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Learn to recognize investment fraud

Discover key warning signs of investment fraud and how to protect yourself and your loved ones. 

November 4, 2024

Written by Kelley Keehn

Illustration of a Canadian 100 dollar bill wearing a masquerade-style mask.

Key takeaways

  • Always research and verify investment opportunities and the credentials of those offering them before committing any money.
  • Be cautious of investment offers that promise high returns with little or no risk, especially if pressured to act quickly.
  • Protect yourself and your loved ones by staying informed about common scams.
  • If you suspect you’ve been targeted by a scam, report it immediately to the Canadian Anti-Fraud Centre and your local authorities to help prevent further victimization.

Learn to recognize investment fraud

As the date for her mortgage renewal loomed, Ritu was terrified. The single mother of two young girls was granted the family home in her divorce settlement, but without financial support from her former husband, she was in a precarious situation. Getting approved for a mortgage with manageable payments seemed impossible. 

Through her community, she was referred to a mortgage broker named Pashmi, who initially seemed like the perfect solution. Compassionate and attentive, Pashmi secured a new mortgage for her, even though she could have simply renewed with her current lender. In addition to the mortgage, Pashmi proposed something else: a $100,000 line of credit against the equity in her home. She then recommended that Ritu invest that money in a “can’t fail” opportunity with a contact of hers. 

Ritu trusted Pashmi and was desperate to renew her mortgage quickly, so she took out the loan, pouring the entire $100,000 into the recommended investment. At first, everything seemed fine. The expected cheques arrived in the mail monthly, covering the interest on the line of credit with extra money left over — just as Pashmi had promised.

But by the third month, the cheques stopped coming. Panic set in, and Ritu's worst fears were realized. The investment was a scam. Ritu lost her entire $100,000. Whether Pashmi was complicit in the fraud or merely negligent remains unknown.

What is investment fraud? 

Investment fraud occurs when someone intentionally deceives you into investing based on false or misleading information. Scammers often lure victims with promises of high returns and low risk, only to disappear with all the money.

Ritu’s story is a classic example of affinity fraud, where scammers exploit the trust within a community, religious group, or social network. This type of fraud is particularly dangerous because it preys on the relationships and bonds of trust people have within their own circles.

Scammers have increasingly begun hacking into the social media accounts of trusted friends or network members. They may reach out to “friends” to recommend investments or comment on posts claiming that a specific person helped them achieve significant returns. 

According to the Ontario Securities Commission (OSC) Investor Office, affinity fraud is a growing concern, especially in diverse and immigrant communities. Scammers use a shared identity or common background to establish credibility and lure victims into fraudulent investment schemes. Seniors are also frequently targeted, making them particularly vulnerable to this kind of fraud. Victims may hesitate to report the crime, fearing repercussions within their community or social circle.

Investment fraud is on the rise

Unfortunately, investment fraud affects thousands of Canadians every year, resulting in millions of dollars in losses. According to Jeff Horncastle, acting client and communications outreach officer at The Canadian Anti-Fraud Centre:

  • In the first half of 2024 alone, over 1,800 investment scam victims reported losses totalling more than $146 million.
  • In 2023, nearly 3,825 Canadians fell victim to investment fraud, with losses exceeding $317 million.

Furthermore, Horncastle highlights one type of investment scam in particular that's on the rise — cryptocurrency scams. "Well over 50% of overall losses in recent years are related to cryptocurrency investments," he says. 

These scams often involve victims downloading a fraudulent trading platform, investing their money, and watching it appear to grow — only to find out later that they can't withdraw any funds.

Fraud warning signs

Fraudsters are becoming increasingly sophisticated, but there are red flags to watch out for. Here’s a handy checklist of warning signs that an investment scheme may not be what it seems:

🚩 Requests for personal or financial information too soon: Be cautious if asked for sensitive information before you fully understand the investment.

🚩 Unsolicited offers: Watch out for investment offers from someone you don’t know, especially if they reach out through social media or dating sites.

🚩 Complicated or unclear explanations: If the investment isn’t easy to understand, proceed with caution.

🚩 Exclusive or “VIP” group offers: Scammers may claim you’re part of an elite group to build trust.

🚩 Pressure to act quickly: Scammers often create a false sense of urgency to push you into making hasty decisions.

🚩 Unregistered sellers: Always verify if the person or company is registered with your Local Securities Regulator using tools like the National Registration Search Tool.

🚩 High returns with little or no risk: If it sounds too good to be true, it probably is.

🚩 Guaranteed returns: No legitimate investment can guarantee a profit.

How to protect yourself and your loved ones from fraud

The Ontario Securities Commission (OSC) Investor Office offers valuable resources to help you avoid falling victim to investment fraud: visit GetSmarterAboutMoney.ca. This comprehensive resource includes tools, tips, and information to help you recognize and avoid investment fraud, so you don't become a victim.

Here are some best practices to follow when evaluating an investment opportunity:

✅ Do your research: Ensure you're using reputable and compliant services. Verify the registration and background of the companies and individuals before making any investment decisions.

✅ Verify contact details: Scammers often use the names of legitimate companies. Always double-check email addresses, URLs, phone numbers, and physical addresses.

✅ Do a background check: It never hurts to check and see if disciplinary decisions, cease trade orders (CTO) or enforcement proceedings were issued by a regulatory body against a person or company using publicly searchable databases provided by the Canadian Securities Association (CSA) and the Canadian Investment Regulatory Organization (CIRO).

✅ Avoid remote access: Never allow an unknown person to gain remote access to your computer or device.

✅ Be skeptical of word-of-mouth recommendations: Fraudsters can also operate through friends or trusted connections, even hacking into their social media accounts to promote investments.

✅ Stay vigilant on social media: Con artists may use platforms like Telegram, Discord, or WhatsApp to create “VIP trade alert” group chats, making victims feel part of an exclusive group. They often lure people in by commenting on posts or sending direct messages that suggest a “can’t miss” opportunity promising high returns and limited-time opportunities.

Remember, seniors are frequently targeted by these types of scams, so it's important to be aware and take the time to verify any investment opportunity thoroughly.

Investment fraud can happen to anyone, and the consequences can be devastating. Staying informed and vigilant is your best defence. Protect yourself and your loved ones by recognizing the warning signs, verifying the legitimacy of investment opportunities and reporting any suspicious activity.

If you suspect you've been the victim of an investment scam, report it immediately to your local police and the Canadian Anti-Fraud Centre. It’s also crucial to ensure that your loved ones, particularly seniors, are aware of common scams and know what to watch out for. You can find more information on reporting fraud and staying safe at Tangerine’s Security Centre.

 

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