On July 15, 2019, the SEC, through the investor.gov website, cautioned investors about scams that rely on having something in common with the victim. This scam is known as Affinity Fraud. How does this scam work?
According to Investor.gov. Affinity Fraud works by the scammer, pretending to be a member of a particular group. They also target a group they may already be a part for example race or religion. They do this to lure members of that group into their scam.
The scammers come into the group, use words that the group knows and uses. They enlist leaders in the group to endorse the scam or give the scammer credibility. Whether the leaders know they are taking part in fraud is debatable.
In an example of Affinity Fraud. Recently, the SEC filed charges against a former pastor Larry Leonard and his wife Shuwana Leonard. The SEC accused the couple of conducting a scam targeting the African American community. In the filing, the SEC states in section 2:
“Defendants perpetrated their fraud through three separate offerings. First, Larry Leonard, Shuwana Leonard, and Teshuater offered and sold worthless “stock certificates” that did not actually convey ownership interest in Teshuater. Larry Leonard also promised investors, who purchased Teshuater stock, short-term investment returns of up to 3,000%. Second, Larry Leonard, individually and on behalf of Teshuater, fraudulently sold “TeshuaCoins,” a purported cryptocurrency issued by Teshuater.”
How does this relate to Affinity Fraud? The Leonards promoted their alkaline water business to African Americans by telling their victims they were becoming involved with a black-owned company. Read more about the case here.
More and more, these scams have turned to social media and YouTube to cast a wider net. By now, the Fyre Festival has become widely known as a scam promoted on social media. Fyre used social media influencers, people who had a large following to promote the festival. They drew the victims of the fraud to the chance to mingle with their favorite influencer.
Scammers will come into a space during a time of growth. During the 2016-2017 crypto bull market, scams were rampant. These scams used buzzwords like “Bitcoin” and “Blockchain” to promote themselves online. YouTube was a popular format to spread these scams.
Various scams were exposed and shut down after the crypto market crash of 2018. But, many more remain. They were using the same tactics as before and using social media influencers, YouTube, and other social media platforms to spread.
So what can we do to protect ourselves from these scams? What can we look for to determine if you are being presented with a scam? Some ideas are:
- Does the person try to incite FOMO (Fear Of Missing Out) with claims of scarcity?
- Do they claim they will give a discount or break if you buy now
- Are they (the scammers) offering guaranteed returns?
- Do they claim to be an expert (trader, OG, miner) in the space?
- Do they name drop, claiming to know a leader in the space to build credibility?
This is only a sample of what questions to ask.
Use independent information to look into what is being offered. Also, research the person presenting the product or project. Do they have a history of being involved with scams or being accused of being involved with scams? Even if the accusation proved false, it should still send up caution flags.
One aspect of Bitcoin is that it is trustless. Trustless meaning it does not require a third party to facilitate the transaction. Unfortunately, trustless is not something we can associate with people, especially online.
Does this mean we can trust no one online? No, you can trust people but only do so after looking into them. Trust, but verify, especially if they are asking you to buy into something they are offering.
Finally, the crypto space should never forget Bitconnect. Bitconnect which was promoted on YouTube and social media in 2017.
Bitconnect is still a sore spot in the crypto space. On one side, there are the people who were scammed and do not admit ever investing. On the other side, the people who made money on the scam and promoted it and have either disappeared or try to rehabilitate their image. And in the center are those who tried to warn the community and outsiders of the danger.
With Affinity fraud, the scammers will move into the group and talk about Bitcoin and Blockchain Technology. As the conversation progresses, they will slowly slip in the discussion on this “new” crypto. This new crypto that does everything Bitcoin does, only better.
So we must always be on our guard and use critical thinking. Any investment or project that sounds to go to be true usually is.
About the author:
Jason Nelson writes and produces content related to Blockchain Technology, Cyber Security, and Privacy. He can be found across social media as @dragonwolftech and his official site is: cryptoinsightsjournal.com which also has a YouTube channel, Crypto Insights Journal.
“STOPPING AFFINITY FRAUD IN YOUR COMMUNITY How to Avoid Investment Scams That Target Groups.” n.d. https://www.investor.gov/sites/investorgov/files/2019-02/Affinity-Fraud_English.pdf
Teshuater, V. n.d. “COMPLAINT PAGE 1 OF 16 SEC.” https://www.sec.gov/litigation/complaints/2020/comp24787.pdf.