Con Watch: Affinity Fraud — Beware of Trusting the Trustworthy

Steve Weisman is a lawyer, college professor, author, and one of the country’s leading experts in cybersecurity, identity theft, and scams. See Steve’s other Con Watch articles.

Recently in Colorado, fraud charges were brought by the Colorado Division of Securities against Pastor Eli Regalado and his wife, who created a cryptocurrency called INDXcoin and sold it to members of their church through a cryptocurrency marketplace that they created and controlled.  The pastor said that God told him to do this and that God said it was a safe and profitable investment.

It wasn’t. More than a million dollars of investors’ money went to fund the couple’s extravagant lifestyle. Unfortunately for the investors, INDXcoin is worthless. His parishioners invested their money because they trusted him, and now they are left with nothing. They were victims of affinity fraud.

Affinity fraud is when people put undeserved trust in someone because that person is “someone like me.” Affinity fraud works because people trust others who may share a common bond, such as family, religion, or some other group affiliation. Scammers take advantage of every connection they can make with their victims to gain their trust and then steal their money. Most affinity fraud is typically in the form of investment scams.

Some other examples of affinity fraud include:

• The biggest scammer of them all, Bernie Madoff, who focused much of his attention on the Jewish community.
• Kay Yang, a Ponzi schemer who defrauded Hmong-American investors out of $16.5 million. The Hmong are an ethnic group native to China and Southeast Asia. Yang, an investment advisor, told her victims that she would invest their funds in stocks and foreign currencies, but instead used most of it to fund her own lavish lifestyle.
• Philip Elvin Riehl, who operated a $60 million Ponzi scheme targeting members of the Mennonite and Amish communities.
• Robert L. Murray, a former Naval officer who was charged in May of 2022 with perpetrating an investment scam aimed at Navy veterans and active-duty sailors in 14 states.
• Cedric Dewayne Griffin, who was charged in May of 2023 with operating a Ponzi scheme targeting members of the African American community in Florida.
• Caz L. Craffy, a former Army financial counselor who was charged in July of running an investment scam whose victims were Gold Star family members.
• Keith Crews, who was charged in August of 2023 with an investment scam focused on African American church goers.
• Tilila Walker Sumchai, who was charged in September of 2023 with operating a Ponzi scheme preying upon the Tongan American community.
• Monise Francois Bien Aime, who was charged in September of 2023 with a Ponzi investment scam targeting fellow Haitians.

These scammers count on you trusting them enough to skip looking too deeply into their get-rich-quick promises. Before investing with anyone, you should investigate the person offering to sell you the investment with the Securities and Exchange Commission’s Central Registration Depository.  This will tell you if the broker is licensed and if there have been disciplinary procedures against them. You can also check with your own state’s securities regulation office for similar information. Many investment advisers will not be required to register with the SEC, but are required to register with your individual state’s securities regulators. You can find your state’s agency at the North American Securities Administrators Association. You should also check with the Financial Industry Regulatory Authority (FINRA) for information about the particular investment adviser.

It is also important to remember that you should never invest in something that you do not completely understand. This was a mistake that many of Bernie Madoff’s victims made. You also may want to check out the SEC’s investor education website at www.investor.gov.

Having the same person advise the investment and control the investment is a common thread among Ponzi schemers because it enables them to falsify documents to make the investment look profitable. For additional security it is desirable to have a separate broker-dealer act as custodian for investments chosen by your investment adviser.

As for cryptocurrency investing, these scams quite often involve complicated language and investment terms that are purposefully unclear in an effort to confuse potential investors from understanding the real facts.

Affinity scammers can be very convincing — they are, after all, someone who you thought you could trust — and it may sound like a great opportunity to make some money, but you must be careful that the person promising to make the money is not the scam artist taking yours. Investing with someone merely because you share the same heritage, nationality, religion, or any other affinity is something you should avoid.