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How to Identify and Avoid Investment Fraud

There are a lot of temptations when it comes to investing money, and also a lot of things of which to be aware. No one wants to be a victim of investment fraud.
2-2 Protection and Safety Investment Fraud
How to Identify and Avoid Investment Fraud

According to the Canadian Anti-Fraud Centre, 68,251 Canadians lost $231 million to scams in 2021. Here are some tips to help identify and avoid investment fraud.

How to identify investment fraud

Here are four common investment frauds. More information about these specific frauds and more can be found at checkfirst.ca.

Affinity fraud

The fraud comes from a trusted group or organization. Scammers are or pretend to be part of a group to take advantage of that trust.

Ponzi Schemes

These investments don’t actually exist. New investors give their money to pay the returns of previous investors. Eventually the scheme runs out of money are collapses.

Pump-and-dump schemes

These investments are based on positive recommendations and hype. False hype drives the price of the investment higher until the promoter of the stock sells and the price plummets.

Emerging sectors scam

This fraud is based around the excitement of the next big thing, and investors are encouraged to get in on the ground floor.

Here are some signs of fraud to watch for

High returns with no risk

All investments have risk. Be careful if you are offered a big reward with little risk. If it sounds too good to be true, it probably is.

A hot tip based on insider information

Someone gives a great tip to help you make a lot of money, but in secret. Think about why this person might benefit by providing this tip. You cannot act on real inside information about a public company, as that would be illegal.

A high pressure sales pitch

This is a common scam tactic. Never make a decision based on where to invest your money when there is limited time to check it all out.

The Government of Canada has tips to help avoid investment fraud

  • Do proper research on the companies you want to invest in. Use SEDAR, a Canadian website that provides information on public companies.  Always ask questions, expect clear answers and get information in writing.
  • Don’t buy based on information from the Internet only. Check other sources. As well, it is wise to get a second opinion and never break the law, or provide false information, even if encouraged to do so by the fraudster.
  • Take time to think and be sure you are doing the right thing. Don’t be fooled by high pressure sales, or secret information.

Scams and frauds can come from anywhere, but they usually follow a pattern or have some similarities. A lot of work has gone into a lot of these scams. They may come with a convincing, and legitimate looking website. Of course, they want to make a good first impression! Always look carefully and get to know the resources available to you if you need someone to help you get out of the situation.

CPC-logoThis story was made possible by our Community Partners Program. Thank you Infinite Chartered Professional Accountants & Wealth Planning for helping to expand local news coverage in Alberta. Learn more.