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What other scams should I watch for?

You don’t have to be wealthy to be scammed. One-third of fraud victims are scammed for less than $1,000. Another 28 per cent are taken for between $1,000 and $5,000. Whatever the amount, it can be difficult or impossible to get your money back from a scam. Here are just a few examples of the more common ones to watch for.

Affinity fraud
Boiler room scams
Double dip or repeat scams
Exempt securities scams
Forex scams
Internet scams and spam e-mails
Investment seminar scams
Offshore investment scams
Oil and gas scams
Ponzi or pyramid schemes
Pump and dump scams
Retirement account scams


Spotting an investment fraud: Greg's storySpotting an investment fraud: Greg’s story

It’s not always easy to spot a scam – even if you’re a former police officer. Find out why. Read Greg’s story.


Remember: Listen to your instincts and use your head. The best way to protect yourself is to always check everything you hear. Never give out personal information, including bank account numbers or access codes, to a stranger. If you’re ever not sure what to do, talk to a registered adviser.

The following resources can help you learn more about possible frauds and scams:


Affinity fraud

This scam often happens in social groups. To gain your trust, con artists quietly join your club, religious group, or community group. They may even build relationships with leaders of the group to gain acceptance. Then they’ll scam you, your friends, or your family.

All too often, the fraud victims don’t report it. Instead, they try to resolve problems within the group. Unfortunately, this can leave other community groups vulnerable to being targeted.

What are some red flags in this situation?

  • Promise of high returns and low risk
  • Claims cannot be substantiated.
  • Seller not registered to sell securities

If you are approached with an investment opportunity by someone you know and trust, take the time to check it out. Get a second opinion from a qualified advisor, and check the registration of the person offering the investment.

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Boiler room scams

These scams start with a phone call from someone you don’t know, offering you the "chance of a lifetime" to make money. The business may sound real, such as a medical company developing new cancer treatment technology. It’s a "sure thing." You may be asked to wire money offshore or to a post office box, which is an indicator of fraud. Your money may not be going where you have been told it would.

This scam is often pulled off by a team of people who set up a makeshift office, called a “boiler room.” To convince you the company is real, they might send you to the company’s website to check things out. They might also set up a toll-free number and a respectable address to make the company seem legitimate.

Callers involved in boiler room operations may use psychological tactics to manipulate you into a quick investment or sale. Using the medical technology example, the caller may learn that you recently lost a loved one to cancer, and use this to pressure you to invest. Or they may learn that you’re a busy professional without much time to research your investments. The caller may use high-pressure tactics, like repeat calls or limited-time offers.

Here’s the catch: the company doesn’t exist. Everything on the website is fake, and the office is just a post office box or temporary office. By the time you realize you’ve been had, the scam artist will have closed up shop and moved on to another scam. You’ll likely never see your money again.

What are the signs of a boiler room scam?

  • Promise of high returns and low risk
  • Unsolicited investment offer
  • Pressure tactics
  • Wiring money offshore
  • Seller not registered to sell securities

If you get a phone call like this, ask yourself why this person is contacting you. They don’t know you or your financial situation. Call your securities regulator to report a potential fraud.

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Double dip or repeat scams

If you’ve ever been scammed, you are likely to be a target again. Why? If a scam artist receives money from you, they will often hold onto your information for future use. Or, they may sell their victims’ names and contact information to other scam artists for profit. This is known as a "double dip" or repeat scam.

Here’s how it often works. After some time has passed, you’re contacted by the first scam artist or a new one. They tell you that some or all of your original investment has been lost. The scam artist will say that they can help recover your lost money for a “fee”. However, if you pay the fee, you’ll lose that money, too.

What are the signs of a double dip?

  • Unsolicited investment offer
  • Knowledge of previous investment loss
  • Seller not registered to sell securities

How do they know about your previous investment loss? If you’ve previously lost money to a scam, your information will be shared and sold to other scam artists.  Don’t lose any more money. Call your securities regulator to report a potential fraud.

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Exempt securities scams

When a company wants to sell securities in Canada, it must file a prospectus with securities regulators.  Exempt securities are an exception.  They may be sold without a prospectus, but are limited to accredited investors.

To qualify as an accredited investor, you must have $1,000,000 in assets (not including real estate) and you must have had an income of over $200,000 (or $300,000 combined with a spouse) for the past two years.

On their own, exempt securities are not scams. But some scam artists pitch fraudulent investments as “exempt” securities. Here’s how it works.

It often starts with an unsolicited phone call. Someone invites you to invest in a promising business that is about to go public. You may be told that the investment is only available to very wealthy people, but an exception will be made for you. All you have to do is sign some paperwork. This paperwork usually involves lying about how much money you make.

What are the signs of an exempt securities scam?

