Common Investment Scams

August 20, 2018 10:36 am Published by Leave your thoughts


Common Investment Scams

Investing money is a great way to realize your long-term financial goals, build up a foundation for your retirement, repaying a mortgage earlier, or saving for your children’s schooling. However, as we are all painfully aware of by now – we don’t live in a perfect world, and there are people who run scams to trick you and take your money. Here are a few common investment scams to look out for.


Boiler Room/Fake Office

This type of scam is pulled off by a team of scam artists who set up a temporary office which they have leased or rented. To improve the legitimacy of their company, they usually have a website, toll-free number, and even an address for you to all check out. However, all of this information is fake – the website is all fake, the toll-free number will go right back to the scammer, and the address is likely just a temporary office as well. The scam usually starts with an unsolicited phone call asking you to buy shares in a private company that is about to be listed on a major stock exchange, saying that the value of its shares will skyrocket once they go public.


Advance fee scheme

An advance fee scheme occurs when the victim is persuaded to pay money up front in order to take advantage of an offer that promises a lot more in return. The scammer then takes the money and the victim never hears from them again. These types of scammers often target investors who have lost money in a risky investment. They present themselves as giving them a chance to help recover their losses from the previous investment.


Exempt securities scam

Exempt securities are not scams on their own – they’re sold by companies that are allowed to sell the securities without filing a prospectus (legal document that provides details about an investment offering for sale to the public). Some scammers, however, pitch fraudulent investments as “exempt” securities.

The scam usually starts with an unsolicited pitch to invest in a promising business that is about to go public. You may be told that the investment is only available to very wealthy people, but an exception will be made for you – all you have to do is sign some paperwork, which usually involves lying about how much money you make. If you have to lie about how much money you have, you are dealing with someone who breaks the rules, and you should be cautious.


Forex scam

The foreign exchange (forex) market is considered to be the largest and most liquid financial market in the entire world. Investors will buy and sell currencies to try and make money on the changes in exchange rates. However, there is a high risk that comes with trading in foreign currencies. Forex trading is dominated by large international banks with highly trained staff, the best technology, and million-dollar trading account – beating those guys is extremely hard.

Forex scams often find their targets throughout ads in newspapers, TV, or websites. The ads usually look legitimate and offer you an opportunity to invest your money on the forex market. What usually happens is that your money is not invested in anything, but simply stolen by the scammer. If your money is invested in the forex market, you may not have been told that the market is very risky, and end up losing some or all of your money.


Offshore investing scam

This scam promises you huge profits if you send your money “offshore” to another country, usually as a method of avoiding or lowering your taxes. As soon as your money is sent offshore and out of your control, it can be almost impossible to track your money and get it back. Additionally, if the tax benefits are fake as well, you could be owing the government money. Because you are no longer protected by Canadian law when you move your money to another country, it can be almost impossible to get your money back.


Retirement account scam

These types of scams focus on tricking people to believe that they can take money out their locked-in retirement account (LIRA) without paying tax. In most cases, you have to reach age 55 or older before you take money out, and there are limits to how much money you can take out each year.

A promoter in a newspaper ad may advertise a special “RRSP loan”, saying it lets you get around taxes and tap into your LIRA. To get the loan, you have to sell the investments you currently hold in your LIRA, and then use the money in the plan to buy shares of a start-up company the promoter is selling. The promotor promises to loan you back 60-70% of the money you invested and keep the rest as a fee. You are told that you will get cash immediately, pay no tax on it, while still holding a valuable investment in your LIRA.

The catch is, the investment you buy may be worthless, and you may never see your loan, which can end up with you losing your retirement savings. You also may have violated federal income tax law and will now have to pay taxes to the Canada Revenue Agency (CRA) on money you never even received.


Ponzi/Pyramid Scheme

One of the most common types of scams – the Ponzi or pyramid scheme. These scammers usually attract victims through ads and emails that promise you can “turn $10 into $20,000 in just six weeks”, or “work from home and make thousands every month!” Once there are investors attracted, they are asked to provide money up front. Earlier investors may receive high returns fairly quickly from “interest cheques”, and are often very pleased, leading them to invest more money or recruit friends and family as new investors.

However, the investment doesn’t actually exist. None of it does. The “interest cheques” are paid from investors’ own money and the contributions of new investors. The scheme will eventually collapse when the number of new investors drops, which at that time, the scammers vanish, taking all the money with them.


Pump and Dump

A pump and dump usually starts off with an e-mail promoting a great deal on a stock, claiming it’s a “once-in-a-lifetime” investment. However, the person that is sending the email actually owns a large amount of the stock, and as more and more investors buy shares, the value of the stock goes up. Once the price hits a peak, the scammer will sell all their shares and completely lower the value of the stock, leaving you with wasted money and bunch of worthless shares.


West African/Nigerian Scam

While these scams may have originated in Nigeria, they now come from all over the world. The scammer will contact you out of the blue, usually by email or letter. They may pose as a high-ranking government official from a developing country, and the email/letter is usually marked “urgent”. The sender will tell you that because of a financial hiccup, they have millions of dollars lying around in a bank account that they can’t touch due to restrictions in the country, but with your help, they can access these funds.  They will ask you to deposit a sum of money in the bank account as a “processing fee” or may ask for your bank account details to “help transfer the money”, and in return, you are promised a portion of the funds – usually around 20%. However, once they have your fee and banking information, the scammers will drain your bank account.

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