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Life & Money

4 Tips to Protect Yourself From Investment Fraud

March 16, 2015

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4 Tips to Protect Yourself From Investment Fraud

Life & Money

Fraud happens to other people… right? We don’t believe it can happen to us. We also believe fraud involves only involves things like identity theft to access credit. Or telephone and email scams to pry away your money. We don’t always consider investment fraud.

Investment fraud is where we are misled to buying or selling something that benefits the fraudster at the expense of the investor. The different versions this fraud can manifest are as varied as the different types of investments out there. The Canadian Securities Administrators (CSA) provides a good overview of the different types of scams out there. Some of the more common ones are Ponzi schemes, pump and dump scams, selling exempt investments to non-accredited investors, spam e-mail scams, and of course the classic “Nigerian prince” email scam where foreign royalty asks for help to transfer a large sum of money (even Moe on the Simpsons recently fell victim to this one).

The great news is that fraud prevention is within our control. And what better time to be fraud aware then during Fraud Prevention Month. Here 4 Tips to Protect Yourself From Investment Fraud:

#1: Watch for Reg Flags

If an investment sounds too good to be true, it probably is. Beware of promises of high returns with no risk, tax free offshore investments, insider tips, exclusive investment opportunities, and investments that require immediate investment decisions. Let common sense kick in before making any commitments.

#2: Know your Advisor

Get to know the person pitching you an investment. The CSA and IIROC have search tools to help to look for people registered to sell certain types of securities. Also, learn about the background and qualifications of someone trying to sell you an investment. Search the internet for the person recommending an investment to you and the investment itself. If you need help understanding investment qualifications use this glossary.

#3 Ask Tough Questions

What is the worst case scenario? What are the risks involved? How to I get out of the investment if I change my mind? What are all of the costs involved? How do you get paid? These are all great questions to ask when someone is selling you an investment. Don’t be shy. Ask what you need to feel comfortable.

#4 Report Fraud

If you are a victim or someone tried to scam you, report it! Fraud can go unreported, even when large amounts of money are involved, because investors feel embarrassed they made a mistake. Be sure to report it to the right authorities (RCMP, local police) and securities regulators (CSA, MFDA, IIROC, Provincial Securities Commission) when you have been the a victim of fraud.

If you still are unsure, or if you have questions, there are tools and resources to help protect you and your investments. For example, the BC Securities Commission has developed InvestRight.org. The website gives you tools to research and assess potential investments and conduct background checks.

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