  • Unsolicited investment offer
  • Company about to “go public” – this may be used as a “hot tip” to pressure you to invest.
  • Asked to sign documents that don’t reflect your situation

If you have to lie about how much money you have before you invest, you are likely taking on risk you can’t afford.

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Forex scams

These scams often use ads placed in newspapers, or on radio, TV or websites. The ads look legitimate. They offer you an exciting way to get into the foreign exchange (forex) market, by:

  • investing your money. Foreign exchange trading is dominated by large international banks with highly trained staff, access to the best technology and million dollar trading accounts. It is extremely difficult to consistently beat these professionals. If you invest your money in the forex market, you may not be told that the investment is very risky. You’re likely to lose some or all of your money.
  • buying software or signing up for trading courses. Software programs and trading courses look at past performance to identify trends in currency trading. These trends are the basis for predicting if the currency's value will increase or decrease. As helpful as the software or course might be, profits can't be guaranteed.

What are the signs of forex scams?

  • Promise of high returns and low risk
  • Outrageous claims of success based on courses or software
  • Fine print that contradicts advertising claims

While courses and software can help you learn about investing, the results depend on your skills. Ultimately, the only guaranteed profits come from sales of the training program or software.

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Internet scams and spam e-mail

Con artists can reach millions of victims on the Internet. They can operate from anywhere in the world and hide who they are. This makes them hard to catch.

Fraudulent investments may be promoted through phoney websites, bulletin boards and chat groups. Another form of Internet scam is spam - unsolicited e-mail that usually promotes a certain product or service.

Spam e-mails often promote microcap stocks that are traded on the over-the-counter markets and have fewer regulations than the major stock exchanges. Microcaps are considered high-risk because many of these companies are new and have few assets or business operations.  In addition, there is little public information about them.

Here is another example of spam e-mail:

You get an e-mail from someone who claims to be a high-ranking official from a developing country . They ask for your help. They say they have millions of dollars in an account, but they can’t get at the money. They ask you to give them your bank account number so they can move the money there.  In return, they promise you a big share, often 20 per cent. Next thing you know, they’ve emptied your account, and you never hear from them again.

What are the signs of Internet scams?

  • Unsolicited investment offer
  • Promise of high returns and low risk
  • Can’t verify the information with a credible source
  • Seller not registered to sell securities

How can you protect yourself?  Beware of unsolicited investment advice.  The person sending the e-mail doesn’t know you or your financial situation. If you read the fine print, you may find that they are paid to promote the investment. They may also benefit from an increase in the stock’s value.

f you receive spam e-mail. Delete the e-mail and block further messages from that sender. Your e-mail server may allow you to report spam as “junk mail,” which can reduce the amount of spam you receive in the future.

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Investment seminar scams

Beware of investment seminars offering you an opportunity to “move your money.”

Investment seminars have become a very popular way of promoting financial strategies. You often see these during tax season. In the U.S. there’s recently been an increase in “free lunch” seminars targeting seniors. The investments themselves may not be fraudulent, but this type of promotion raises a number of red flags.

Some presenters are paid to promote specific investment strategies that may promise high returns. You may not know that these products are risky – and may not be appropriate for you. Attendees may be pitched a “no-fee” investment that will “go up with the stock market but never go down.” The presenter won’t mention that these investments have high commissions and risks that could limit your returns.

Presenters are usually good motivational speakers who can build excitement in a crowd. They may also use high-pressure sales tactics. Attendees have been told that as older people, they should be afraid of “ending up destitute” and that “after the government takes all your money in the form of taxes, there’s always a chance of losing money in the stock market.”

Seminar presenters may offer to help you “ move your money,” “maximize tax flow” or “pay less tax”. The seminar is likely promoting an investment with some kind of tax break or shelter. Unfortunately, tax breaks that sound too good to be true often are. In some cases, investors are audited years later and have to pay extra taxes, interest, or penalties. To learn more, read the tax information from the Canada Revenue Agency.

There are often other representatives ready to take your money on the spot, or schedule a follow-up appointment.

What are the signs of investment seminar scams?

  • Promise of high returns and low risk
  • High pressure sales tactics – fear-mongering, pressure to invest immediately
  • Tax breaks, tax avoidance or  tax shelters

Remember: there’s no such thing as a free lunch. If you’re approached about a tax shelter, get a second opinion. Talk to an independent and qualified tax expert such as a chartered accountant or tax lawyer.

How can you protect yourself?

