Don’t fall victim to investment fraud

Experienced investors like to think they can see through “get-rich-quick” investment schemes. But don’t be too sure.

Experienced investors like to think they can see through “get-rich-quick” investment schemes. But don’t be too sure.

A U.S. study a few years ago by the National Association of Securities Dealers found that the most likely fraud victims were also the most financially literate and investment savvy. Their profile of a typical victim was a college-educated, married man with an above-average income.

In fairness, it’s not just greed at work. Fraudulent schemes are becoming more difficult to recognize. The Canada Revenue Agency recently issued an investor alert warning about off-shore investment tax shelter schemes that are being promoted in Canada. It describes such schemes as an investment opportunity that “appears legitimate,” but in reality, they are far from it.

The scheme works this way: promoters claiming to represent investment clubs or associations entice investors to participate in a tax shelter that promises to yield high returns from offshore investments. Investors are encouraged to raid their RRSPs for funds and told they could do so without paying tax. Investors are even told they arrange an investment loss that could be used to generate a hefty tax refund. In the end, promoters take the cash and the “investors” are left with not only a loss that can’t be claimed but also a new income tax liability arising from the withdrawn retirement savings funds.

Fraudulent pitches may come at any time: as cold telephone calls in the early evening, as voice messages about a hot stock tip that seem intended for someone else and these days, in endless unsolicited email messages.

The Internet has breathed new life into the classic “pump and dump” schemes where promoters “pump” a penny stock they have a position in and as soon as the new investors begin buying they “dump” their shares.

A more insidious form of fraud comes in the form of emails that look to be from your bank or brokerage firm asking you to immediately re-confirm certain personal information. This is called “phishing” and it’s an expedition to trick investors into revealing their confidential account passwords. The Investment Industry Regulatory Organization of Canada and the North American Securities Administrators Association both issued warnings this year that computer fraud is rising, with hackers using this technique to get on-line access to investor accounts.

Affinity fraud schemes also seem to be on the rise. Someone claims to be a “friend of a friend” or a member of the same church group or service club. People’s guards go down and the friendly association soon becomes a financial relationship with an investment scam attached.

There is one thing that all investment scams have in common: they’re in little danger of disappearing for lack of interest. Given their global nature and often untraceable origins, local law enforcement and regulatory agencies can often only warn investors to be careful. It’s up to the individual to be their own first line of defence.

Be especially wary about those who want to be your newest best friend and make you rich in the bargain. And never give out confidential information to an unknown telephone caller, or to an unsolicited written or email request.

Research any investment opportunity before making a decision. Legitimate tax sheltering arrangements should be reviewed and approved by the Canada Revenue Agency. Securities that enjoy any form of liquidity will be listed on an established securities exchange with the company’s published and audited financial statements easily available.

A number of key words or phrases can signal that a scam is in the works. If an investment is presented as guaranteed to increase in value; if you’re being encouraged to act immediately; if you are being told to take advantage of insider information — there’s probably a scam going on.

If something sounds too good to be true, it is. Always get a third-party opinion from someone you know you can trust, such as your accountant, your lawyer or your financial advisor.



Judy Poole is a financial advisor with Raymond James, and has spent the last 39 years involved in the financial industry. You can reach her at or see her website at

This article is provided as a general source of information and should not be considered personal investment advice.  The views expressed are those of the author and not necessarily those of Raymond James Ltd. Raymond James does not endorse and is not responsible for the content of external sites.