Investment frauds target the 50plus

Over a year ago, we alerted readers to a diabolical investment scam that sadly continues to thrive, despite the efforts of law officials and the media.

Securities regulators and the RCMP recently issued a joint warning about so-called ‘prime’ investments. This scheme involves con artists enticing their victims with guarantees of extraordinary rates of return over short periods of time – a promise of 20 per cent a month isn’t unusual. They also claim the investments are affiliated with reputable organizations such as the World Bank.

The phony securities have official-sounding names and the rogue ‘brokers’ use legal-looking documents and legitimate-sounding financial terms. ‘Prime Bank Notes’, ‘Prime Bank Debentures’ and ‘Roll-Over Programs’ are popular labels. So-called ‘high-yield investment programs’ and ‘high yield cash trading program’ are also very effective bogus investment vehicles.

Secrecy is tip-off
Another key element of the deception is a demand for secrecy. The unsuspecting investors who buy into the scheme must agree not to divulge information about the plan nor the names of people involved.

In addition, participantsay be paid to draw friends and relatives into the program. These crooks aren’t stupid – they know that potential victims are more vulnerable if referred by a friend, and they can later use referrals as blackmail if someone is thinking about blowing the whistle.

It’s almost foolproof for the criminals. When things get hot, the scam artists quickly disappear and investors are left with nothing but the sick, heartbreaking feeling that comes with the realization that they’ve been taken.

Other frauds
This is not the only investment fraud currently on the rise.

  • Another involves talking victims into buying worthless stocks and, in a second stage of this rip-off, swapping them for supposedly high-quality shares. The price difference between the stocks is covered by sending cash. Of course, no blue-chip stocks exist and duped investors lose out again.

  • Yet another ploy uses the Internet to send out phony information (known as ‘spam’ in Internet jargon) to a mass of people. The aim is to encourage investors to buy or sell a particular stock —thereby affecting the price to the advantage of the ‘spammer’.

These represent the tip of the iceberg when it comes to investment scams. As consumers, we’re at a disadvantage because we tend to know less than the salesperson does. This holds true whether you’re buying a vacuum cleaner or something less tangible such as financial advice.

In the investment industry, for example, stockbrokers have far more knowledge than the investors who turn to them for guidance – that’s why they’re the financial advisers.

It is precisely this knowledge imbalance that drives investment frauds. It’s not surprising that scam artists rely heavily on technical jargon to bully and dupe their victims. It’s lamentable that 50-plus Canadians are often preyed upon. Many are looking for ways to boost a fixed income or who may have substantial retirement savings.

As with any type of crime, protecting yourself depends on a combination of ‘street smarts’ and hard work. 

  • Do your own research. Start by checking out the salesperson and investment firm with securities regulators before you agree to anything. Even if they rate well, select your financial adviser with care.

  • Keep on top of current frauds. Provincial and territorial securities commissions include ‘Investor Alert’ of scams and frauds pages on their websites, and reading the financial pages of the daily newspaper is also a safeguard.

  • Warn friends, family and report anything suspicious to authorities.

  • Be ‘from Missouri’ -skeptical. Remember that no investment is exempt from the principle that higher expected returns means accepting greater risk.

  • Don’t invest in anything you don’t understand and be cautious even when you think you understand the explanation given.

  • Above all, trust your gut instincts – if you feel uncertain, hang up the phone or shut the door. Trust your own common sense. It’s your first and best defence.