Investment frauds rely on gaining the victim’s confidence. Hence the term
“con” man. Often, fraudsters will gain entry to a pool of marks through
affinity with an organized group of some sort, say, a seniors’ club, a
business group, a religious community, or a charitable organization.
Investment seminars are another way of enticing people to part with their
money on, at the very least, sketchy ventures. Most common now are phone
calls, email come-ons, and solicitations through social media like
Facebook, LinkedIn, and Twitter.
Though scams can vary in the supposed riches they offer, there are some
basic characteristics they all share, and these are good markers to watch
for that you may be the target of an effort at fraud.
First and foremost, scams rely on the greed of the victim. So they
typically get down to offering some sort of incredible yield, for example,
12% a month, guaranteed! The only guarantee here is that this kind
of yield is flat-out impossible. That’s 144% in a year. If it were
possible, investors in such a scheme would soon have all the money in the
Playing to your vanity
Another typical marker of a potential scam is that the investment is the so
called “exempt security” that is available only to “accredited” investors,
with the added pressure of being available “for a limited time.” All you
have to do is lie about your income.
Normally, a legitimate investment offered to “accredited” investors means
that no prospectus legally setting out the nature and terms of the deal,
and the individuals behind the deal, is required. Accredited investors have
a very high net worth already – and don’t have to lie about it – and are
assumed to be financially sophisticated. They and their advisors will
insist on seeing exhaustive financial statements, legal information
pertaining to the investment, liquidity, and mechanisms for selling the
investment, usually far beyond what a prospectus would supply in any case.
The last thing scam artists want you to see are financial statements of any
The offshore mystique
Another fairly common marker of a possible fraud is that the alleged
investment involves some type of offshore holdings. This may sound
appealing on the surface, evoking images of swaying palms and tax havens.
But the dark underbelly is that it’s very difficult to get reliable
information about the legal ownership and financial viability of assets
held offshore. For forensic accountants and commercial crime law
enforcement, “offshore” is simply a euphemism for “dodgy.”
However, financial-scheme scammers rarely target highly sophisticated
investors. They often use the “accredited-investor” status ploy I mentioned
above to avoid having to provide much financial detail to their marks about
their “investments.” They count on the marks’ vanity, financial naiveté,
The big payout scam
The common thread to these types of schemes is that the con artist will
attempt to persuade you that if you just give them as much money as you
can, you’ll get it all back five-, ten-, twenty-fold in a very short
period. Variations on this theme include the pension scam by which they try
to persuade you that for that huge upfront fee, you can “unlock your
pension and pay no tax.”
Another twist is the pump-and-dump stock scheme, by which the fraudsters
promote some worthless stock to a handful of investors who unknowingly bid
up the price. They then sell their own large holdings at the top of the
market, while the value of everyone else’s shares then plummets.
The “binary options” scam is another more recent type of fraud perpetrated
on the greedy and ignorant – think of it as the online, digital version of
the fake bookie shop fraud shown in the classic movie The Sting.
How not to become a victim of fraud
If you encounter these types of solicitations, the best advice is simply to
avoid them altogether. It’s easier to say “no” now than to try to get your
money back later. The sad history of financial fraud proves that while
scammers may sometimes end up in jail, most victims never recover their
There are many useful online resources to help you identify and avoid the
many types of fraud being perpetrated today. The government’s
Canadian Anti-Fraud Centre has a long list of different categories of active scams, and is well worth
consulting if you suspect you might be a target of a potential fraud.
The Centre also provides a useful checklist to help you avoid becoming a
victim of a fraud or scam in the first place:
Get independent advice.
If an offer involves money, information, or time from you, get independent
advice from a qualified professional, such as a lawyer, accountant, or
There are no guaranteed get-rich-quick schemes. If it sounds too good to be
true, it is.
Never submit to sales pressure.
Get independent advice. A legitimate investment will still be available
tomorrow or next week or next month.
Do your due diligence.
Never sign anything, hand over money, or reveal personal information (bank
accounts, credit cards, brokerage accounts), until you’ve researched the
offer and checked the credentials of whoever it is making the offer.
Look at a company’s books directly, examine its historical financial
statements, and check out the physical operations in person. Be deeply
suspicious if the person selling you an investment attempts to discourage
you from bringing in an independent advisor.
Don’t get click happy.
Never click through links to websites provided in unsolicited or spam
email, text messages, or Tweets. If you’re interested in a product,
service, or investment, navigate to the site page directly through your
Where to get help
If you’re in doubt about an investment offer, or if it sounds too good to
be true, consult a
qualified independent financial advisor for a second opinion. To learn more about avoiding investment frauds in the
first place, check the
Ontario Securities Commission website. Many people who have been scammed are too embarrassed to admit it.
But this only leaves the criminal free to continue perpetrating frauds on
other people. If you believe you’ve been scammed, report it to the
Canadian Anti-Fraud Centre, a provincial securities commission such as the
Government of Canada Competition Bureau, or your local police fraud squad.
Robyn Thompson, CFP, CIM, FCSI, is the founder of
Castlemark Wealth Management, a boutique financial advisory firm specializing in wealth management
for high net worth individuals and families. She is also listed as a
MoneySense Approved Financial Advisor. Contact her directly by phone at 416-828-7159, or by email at
for a confidential planning consultation.
Notes and Disclaimer
© 2018 by the Fund Library. All rights reserved. Reproduction in whole or
in part by any means without prior written permission is prohibited.
The foregoing is for general information purposes only and is the opinion
of the writer. Securities mentioned are illustrative only and carry risk of
loss. No guarantee of investment performance is made or implied. It is not
intended to provide specific personalized advice including, without
limitation, investment, financial, legal, accounting or tax advice. Please
contact the author to discuss your particular circumstances.