Tips to Avoid Investment Fraud


In general, Canadians are fairly trusting but there is no 'typical' victim of fraud. The most successful scams are built on trust. By asking questions that seem harmless such as questions about your health, hobbies, or family, scam artists and fraudsters can use what they've learned to personalize their sales pitch to target your situation and needs.

There is no 100% guaranteed way to prevent investment fraud. But, by following the suggestions below and being aware of potential fraud indicators, Albertans can better safeguard themselves from fraud.


1. CHECK THE REGISTRATION OF ALL ADVISORS AND FIRMS

Only work with registered advisors and firms. Firms that are members of a self-regulatory organization - such as Investment Industry Regulatory Organization of Canada (IIROC) or Mutual Fund Dealers Association of Canada (MFDA) - are highly regulated and heavily supervised, which provides better financial stability and security. Before investing, check the registration of both the advisor and the firm. You should also research the financial advisor's disciplinary history before you invest.

  • You can check registration at aretheyregistered.ca. For more information on background checks, please visit the Investor Resources page on the Alberta Security Commission's site.
  • You can view disciplinary history records on the Disciplined Persons List. If an advisor shows up on this list, please learn and understand why they appear on the list or find a different advisor.
Learn more about IIROC's Regulated Dealers or get more information about MFDA's Members.

Investors should only invest in products that are registered within a securities commission. To find out whether an investment is properly registered, please contact the Alberta Securities Commission, or your provincial securities regulator.

If you do not understand your investment after examining it with your advisor, do not buy it. Never sign blank documents, or documents you do not understand. Do not lie about your income or other financial information to anyone. If you think an investment opportunity is fraudulent or isn't suitable to your needs, don't feel embarrassed or afraid to say no.

Provincial regulators and securities commissions have contact centers to answer questions and inquiries. If you have any questions or concerns, please call your regulator and ask.

Contact information for the ASC or your Provincial Securities Commission can be found on the Fair Canada page.

2. MAKE SURE YOUR INVESTMENTS ARE REGISTERED AND ASK QUESTIONS


3. BE AWARE OF FRAUD 'WARNING SIGNS'

  • Unrealistic Rates of Returns - Investments that claim a higher-than-market rate of return with little or no risk are almost always fraudulent. The CSA's Investor Index of 2012 reported that many Canadians have unrealistic expectations of market returns - in their survey, only 12% of Canadians provided a realistic estimate. A reasonable return is currently a maximum of 5-6% with some risk.
  • 'Guaranteed' High Returns with Little or No Risk - Most investments don't include guarantees. Guaranteed high returns are typically a warning that the investment is a scam.
  • Pressure to Borrow - Borrowing to invest (or leverage) is highly inappropriate and very risky, especially when it involves borrowing against your home.
  • Ponzi Schemes - One of the most common types of investment fraud, Ponzi Schemes lure investors with the promise of high returns. The fraudster pays early investors 'returns' from the funds given by new investors and steals the rest. As this type of scheme depends on new investors to continue, Ponzi Schemes fail when new investors become difficult to recruit or investors wish to cash out. If you have been working with an unregistered firm or advisor and have collected 'interest' payments, this does not rule out fraudulence from your investment.

There are many types of fraud that many Canadians can fall victim to, including:

  • Internet Scams
  • Telephone Fraud
  • Social Media Scams
Social media scams are the newest 'trend' in fraud, particularly focusing on older age groups. Along with the scammers, regulating agencies are also very informed of the fraud potentials through avenues of social media. Regulators have heightened their efforts to make investors aware of such fraud, and to educate them about the different channels of fraud through media like Facebook, Twitter, YouTube, LinkedIn, and more.

To learn more about the various types of scams, please visit the Alberta Securities Commission's page on Recognizing a Scam.

4. BE WARY OF THE LATEST TRENDS IN INVESTMENT FRAUD


5. CHECK ENFORCEMENT HISTORY

The Canadian Securities Administrator's 2012 Investor Index claims that 27% of Canadians believe they have been at risk of possible investment fraud at some point in their lives, but the number of Albertans who have been approached with a fraudulent investment is 30%. The CSA's findings tell us that roughly 29% of Canadians actually reported to the authorities what they believed was an attempt at investment fraud. As public information is very valuable to investigations of investment fraud, it is important that you report questionable promotions or possible fraud to the ASC or to the CSA.

The CSA releases a yearly enforcement report on all the work that has been done to combat Canadian Investment Fraud. The report is accessible through both the CSA and Alberta Securities Commission (ASC) websites, which allows readers to research and view a wide directory of concluded cases and to view PDFs of previous reports. With the help of the public, readers can be increasingly aware of the current trends in investment fraud.

Visit the CSA website.

 

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