Canada: Six Key Questions You Should Ask When Assessing An Investment Opportunity For Fraud

Last Updated: March 23 2015
Article by Leigh Beijer

Too many times I pick up the newspaper or find an article online that recounts a situation of a lovely couple bilked by a so-called friend or trusted advisor out of their entire retirement savings, only to further read that the investor has disappeared into thin air or cannot be reached and the now bankrupt company cannot repay its investors.

According to a Canadian Foundation for Advancement of Investor Rights (FAIR) report entitled "A Canadian Strategy to Combat Investment Fraud" published in August of 2014, "it is difficult (if not impossible) to gain an accurate measure of the prevalence of investment fraud in Canada." Further clouding the issue is the fact that every investment carries with it the risk of loss. So the question then, is have investors suffered losses due to adverse market conditions or because of nefarious activities? Perhaps we may never have a true grasp on the financial losses and overall impact that investment fraud has in Canada. But we can aggressively continue to educate potential investors both on the red flags of potentially fraudulent investments and the nature of due diligence that should be conducted prior to making any investment.

Who is targeted?

Simply put, everyone. You don't have to be independently wealthy to be a target of investment fraud. The only real prerequisite is that you have some money available for investment. The Canadian Securities Administrators estimate that approximately one third of fraud victims are scammed for less than $1,0001. That being said, there are some similar or common characteristics of fraud victims as identified by FAIR, including:

  • Expectations of a high return on investment;
  • Susceptibility to persuasion techniques;
  • Self-assessed aggressive investing styles;
  • A belief that most people can be trusted;
  • Highly educated; and
  • Frequent participant in lotteries and / or sweepstakes

What are the red flags of fraudulent investments?

There are many red flags to fraudulent investments, but oftentimes they are overlooked or only identified after the fraud has occurred. The reason for this is twofold. Firstly, oftentimes these frauds are perpetrated by an individual, a family friend or a member of the same community or social club who has gone to great lengths to win your trust. Secondly, the financial pressure faced by the victim or the allure of earnings clouds the judgement of the investor. Some of the more common red flags are:

  • A promise of high returns above average market returns;
  • Increased pressure to make a decision;
  • Guaranteed return on investment or a no risk promise;
  • Promises of tax-free earnings through offshore investments;
  • Statements indicating that mutual friends or common acquaintances have already invested;
  • Claims that opportunities are based on insider tips or that the investment is secret to secure returns

At the end of the day though, the best way to protect yourself from investment fraud is to do your due diligence before investing.

Do your homework - what questions should be answered before investing?

While there is no guarantee that you can protect yourself from all fraud, there are some questions that can help you make a more educated decision. Before investing, ask yourself:

1) Is it too good to be true? At the moment, a bank can lend your GIC money out as a mortgage at 3%. The GIC might pay 1%. Their 2% of earnings is 'fixed', but not guaranteed – there is the potential for default, particularly if the mortgage is not insured. If you're being offered an extraordinary fixed rate of interest, you should consider how the money is going to be used. If it's going to be lent to someone else at a higher rate of interest, why aren't they just going to the bank and getting the 3% deal? If it's being used to finance a business, how can that business sustain itself with interest costs that high? In other words, if you're winning, who is losing?

2) Does the individual you are dealing with hold shares or are they a significant owner of the investment in question? A fraudster who holds a significant amount of shares in a company may be executing a 'pump and dump' scheme. Through this tactic, the fraudster persuades investors to invest shares in a company that is alleged to be under-valued, in an effort to artificially inflate its value, only to turn around and once the share price rises, sell their personal investment and walk away with the proceeds.

3) Are your funds going to remain in Canada? Offshore investment scams and internet fraud are difficult to successfully prosecute. Therefore, dealing with other jurisdictions increases your risk. In addition, while you may not be able to control whether a fraudster will transfer funds out of Canada, your ability to recover losses improves if the funds remain in Canada.

4) Have you recently invested your funds elsewhere or provided information to a party not involved in the present investment opportunity? Was the offer you are considering based on research you conducted or is this an unsolicited offer? Many fraudsters will sell or share lists of potential targets to other fraudsters.

5) Have you recently incurred a financial loss? Many fraudsters will try to take advantage of an investor repeatedly. A request for an advance fee to recover losses is often used.

6) Is there third party information available to support the potential investment? Don't rely on information provided to you by the salesperson. Conduct your own research and follow up on any discrepancies noted. Don't just rely on information provided to you by the salesperson.

The reality in this day and age is that many baby boomers are nearing retirement and there is increasing funds available for investment as they prepare for a life of leisure. Now more than ever, educated investment is critical in protecting individuals from losing their life savings.

Footnote

1) Canadian Securities Administrators 2007 CSA Investor Study: Understanding the Social Impact of Investment Fraud

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Leigh Beijer
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions