Investment fraud: Beware the lies
Don’t fall for ‘ risk- free, offshore, high returns, limited time offers’ — and don’t rely on family, friends’ advice
Having enough money to ensure a comfortable retirement is a goal shared by everyone. However, as The Vancouver Sun explored in its pension series last week, there are many challenges facing Canadians – from living longer, to having an adequate pension ( or not), to paying off household debt.
Adding to these challenges is the ongoing uncertain economic environment. With historically low interest rates, as well as the lacklustre returns and protracted volatility in conventional markets, many people are looking for alternative ways of investing to ensure they have enough income to last them through their retirement.
Unfortunately, the uncertainty of today’s economic climate presents more than just an impediment to saving; it is also perfectly suited to investment fraud.
Fraud artists are very good at sussing out their market. They see unlimited opportunities to take advantage of investors in search of quick, solid returns. The people most vulnerable are pre- retirees and seniors. Why? Because pre- retirees are trying to find ways to pay for their retirement in a hurry, and seniors want to supplement their fixed incomes.
British Columbia is fertile ground for fraud artists because we have large concentrations of seniors and preretirees in the Lower Mainland and on Vancouver Island. Moreover, it’s no secret that retiring in B. C. means paying for a higher cost of living than in other provinces.
A 2009 national study by the Canadian Securities Administrators found that B. C. is 10 per cent higher than the national average when it comes to being approached with an investment scam. That fact coupled with the finding that British Columbians are the most likely to say that they have an aggressive investment style ( 38 per cent agree with that statement) suggests that they may be particularly vulnerable to investment fraud.
This is music to the ears of fraud artists. They pitch their investment opportunities as a way to escape the volatility and low returns of the markets, while playing on people’s unfortunate tendency to react emotionally to get- rich sales schemes. Research has also shown that over- confident men in their 50s represent one of the most susceptible groups of investors.
Types of investments for retail investors to watch out for include: shares in private companies; deals involving gold and other precious metals; energy investments that promise riches from untapped oil and gas reserves; foreign exchange investments; and real estate.
The investments are often pitched as risk- free, with guaranteed returns much higher than those offered by stocks and bonds.
In reality, these investments are either out- and- out scams, or are unsuitable for most investors because of the risk involved and generally low liquidity, meaning it’s difficult to get your money out.
So what can people do to protect themselves? The best defence against fraud is a savvy and skeptical investor who recognizes the five warning signs of investment fraud:
1. Guaranteed high returns with no risk.
This is a feature of virtually every scam. This kind of investment simply does not exist; whether you are investing in blue chip stocks or private companies, higher returns always involve higher risk. 2. Offshore investment. Tax free! Pitched as a way to avoid paying taxes, which is illegal.
3. Your friends and family can’t be wrong.
Fraud artists target religious, ethnic or close- knit groups by working their way into organizations and befriending members in order to defraud them.
4. Profit like the experts with insider tips.
These scams are pitched as opportunities known only to a select few who are profiting from insider information.
5. This is a limited time offer – hurry up and invest so you don’t miss out.
Fraud artists use this tactic to pressure investors to make a quick decision and to discourage them from seeking the advice of financial advisers who might see through the scam.
Always take time to consider an investment, and possibly get a second opinion. Be sure to diversify — adopt the “don’t put all your eggs in one basket” approach.
Investment fraud will always exist, and fraudsters will always prey on those most vulnerable, like pre- retirees and seniors, particularly in these uncertain economic times. But people can fraud- proof themselves by getting educated on the warning signs of investment fraud. To do so, check out Investright. org and the British Columbia Securities Commission’s “Be Fraud Aware” campaign.
If you or someone you know has been approached with an investment like the ones discussed here, please contact BCSC Inquiries immediately at 1- 800- 373- 6393 or inquiries@ bcsc. bc. ca. To report suspicious activity anonymously, visit Investright. org.