Understanding Affinity Fraud in Investment Scams
Affinity fraud refers to a deceptive practice wherein individuals place unwarranted trust in someone presenting an investment opportunity, often because that person shares a common background or affiliation, such as religion, family ties, or other group connections. Scammers exploit these relationships to gain the victim’s confidence before ultimately defrauding them.
Recent Case of Alleged Fraud in Colorado
The Colorado Division of Securities filed civil fraud charges in 2024 against Pastor Eli Regalado and his wife for their alleged involvement in the creation and promotion of a cryptocurrency named INDXcoin. The couple marketed this digital currency to members of Regalado’s online congregation, the Victorious Grace Church, using a cryptocurrency marketplace that they controlled from January 2022 until July 2023.
Manipulative Tactics Used by the Regalados
The Regalados leveraged their position within their church community to solicit investments, claiming that divine inspiration had led them to this venture. Investors were promised extraordinary returns, with Regalado declaring through YouTube videos that God had instructed him to sell the cryptocurrency, asserting it was both safe and lucrative. However, the investment turned out to be anything but secure.
Misuse of Investor Funds
According to Denver District Attorney John Walsh, approximately $1.3 million from 300 investors was misappropriated to finance the lavish lifestyles of the Regalados, which included home renovations, luxury goods, cosmetic procedures, and an expensive vehicle. They falsely promoted INDXcoin as a stable cryptocurrency, despite a cybersecurity audit revealing its severe deficiencies, rating it a dismal zero out of ten.
Collapse of the Kingdom Wealth Exchange
INDXcoin transactions were confined to the Kingdom Wealth Exchange, a platform the Regalados established, which was later shut down in November 2023. This left investors with tokens that held no market value, as they could no longer be traded or sold.
Legal Proceedings Against the Regalados
The Regalados faced civil fraud charges during a bench trial in May, where they represented themselves under Judge Heidi Kutcher in the Colorado District Court. Although a ruling on these civil charges is still pending, the couple has recently been indicted on forty criminal charges, including racketeering and securities fraud related to the same scheme. District Attorney Walsh emphasized the significance of these charges in seeking accountability for the Regalados’ actions and providing justice for the victims.
Lessons for Future Investors
This case serves as a crucial reminder for potential investors to conduct thorough due diligence before committing funds to any investment opportunity. It is advisable to verify the credentials of those offering investments through the Financial Industry Regulatory Authority’s (FINRA) Central Registration Depository, which can reveal if a broker is licensed or subject to any disciplinary actions. State securities regulation offices can also provide important information, as many investment advisers are required to register with state regulators rather than the SEC.
The Importance of Understanding Cryptocurrency Investments
When it comes to cryptocurrency investments, it is vital to only invest in opportunities that you fully comprehend. Many potential investors fall victim to complicated terminology and murky details that are intentionally designed to mislead. For additional information, the SEC’s investor education website offers valuable resources. Always remain vigilant, as scammers can present themselves convincingly, and it is crucial to ensure that any potential returns do not come at the expense of your hard-earned money. It is also prudent to avoid investing solely based on shared backgrounds, such as ethnicity or religion, as this can lead to increased susceptibility to fraud.
