Enforcement News: Affinity Fraud on U.S. Naval Personnel

By: Jeffrey M. Haber

Affinity fraud is a form of financial fraud that relies on social connections and trust. It most often occurs within identifiable groups, such as religious congregations, cultural or ethnic communities, professional networks, or social organizations, where members share common values, experiences, or identities. Rather than approaching targets as strangers, those promoting the scheme position themselves as insiders, using familiarity and perceived credibility to create comfort and reduce skepticism.

In many cases, affinity fraud begins with what appears to be a legitimate opportunity. The investment or business venture is typically described as low‑risk and reliable, sometimes with returns that appear to be guaranteed. Details may be presented in broad or technical terms that discourage deeper questioning, and potential participants are often reassured that others within the community have already taken part. Because the offer is communicated through trusted channels, such as friends, colleagues, or respected community figures, individuals may rely more on personal trust than independent verification.

As participation grows, the scheme often spreads through informal referrals rather than public advertising. Some affinity frauds are later revealed to be Ponzi or pyramid schemes, where returns paid to earlier participants are funded by money from newer ones rather than genuine profits. These structures can persist for extended periods, particularly when community members are reluctant to question or report someone they know personally. In some cases, individuals who promote the opportunity are unaware that they are participating in a fraudulent scheme themselves.

The effects of affinity fraud extend beyond financial loss. Because the deception operates within trusted social networks, its discovery can strain relationships and create lasting tension within a community. Individuals may feel embarrassed, conflicted, or hesitant to speak openly about their experience. This dynamic can delay detection and complicate efforts to address the situation once concerns arise.

Securities and Exchange Commission v. Robert L. Murray, Jr.

On May 4, 2026, the United States District Court for the Northern District of Illinois entered a final judgment as to Robert L. Murray, Jr., a former U.S. Navy chief petty officer, in connection with the SEC’s enforcement action against Murray for allegedly engaging in a fraudulent investment scheme that used Facebook to target U.S. Navy active duty service members, veterans, and reservists.[1]

According to the SEC’s complaint, defendant, a retired U.S. Navy Chief, operated an unregistered investment fund and investment advisory business through an entity known as Deep Dive Strategies, LLC (“DDS” or the “Fund”), and raised investor capital through material misrepresentations and omissions.

According to the SEC, from approximately September 2020 through January 2022, defendant solicited investments in DDS from individuals throughout the United States, many of whom were active‑duty servicemembers, veterans, or otherwise affiliated with the U.S. Navy. The SEC alleged that defendant used his military background and social media presence within Navy‑affiliated investing communities to establish credibility and attract investors. In total, defendant allegedly raised approximately $354,800 from about 44 investors located in at least 14 states, including investors serving overseas.

DDS was organized as a limited liability company in Ohio in September 2020. Defendant was the Fund’s sole managing member, controlled its bank and brokerage accounts, and made all investment decisions. Investors purchased membership interests in the Fund at $5,000 per unit. The SEC said that defendant provided some investors with an operating agreement and disclosure statement, which represented that DDS would pool investor funds and trade in publicly traded securities for the benefit of its members. The offering materials further disclosed that defendant would receive a two percent annual administrative fee and a twenty percent share of trading profits, but would not earn profits in years when the Fund incurred losses.

The SEC alleged that both written and oral representations to investors stated that their funds would be used exclusively for securities trading and payment of disclosed Fund expenses. Investors were allegedly told that at the end of the 2021 calendar year, after a one‑year investment period, they could request redemption of their investment, net of profits or losses, and that redemption requests would be honored within fifteen days. According to the SEC, investors exercised no control over investment decisions, which were made solely by defendant, and defendant acted as an investment adviser to the Fund.

The SEC alleged that defendant’s representations concerning the use of investor funds were false and misleading. While some Fund assets were initially used to trade securities, defendant allegedly began misappropriating investor funds almost immediately after receiving them. The SEC claimed that defendant transferred substantial amounts of Fund money to his personal bank accounts, withdrew large sums in cash, and used investor funds to pay personal expenses unrelated to Fund operations.

