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The COVID-19 pandemic has brought many unpleasant consequences to our economy and social structure through emergency lockdowns and self-isolation. One of these is the proliferation of fraudulent investment schemes and scams designed to part you with your money. As more of us are forced to stay at home, online usage has skyrocketed. And fraudsters are taking advantage. Seniors are especially susceptible, as con men believe they are more trusting but also generally more vulnerable, particularly those living alone. But you can protect yourself by following just five simple rules.
How serious is the problem? According to the Canadian Anti-Fraud Centre, there were 18,803 reports of fraud through to April 30 so far this year. That compares with 46,317 in all of 2019. Of these, there were 6,671 victims who have lost a total of $22.6 million. And that’s just in the first four months of this year.
Though scams can vary in the supposed riches they offer, there are some basic characteristics they all share, but there is always one standout right at the top of the list.
Impossible yields
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! Or a stock no one has ever heard of that is set to soar over 500% or 1,000%. (The only thing that’s soaring here is the fraudster’s imagination.) The only guarantee is that this kind of yield is flat-out impossible.
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. Recently these have included companies purporting to have a vaccine for COVID-19 and penny gold mining companies supposedly sitting on billions of dollars of proven reserves.
A favourite scam is the classic “pump-and-dump” stock scheme, by which promoters praise some worthless stock to unsophisticated investors who then unwittingly bid up the share price in a short frenzy of buying. The promoters, typically large shareholders or company insiders, then sell their own holdings at the top of the market, and the value of everyone else’s shares plummets. Because the shares are very thinly traded on a junior exchange or over the counter, it’s very difficult to sell them at any level approaching the earlier highs once the price has fallen.
According to the Canadian Securities Adminstrators (the national umbrella group for provincial securities regulators), the fact is that such fraudulent penny stock companies have limited to no real information about the company management, its assets or products, or its finances. Instead, they spread hyped-up “real-sounding” positive information through social media, websites, and sometimes mailed releases.
5 rules to avoid becoming a victim
The Ontario Securities Commission also offers five excellent best practice tips for judging the legitimacy of any investment opportunity you may be offered:
1. Always check provincial securities commissions and regulators for registration and enforcement history of the company and the people promoting is before investing.
2. Be wary of giving out personal information (including credit card information) by phone or online.
3. Never make a decision on the spot, even if pressured to do so (and the pressure can be intense). Research the offer and review it with your financial advisor. A legitimate investment will still be there tomorrow or next week or next month.
4. Insist that written information (e.g., prospectuses, financial statements, etc.) be sent to you. Review them with your financial advisor. Never fall for a promise that such information will be “on the way” as soon as you have bought the investment. By then, of course, it’s too late, and you’ll never see any statements – or your money.
5. Understand completely what you’re getting into, including risks, transaction details, mechanics of trading, reporting, and so on.
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 OSC, the Government of Canada Competition Bureau, or your local police fraud squad.
Finally, remember the old investing adage, “If it sounds too good to be true, it is.”
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. Contact her directly by phone at 416-828-7159, or by email at rthompson@castlemarkwealth.com for a confidential planning consultation.
Notes and Disclaimer
© 2020 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.
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