Here are some tips to help you protect your money:

  • Don’t sign up at the seminar. If you are given time-limited offers from high-pressure salespeople, walk away. Do your research. Never invest on the spot. Take the information from the seminar to a registered financial adviser, lawyer or accountant.
  • Don’t trust the presenter just because they are well-known in investing circles. Find out: are they truly qualified to sell investments? Check the registration of anyone selling investments. Don’t invest with anyone who is not registered.
  • If someone offers you high returns and low risk, don’t believe it. In investing, the highest returns are always tied to some risk. So if a seminar promises you wealth with little or no risk to losing your money, be wary.
  • If you don’t understand the investment, walk away. You don’t have to buy anything. Look for other investments that may be a better fit for you.

 

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Offshore investment scams

This scam promises huge profits if you send your money “offshore” to another country.  In most cases, the goal is to avoid or lower your taxes. But once your money is sent offshore and is in someone else’s control, how can you get it back? It may be almost impossible!

That’s not all. If you don’t get the promised tax savings, you could also end up owing the government money in back taxes, interest and penalties.

In addition, there are other risks of offshore investing. When you move your money to another country and something goes wrong, you will not be able to take your case to a civil court in Canada. If you use an offshore firm and they go bankrupt, you are not protected by the Canadian Investor Protection Fund.

What are the signs of offshore investment scams?

  • Promise of high returns and low risk
  • Asked to wire money offshore
  • Seller not registered to sell securities

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Oil and gas scams

Changes in the price of oil and gas in recent years have spawned a rash of scams. Most of these scams try to get people to invest in fake oil and gas companies. Here’s how it works.

Scam artists may approach you with false reports of an "up-and-coming" opportunity to get involved in an oil and gas limited partnership. To make it sound legitimate, they will tell you that a large oil or gas company has invested in this venture. They may also have a legitimate-looking website and glossy brochures and research. They may even send you falsified reports about actual drill sites and production estimates.

What are the signs of oil and gas scams?

  • Promise of high returns and low risk
  • Can’t verify the information with a credible source
  • Seller not registered to sell securities

Beware of terms like "expert geologist reports", "tremendous discoveries in the ground at adjacent wells/drill sites." These oil and gas company "headquarters" and "drilling sites" often do not exist. Once you hand over your money to one of these scam artists, you probably won’t get it back.

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Ponzi or pyramid schemes

In these schemes, investors are often recruited through ads and emails that promise you can “make big money working from home” or “turn $10 into $20,000 in just six weeks.” Or, you may be given the chance to join a special group of investors who were going to get rich on a great investment. It might even be a friend or someone you know from work.

Investors who get into the scheme early may receive high returns fairly soon from “interest cheques”. They’re often so pleased that they invest more money, or recruit friends and family as new investors.

Here’s the catch: The investment doesn’t exist. The “interest cheques” are paid from the investors’ own money, and money from new investors. But in time, new people stop joining. There’s no more money to pay out and you don’t see another cent. That’s when the promoters will vanish, taking your money with them.

What are the signs of a ponzi scheme?

  • Encouraged to recruit new investors
  • Promise of high returns and low risk
  • Encouraged to reinvest
  • Seller not registered to sell securities

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Pump and dump scams

In this scam, you receive an e-mail or phone call promoting an incredible deal on a low-priced stock. What you don’t know is that the person or company contacting you also owns a large amount of this stock. As more and more investors buy shares, the value skyrockets. Once the price hits a peak, the scam artist sells their shares and the value of the stock plummets. You’re left holding worthless stocks.

What are the signs of a pump and dump scam?

  • Promise of high returns and low risk
  • Unsolicited investment offer
  • Seller not registered to sell securities

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Retirement account scams

This type of scam typically affects people experiencing economic hard times.

Many people keep their retirement savings in a Locked-In Retirement Account or LIRA. In most cases, you can’t withdraw money from a locked-in account until you reach a certain age, usually 55 or older. And, there are often limits to how much money you can take out each year. Also, you likely will have to pay tax on the money you withdraw.  People who are anxious to access this money may be told, either through an ad or a collection agency, that there is a tax loophole to access these funds.

You may have seen these scams promoted in newspaper ads. Here’s how they often work:

  • A promoter advertises a special "RRSP loan." They say it lets you get around the tax laws and tap into your locked-in funds.
  • To get the loan, you have to sell the investments you now hold in your LIRA. Then you use the money in the plan to buy shares of a start-up company the promoter is selling.
  • In return, the promoter promises to loan you back 60-70% of the money you invested. He or she will keep the rest as a fee. You are told you will get ready cash, pay no tax on it, and still hold a valuable investment in your LIRA.

Here’s the catch: the investment you buy may be worthless. And, you may never see the loan. You could lose your retirement savings. In addition, you may also have violated federal income tax law.  That means you will have to pay tax to Revenue Canada for money you never received.

What are the signs of a retirement account scam?

  • Tax breaks, tax avoidance or  tax shelters
  • Seller not registered to sell securities
  • Complicated, multi-step process designed to confuse you

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