The SEC further alleged that defendant’s securities trading activity on behalf of DDS was brief and unsuccessful. According to the complaint, DDS suffered substantial trading losses in January 2021, including losses associated with highly speculative options trading. By late January 2021, nearly all trading capital had been lost, said the SEC. Defendant allegedly made no further trades after January 23, 2021, and withdrew the remaining balance from the Fund’s brokerage account in early February 2021.

Despite the cessation of trading activities, the SEC alleged that defendant continued to solicit and accept investor funds through February 2021. These additional funds were not deposited into the brokerage account or used for securities trading but instead were allegedly misappropriated. In total, the SEC claimed that defendant misappropriated approximately $148,000 of investor funds, representing nearly 42 percent of the capital raised, after accounting for permitted administrative fees.

The SEC also alleged that defendant failed to provide investors with meaningful accounting information and gradually reduced communication with them beginning in March 2021. When some investors sought redemptions in accordance with the offering materials, defendant allegedly failed to return any funds. Although defendant reportedly told investors in August 2021 that he intended to wind down the Fund and return remaining assets, no such distributions were made.

The SEC alleged that defendant never filed a registration statement with respect to the offer and sale of securities in DDS and did not qualify for an exemption from registration. The SEC further alleged that defendant used interstate commerce and the mails to conduct the offering through social media platforms, electronic communications, and bank transfers.

Based on the foregoing allegations, the SEC asserted claims for violations of the antifraud provisions of the Securities Act of 1933 (“Securities Act”) and the Securities Exchange Act of 1934 (“Exchange Act”), including Section 10(b) and Rule 10b‑5, as well as violations of Sections 17(a)(1), (2), and (3) of the Securities Act. The SEC also alleged violations of the registration provisions of Sections 5(a) and 5(c) of the Securities Act. In addition, the SEC asserted claims under Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 (“Investment Advisors Act”), alleging that defendant engaged in fraudulent and deceptive conduct while acting as an investment adviser to a pooled investment vehicle.

The final judgment permanently enjoins defendant from violating Sections 5(a), 5(c), and 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act, and orders him to pay disgorgement in the amount of $112,271.71, which is to be deemed satisfied by the order of restitution entered against him in United States v. Murray, No. 22-cr-643 (N.D. Ill.), a parallel criminal matter.

Takeaway

The SEC’s enforcement action demonstrates how investment fraud can operate within trusted communities. The case shows that affinity fraud is defined not by the investment product, but by how shared identity and trust are used to attract and retain investors.

Defendant, a retired U.S. Navy Chief, marketed an unregistered investment fund primarily to Navy servicemembers, veterans, and reservists through military‑focused social media groups. By emphasizing his military background and insider status, he leveraged the trust associated with shared service and rank. That reliance on military identity as a credibility tool is a central characteristic of affinity fraud.

The investment was presented as legitimate and structured, complete with offering documents, stated fees, and redemption rights. Investors were told their money would be pooled and used solely for securities trading. In reality, trading activity was brief, highly speculative, and unsuccessful, and a substantial portion of investor funds was diverted to personal use. Promised transparency and redemptions never materialized, and communication with investors diminished as losses mounted.

The enforcement action and judgment highlights how affinity fraud often overlaps with traditional securities violations. The conduct alleged included unregistered securities offerings, adviser fraud, material misrepresentations, and misappropriation of funds. Affinity fraud did not replace these violations; it amplified their impact by increasing investor reliance on trust rather than verification.

The judgment, which imposed permanent injunctions and disgorgement, reinforces several lessons: shared background is not a substitute for due diligence; centralized control without oversight increases risk; lack of transparency and missed redemptions are serious red flags; and registration status matters.

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Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes only and is not intended to be, and should not be, taken as legal advice.

Unless otherwise stated, Freiberger Haber LLP’s articles are based on recently decided published opinions or litigation releases and not on matters handled by the firm.

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[1] The SEC’s litigation release announcing the entry of judgment was disseminated on May 5, 2026.