Coronavirus 'cures' and investing-from-home false promises are among the dangers for investors in the year ahead
Investors are riding a wave of optimism right now but that could make inexperienced participants more open to risky behaviour.
With stock markets and even cryptocurrencies on fire currently, one of Canada’s regional securities regulators is warning investors to be alert for some key risks this year.
Alberta Securities Commission (ASC) has based its list on investor complaints, ongoing investigations, and current enforcement trends.
The pandemic has facilitated scams and frauds due to the unusual circumstances of lockdowns and global turmoil and the risk from COVID-related ‘opportunities’ is going nowhere in 2021.
ASC warns that so called pump-and-dump schemes are prolific at times like these, often involving false or inflated claims of a cure, prevention, or detection product for the disease.
Penny stocks of shell companies are exaggerated but stock prices do increase amid rising investment (pump) but then the instigators sell at a high price (dump) before the truth behind the claims is revealed.
Cashing in on hype around a particular industry or trend is also a common tactic used by unscrupulous entities. Again, false information and exaggeration is part of the play here.
The ASC says that it is seeing a rise in investors being tempted to part with their hard-earned cash due to an imminent deal.
Companies may have a letter of intent that suggests a company is about to get a massive boost, but the regulator highlights the risk of these intentions not being realized, leaving investors out of pocket.
Close to home
Another common way to get investors to join a risky scheme is by personal recommendations.
Those who have been convinced of potential success in an investment scheme will recommend it to friends and family, not to dupe them but because they believe it will be profitable.
The ASC says that, even where close contacts are involved, investors should do their own research and make their own decisions.
Finally, the regulator’s list of risks cites schemes where it’s claimed that investors can “easily make money trading stocks at home.”
These schemes actively target those who may now be working from home or who have lost their jobs during the pandemic. They claim that investors can profit from being stock market day traders, even without experience.
They often training – for a fee – but do not provide adequate information about the high risks involved or the need to be a registered securities trader.
