Let’s Be Careful Out There

Topic: Human Interest

Nicole Weiss 

February 21, 2017

Image used with permission: iStock/Jane_Kelly


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Let’s Be Careful Out There

As the guardians of our clients’ financial wellbeing, we hope to safeguard and grow our clients’ assets to the best of our abilities. It’s our duty to alert our clients to potential risks in the investment industry, and one such risk is investment fraud.

To help investors recognize fraudulent activities, the Alberta Securities Commission (ASC) released a list of the top 5 risks investors face in 20171:

1. Unregistered sources

As a first rule, make sure that the individual or the firm that is selling you securities or offering advice is registered with the appropriate regulatory body to conduct business in the province. According to the ASC, only firms and individuals that meet certain proficiency, integrity and solvency requirements are allowed to register. They encourage investors to check the Canadian Securities Administrators (CSA) National Registration Search Tool at www.aretheyregistered.ca to verify registration in your province.

2. Binary options scam

Binary options are “bets” on how an asset (currency, stock, etc.) will perform for a limited amount of time – they are “all or nothing” wagers, similar to gambling, according to the CSA. The administrators are increasingly concerned with the growth in the number of offshore websites that offer binary options and lure investors with false advertisements. The CSA makes it clear that no business is currently registered or authorized to market or sell binary options in Canada2. Based on the data collected by the ASC, victims of the binary options scam in Alberta lose more than $20,000, on average.

3. Offshore investments

“Sending money to companies with overseas ‘offices’ is a red flag of investment fraud”, warns the ASC. They list binary options, foreign exchange (forex) and commodity trading as the most popular scams. Deals are often pitched as exclusive and boast a creative way to earn tax-free returns by taking advantage of tax loopholes. Beware of such claims as there are legal ramifications of tax avoidance in Canada. Furthermore, it’s extremely difficult, if not impossible to recover your funds if you become a target, as Canadian regulators are mostly powerless overseas.

4. Deceptive online advertisements

Fraudsters are increasingly finding creative ways to trap investors through social media, text messages, phishing emails and pop-up ads on the internet. They often use fake celebrity endorsements or common names to lure their victims. You can protect yourself from digital scams by following some basic rules. If you don’t recognize the sender, don’t open or reply to the email or the text message. Use a reliable search engine, update your operating system regularly, install a spam filter and equip your computer with the latest anti-virus software. Lastly, make sure you don’t give out your personal or financial information on an unsecured website.

5. Being lured by “the next big thing”

Caution is warranted when investing in an emerging industry, advises the ASC. Stories of new companies in these sectors are enticing but they are not substantiated by analysis as little information is available. This makes it very easy for the scam artists to spread false information which can potentially move the share price. Even experienced investors find it difficult to overcome the fear of missing out, giving into tempting schemes.

“The next best thing” scam can also be framed as an investment opportunity that is positioned to take advantage of the state of the economy, an epidemic or a natural disaster, according to the ASC. They give an example of how fraudsters exploited the Zika epidemic by promoting companies developing Zika virus vaccines.

Many of these risks can be avoided by simply being aware and doing the research. You should raise the red flag if an investment opportunity sounds too good to be true. And when in doubt it’s best to consult a professional – we are here to help!

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