Comrade or Con? Don't Let Military Connections Lower Your Defenses

What would you do if someone called you out of the blue and asked for $1,500? How about if you were asked to invest thousands of dollars in a speculative real estate deal? Or if a stranger offered to “straighten out your books” as a favor?  At the very least, these situations should raise all sorts of red flags.

But what if the perpetrator were wearing a uniform—a uniform like yours? Would you be more willing to listen and trust what you hear? Social scientists say yes. Over the years, studies have shown that people respond positively to others who share similar traits or belong to the same social groups, which is why businesses often use “affinity marketing” to promote their goods and services. Con criminals know this, too—and it’s called affinity fraud. 

Affinity Fraud Targets Servicemembers 

While fraudsters often target church congregations, immigrants or ethnic groups, military families are also vulnerable, especially if the fraudster is serving right beside you. From the first day of basic training, military culture instills esprit de corps and emphasizes trust. You are also likely to share a number of personal characteristics with others who serve with you—the same values, the same gender, the same age, the same haircut and the same pay grade, to name a few.

In one recent case, a Black Hawk helicopter pilot used bogus real estate investments to con fellow officers out of $125,000.  The pilot was court-martialed and was sentenced to nine months in jail and dismissal from the military. In another incident, a Navy veteran was able to convince a Long Island American Legion post that he was a financial advisor and offered to help straighten out the post's finances. Instead, he embezzled more than $50,000.  Ultimately he pleaded guilty to grand larceny in a county court.  And in yet a third case, an Army Staff Sergeant has been charged with running a Ponzi scheme and stealing half a million dollars from nearly 100 fellow soldiers, many of whom he served with in Iraq. This soldier is currently awaiting trial.

In all three cases the common bond, relationship or “affinity” between the parties was military service.  Many times, the victims of affinity fraud don't report the incident, hoping they can work it out within the social group. Other times, fraudsters recruit community leaders who become unwitting allies in the fraud and bring other members of the community into the scam. By the time the fraud is discovered, the con criminal often has moved on.  

Common Tactics 

A 2006 study funded by the FINRA Investor Education Foundation examined hundreds of undercover audiotapes of fraudsters pitching investment scams. The tapes revealed that fraudsters are masters of persuasion, tailoring their pitches to match the psychological profiles of their targets and bombarding them with a flurry of influence tactics, which can leave even the savviest person in a haze.

Some of the most common persuasion tactics used in investment fraud include: 

  • "Phantom Riches"—dangling the prospect of wealth, enticing you with something you want but can't have, such as risk-free, guaranteed returns.
  • "Source Credibility"—trying to build credibility by claiming to be with a reputable firm or to have a special credential or experience—or leveraging common connections to gain trust.
  • "Social Consensus"—leading you to believe that other savvy people are already participating or endorse the program, such as a commanding officer or your battle buddies.
  • "Reciprocity"—offering to do a small favor for you in return for a bigger favor—for example, free meal seminars.
  • "Scarcity"—creating a false sense of urgency by claiming limited supply or timeframe—“buy now” or “only one unit left. 

Source credibility—also called “authority”—and social consensus appear often in cases of affinity fraud. But the fact that other servicemembers might have invested in a certain product or opportunity does not mean the investment is right for you.  And, remember, credibility can be faked. In the cases above, for example, the helicopter pilot manufactured business documents, including phony statements and contracts, to make his scam look legitimate.  And the veteran lied about being a financial professional. 

If the persuasion tactics fraudsters use look familiar, it's because legitimate marketers use them, too. However, when we are not prepared to resist them, these tactics can work subliminally. Little wonder victims often say to regulators after they have been scammed, “I don’t know what I was thinking” or “I was caught off guard.” 

Risk Factors 

To better understand why some individuals are susceptible to investment fraud, in 2007 the FINRA Foundation funded additional research to identify investment fraud risk factors. Comparing a population of known investment fraud victims with the general population, the study found that victims tended to own high-risk investments that were not registered with the Securities and Exchange Commission.  They appeared more open to pitches, with three times as many victims attending free investment seminars than the national sample.  In addition, they were far more likely to rely primarily on advice from friends, family or co-workers when making investment decisions (70 percent of victims compared with one-third of the national sample).  

Protect Yourself 

Your first line of defense in resisting the persuasion tactics investment fraudsters commonly use is to understand them before you encounter them.  You don’t necessarily need to remember each by name—instead, focus on the emotions they trigger. You can practice identifying persuasion in action in your everyday life, especially when you see signs that say “while supplies last” or “limited time offer”—or when you hear “everyone is doing it.”

Your second line of defense is to ask questions—and independently verify the answers. Legitimate financial professionals must be properly licensed. And if they sell investments, their firm must be registered with FINRA, the Securities and Exchange Commission, or a state securities regulator—depending on the type of business the firm conducts. In addition, with very few exceptions, companies must register their securities with the SEC before they can sell securities to the public.

Before you give out information about yourself or invest a single dime, ask:

  • Are you and your firm registered with the SEC, FINRA or a state securities regulator?
  • Is this investment registered with the SEC or a state securities regulator?
  • How does this investment make money?

Regulators have resources to help:

If they say they are a... Check here...  
Broker FINRA BrokerCheck offers background, registration or licensing and disciplinary history of brokerage firms and brokers.
  State securities regulators oversee brokers doing business in your state.
Investment Adviser FINRA BrokerCheck offers registration status and disciplinary history of investment adviser firms and key personnel.
  SEC’s Investment Adviser Public Disclosure website offers registration status and disciplinary history of investment adviser firms and key personnel.
  State securities regulators oversee investment advisers doing business in your state.
Insurance Agent State insurance commissions oversee insurance agents doing business in your state.

And to check out whether an investment is registered, use the SEC's EDGAR database of company filings at or contact your state securities regulator.

More information is available on the common persuasion tactics criminals use and how to guard against them.