Regulator details opportunities that are ‘too good to be true’ and how to guard against becoming a victim
The Alberta Securities Commission (ASC) has warned investors about 2020 opportunities that are “too good to be true”.
ASC outlined six top traps to look out for this year based on investor complaints, ongoing investigations and enforcement trends as identified by the Commission’s enforcement division.
1, Stock promotion related to new and emerging industries – “You don’t want to miss out!”
“Scam artists capitalize on new and emerging industries as there is often limited information and history available, making it easier to spread false information. The ASC has recently seen increases in potential new scams related to cannabis, foreign exchange and, especially, cryptoasset investments. While new industries may give rise to a range of exciting investment opportunities, it is important to understand the risks associated with the business before investing your hard-earned money.”
2, Affinity fraud – “You can trust me.”
“Affinity fraud, where victims are introduced to scams by someone they trust, continues to be a major concern in Alberta. Scam artists often work their way into groups and organizations, building relationships with respected or influential members who they use to recruit new investors. Currently, religious affiliations and cultural groups, particularly in rural areas, are the most common associations used by these scam artists. Learn how you can easily recognize affinity fraud in your community and how to contact the ASC if you see any suspicious activity.”
3, Exploiting a bad economy –“Cash out your traditional retirement savings, you’ll earn more!”
“In a struggling economy, scam artists will often target those recently laid-off. A major life change can trigger stress about finances and the future, which can affect decision-making. Many people will try to make up for what has been lost financially by investing in riskier investments in hopes of getting a higher return. Scam artists will encourage those feeling financial pressure to cash out traditional retirement savings plans (e.g. pensions, LIRAs, RRSPs) for an investment with the promise of higher returns, ignoring any tax implications or the added risk of the ‘recommended’ investment. There is a relationship between risk and reward; generally, the higher the potential reward, the higher the risk. Be wary of any investment promising high returns that are marketed as low-risk – it’s another red flag of fraud.”
4, Unscrupulous marketing – “Get rich quick!”
“There is a relationship between risk and reward; generally, the higher the potential reward, the higher the risk. The number of complaints relating to private, high-risk investments that are marketed as low-risk are on the rise in Alberta. Often, salespeople will position the investment as an ‘exclusive opportunity’, or ‘how the wealthy make their money’, which is really just a high-pressure sales tactic. It’s your hard-earned cash; take the time to invest it wisely.”
5, Unregistered individuals selling securities – “Registration doesn’t matter, I know what I am doing.”
“The ASC continues to receive reports of non-registered individuals selling investments. Generally, anyone offering investments in Alberta must be registered with the ASC, and lack of registration is a key red flag of fraud. Yet, four-in-five Albertans do not check the registration of their advisor1. Albertans can quickly and easily verify the registration of any advisor or organization by visiting the ASC’s consumer website Checkfirst.ca.”
6, Promissory notes
“There has been a rise in reports of investors being promised better and safer returns than the stock market by loaning money through something called a ‘promissory note’. The fraudster will claim that the promissory note - which is simply a ‘promise to pay’ - is not a security, so they don’t have to be registered with the ASC. They will also claim that it’s safe because it’s a loan backed by assets like real estate. In reality, it’s a security and if you’re not on title the loan isn’t secured by real estate – more importantly, the ‘loan’ may be just a scam.”
Alison Trollope, director, investor education and communications, said: “We strongly encourage Albertans to expand their financial knowledge in order to make wise investment decisions with our free, unbiased tools and resources on our website, Checkfirst.ca.
“Checkfirst.ca provides information on how to detect and avoid investment fraud, recognize the red flags of fraud and report suspicious activities to our public inquiries office.”
