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Watch Out for Crypto Affinity Fraud

What is Affinity Fraud?

Affinity fraud is an investment scam that targets identifiable groups and communities with common ties such as ethnicity, religion, sexual orientation, military service, or age (seniors). Affinity fraudsters commonly are (or pretend to be) members of an affinity group. Affinity fraud almost always involves a fake investment and often involves Ponzi or pyramid schemes, where new investors’ funds are given to the promoter and the promoter uses new investors’ funds to pay earlier investors. This creates an illusion that the investment opportunity is successful.

Crypto Investments Involve Significant Risk and are Highly Volatile

Investments involving new technologies, such as crypto, are especially ripe for fraudsters who exploit the novelty of crypto to prey on unsuspecting victims. These scams often present an investment opportunity that has opaque ownership and/or complex control structures.

Even where fraud is not present, crypto investments can be volatile, illiquid, unpredictable, and the company holding your crypto assets may go bankrupt or may be using your funds in ways that are risky. Several crypto trading platforms have been the subject of major security hacks. Unlike money held in banks, there is no Federal Deposit Insurance Corporation (FDIC) insurance for crypto assets.  In addition, unlike many other investment options, crypto assets are not eligible for protection by the Securities Investor Protection Corporation (SIPC).

How Does Crypto Affinity Fraud Work?

Fraudsters often enlist respected leaders from within a particular group to spread the word about the crypto opportunity, convincing them the investment in crypto is legitimate and safe. Many times, these community leaders become victims of the scam. Fraudsters also use social media to promote the crypto investment and encourage investors to recruit new victims.

Look Out for High Pressure Sales Tactics

  • Phantom Riches Dangling the prospect of wealth, enticing you with something you want but can’t have. “Everyone is investing in crypto, and you don’t want to lose out on guaranteed money!” This strategy is also called FOMO—fear of missing out.
  • Source CredibilityTrying to build credibility by claiming to be with a reputable company or to have a special credential or experience. “Believe me, as president of XYZ company, I would never invest in a crypto platform that isn’t legitimate.” 
  • Social Consensus Leading you to believe that other savvy investors have already invested. “This is how Mary got her start investing in cryptocurrency. I know it’s a lot of money, but I invested, my mom, and half her church did too, so it’s worth the risk.”
  • ReciprocityOffering to do a small favor for you in return for a big favor. “I’ll give you a break on my commission if you invest now, half off just for you.”
  • ScarcityCreating a false sense of urgency by claiming limited supply. “There is only room for two more investors, so I’d invest today if I were you.”

 How to Avoid Crypto Affinity Fraud

Follow these tips to avoid becoming a victim of crypto affinity fraud:

  • Even if you know the person making the investment offer, be sure to research the person’s background as well as the crypto investment itself – no matter how trustworthy you believe the person to be. 
  • Be skeptical of investment opportunities where fraudsters avoid giving you written documents describing the crypto investment. If you do not understand how the crypto opportunity is structured and how it may make money, think twice about investing.
  • Never make a crypto investment based solely on the recommendation of a member of an organization or group to which you belong.
  • Do not feel pressured or rushed to act immediately for fear you might “miss out” on a crypto investment opportunity. Just because you know someone who made money or claims to have made money, that does not mean you will too. Check with federal and state regulators to make sure the investment is legitimate.
  • Do not be swayed by crypto recommendations made online or through social media, even if they’re endorsed by a well-known celebrity or public figure. 
  • Do not fall for crypto investments that promise high profits or guaranteed returns.
  • Be wary of any crypto opportunities that require investors to give cash only investments or recruit new investors. 

DFPI Crypto Scam Tracker

Check out the DFPI Crypto Scam Tracker to learn more about crypto-related complaints received by the DFPI and how to avoid crypto scams and fraud. The database is searchable by company name, scam type, or keywords. An accompanying glossary defines common scams and fraud schemes. The DFPI continually updates this tracker to promptly alert and protect the public as new crypto scams emerge.

Report Scams to DFPI

If you have been a victim of affinity fraud, or you learn about a scam that is not listed currently on the Crypto Scam Tracker, let us know immediately by filing a complaint or calling toll-free at (866) 275-2677.

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Last updated: Jun 27, 2023 @ 9:04 am