Keep close watch on your money

The meeting was about another subject entirely. I had joined CARP’s Bill Gleberzon (Associate Executive Director) and Judy Cutler (Public Relations Director) to talk with Nancy Stow of the Ontario Securities Commission (OSC) about how we might work together to improve investor knowledge. The OSC administers and enforces securities law in Ontario, and every province or territory has a similar body.

As an aside, Ms. Stow began telling us about an investment scam which, after festering in the U.S. recently, has been spreading into Canada like a virulent virus.

The scam, which is totally fraudulent, is based on a completely fictitious “investment” known as “prime bank instruments”. If you, or anyone you know or care about, hear those words in any investment context, be sure to slam the door, put down the phone, or walk the other way.

The heartless con artists who run this fraud present themselves as being part of real financial services companies, or as so-called financial advisers. If you have any doubt whatever, just call the securities commission in your province or territory and see if the person or company is registered. In fact, when you are looking at making an invesent of any kind, make sure you are dealing with a reputable broker or agent who is registered in this way. A simple phone call could save you thousands of dollars and never-ending heartache.

Now to the scam: These con artists pretend the bogus “prime bank instruments” are issued by the top banks around the world as debentures or bonds (not true); are usually available only to the wealthiest of investors (not true); and are virtually guaranteed to pay high rates of return, typically promising as much as 33 per cent in only three months (most definitely not true!) “I know this sounds trite,” says Frank Switzer, the OSC’s Manager of Corporate Relations, “but the simple message is this: If it sounds too good to be true, it almost always is.”

But these scammers are good. They work their way into your confidence like this: They tell you they’re pooling money together from a lot of ordinary people to buy the “instrument”, so you can start with as little as $1,500. Of course, you are asked to wire the money to an offshore account. Then, three months later, you receive a cheque for $500 of “profit” (in reality, a third of your own money) to convince you to invest more. That’s when the hook really goes in.

Even informed, intelligent, people who should know better have fallen for the pitch. A retired RCMP officer mortgaged his fully-paid home for $200,000 which he invested in the scheme. Of course, the official-looking certificates he received were worthless and he never heard from the con artists again. The perpetrators usually target elderly investors in rural areas all across Canada, looking for those who do not have access to large financial institutions or qualified advisers. Some communities have been cleaned out of hundreds of thousands of dollars. In some cases the sting goes even further. They will encourage you to bring friends into the pool, then inform you that you have lost your money. When you threaten to go to the police, they remind you that you got your friends to invest, implying that you may be held responsible.

Beyond this particular, frightful scam, the OSC’s Switzer urges CARP members to act with great caution in dealing with any new investment. He recommends investors ask about the level of risk, if the product has been issued according to the rules of the Securities Act, if any written material — such as a prospectus — is available, what other investment advisers are saying about the product, and if there is a re-sale market for the security involved. Good points, all.