Take action against fraud

How to recognize scams and protect your financial assets

In 2019 in Canada, there were 19,285 victims of fraud and $98 million lost to fraud, not including unreported cases.¹ Scams affecting individuals come in so many different forms that the Canada Anti-Fraud Centre has compiled an alphabetical list.²

One challenge is that those who perpetrate fraud are constantly trying out new strategies that don’t yet appear on a list. As COVID-19 spread around the world, for example, private companies started trying to sell “faster” tests, people showed up on doorsteps offering “decontamination” services, and fraudsters posing as police officers tried to issue on-the-spot “fines” to people wearing masks.³

That’s why it’s so important to be alert to red flags and to keep a watchful eye out for signs a loved one may be experiencing fraud. Keep in mind that when advisors have the name of a Trusted Contact Person, they can play a more active role in protecting their clients from fraud.

How does fraud affect investors?

Investment fraud specifically targets investors with a deceptive offer. Examples of investment fraud include:⁴

• Pyramid schemes, which recruit people to buy merchandise or invest in a business and then recruit more people to do the same thing, with each layer of people collecting money from the layer below; the difficulty is that it doesn’t take many layers to reach a point where it becomes necessary to recruit more people than there are living on the entire planet – so pyramid schemes are often unsustainable, and when they collapse the people in the lower layers can lose a lot of money
• Ponzi schemes, which often promise high returns with low risk and pay those returns from the money investors contribute; there may be no underlying investment – so, when new investors stop coming, the returns dry up and the promoter often disappears with whatever investor contributions are left
• Boiler room scams, which offer shares for sale just before a promising company lists on the stock exchange; the trouble is the promising company doesn’t actually exist – it’s just a group of people making calls from a temporary office (or “boiler room”) and they vanish once investors hand over their money
• Pump and dump scams, which aggressively hype a specific stock the promoters of the scheme are heavily invested in; as investors buy the stock, they drive the stock’s price up – then the promoters sell, the price sinks and the shares become virtually worthless
• RRSP scams, which promise a way to take money out of a Registered Retirement Savings Plan (RRSP) tax-free by withdrawing and then buying shares of an “RRSP-eligible company”; but the company collapses once it has the money, and the taxes are still due
• Forex scams, which advertise foreign exchange (forex) investment opportunities that either don’t exist (fraudsters simply take the money and run) or that are much more risky than advertised – either way, money evaporates
• Off-book investment scams, which involve financial representatives instructing clients to write cheques out to them personally, instead of the investment firm, or to provide cash deposits; they keep the money, encourage clients to deal only with them (not their staff), and may falsify account statements so clients believe the firm received and invested the funds 

Be proactive to protect your investments

Even if you hear about an opportunity through a trusted source, such as a friend or family member, don’t skip steps. Research the organization and see if the securities regulator has taken any action against it. Talk to your advisor about it as well – he or she can be your partner in sidestepping fraud.

In general, fraudsters often prey on fear and greed, so be suspicious if someone’s tone is threatening or an offer seems too good to be true. It’s good practice to deal only with registered advisors (check the list on the Canadian Securities Administrators website at www.aretheyregistered.ca), to write cheques only to registered firms not to individual advisors, and to invest only in products that have filed a prospectus with the securities regulator.

Request documentation on any investment you’re considering, and never sign a blank form or a form that you do not completely understand. Remember that reputable advisors are happy to take the time to fully explain products and answer all your questions.

Overall, greater awareness may be the best defense. Learning about fraud, educating friends and family, and discussing it with your advisor can help you better protect your assets from its financial and emotional consequences. If you ever suspect fraudulent activity, contact the investment firm’s head office or your provincial/territorial securities regulator to report your concerns.

Check out this helpful link for more information: Avoiding Fraud

Who falls for investment fraud?

Anyone can fall for investment fraud, but the most likely victims share certain characteristics:⁵

• They have a high level of education
• They are risk-takers
• They are generally trusting of others
• They have too much confidence in their investment decision-making
• They trade frequently, switching in and out of investments weekly
• They worry about missing opportunities if they don’t act right away 

Investors who have these tendencies should be especially careful when evaluating new investment opportunities – but everyone should be on the lookout for warning signs such as the promise of high returns with no risk, pressure to make quick decisions or a demand to keep an opportunity secret.⁶

1 www.antifraudcentre-centreantifraude.ca/index-eng.htm 2 www.antifraudcentre-centreantifraude.ca/scams-fraudes/individual-individuelle-eng.htm 3 www.antifraudcentre-centreantifraude.ca/features-vedette/2020/covid-19-eng.htm 4 www.canada.ca/en/financial-consumer-agency/services/financial-toolkit/fraud/fraud-1/5.html 5 www.canada.ca/en/financial-consumer-agency/services/financial-toolkit/fraud/fraud-2/3.html 6 www.securities-administrators.ca/investortools.aspx?id=736