are trying to defraud
  • fraudsters target any group they think they can convince to trust them with the group members’ hard-earned savings
  • fraudsters use respected leaders from within the group to spread the word about the scheme
  • victims fail to notify authorities or pursue legal remedies
  • investors should not make an investment based solely on the recommendation of a member of an organization or group
  • investment pitches may be a fraud when made through online groups, chat rooms, or bulletin boards
  • promises are classic warning signs of fraud when they promise spectacular profits or guaranteed returns
PDF
The SEC’s Office of Investor Education and Advocacy is · Source
Text layers
Extracted body text (10,013c) 

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
1

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 short-
term, high-yield promissory notes issued by their 
company, which was marketed as a voice-over-
internet-protocol video services provider around the 
world.   
SEC Shuts Down Ponzi Scheme Targeting Persian-
Jewish 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
2

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.    
2
Investor Assistance (800) 732-0330
 www.investor.gov
3

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 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.
September 2012
Investor Assistance (800) 732-0330
4
OCR text (11,320c · tika · 95% conf) 
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

1

http://www.sec.gov/answers/ponzi.htm
http://www.sec.gov/answers/pyramid.htm


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 short-
term, high-yield promissory notes issued by their 
company, which was marketed as a voice-over-
internet-protocol video services provider around the 
world.   

SEC Shuts Down Ponzi Scheme Targeting Persian-
Jewish 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

2

http://www.sec.gov/litigation/complaints/2012/comp22330.pdf
http://www.sec.gov/litigation/complaints/2012/comp22330.pdf
http://www.sec.gov/litigation/litreleases/2012/lr22348.htm
http://www.sec.gov/litigation/litreleases/2012/lr22348.htm
http://www.sec.gov/litigation/litreleases/2012/lr22348.htm
http://www.sec.gov/news/press/2012/2012-64.htm
http://www.sec.gov/news/press/2012/2012-64.htm


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.  

2
Investor Assistance (800) 732-0330  www.investor.gov

3

http://www.sec.gov/litigation/litreleases/2012/lr22319.htm
http://www.sec.gov/litigation/litreleases/2012/lr22319.htm
http://www.sec.gov/litigation/admin/2012/33-9301.pdf
http://www.sec.gov/litigation/admin/2012/33-9301.pdf
http://www.sec.gov/litigation/litreleases/2012/lr22318.htm
http://www.sec.gov/litigation/litreleases/2012/lr22318.htm
http://www.sec.gov/litigation/admin/2011/ia-3303.pdf
http://www.sec.gov/complaint.shtml
http://www.sec.gov/complaint.shtml
http://www.sec.gov/complaint/select.shtml
http://www.sec.gov/complaint/select.shtml
http://www.nasaa.org/about-us/contact-us/contact-your-regulator/
http://www.nasaa.org/about-us/contact-us/contact-your-regulator/


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 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.

September 2012Investor Assistance (800) 732-0330

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http://investor.gov/node/441
http://www.investor.gov/
http://www.sec.gov/investor.shtml
http://www.sec.gov/investor.shtml

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