RRSP scam revealed
I received some inquiries a year or two ago about newspaper ads that claimed to have a solution for people seeking to get money from locked-in RRSPs. At the time, I warned that I knew of no legitimate way to do this. Now the details of the scheme have come to light.
Recently, it was revealed that Dundee Securities agreed to pay $150,000 in costs to the Ontario Securities Commission after a former employee was found to be a prime participant in a scheme that amounted to defrauding people in need who wanted to get at RRSP money. The OSC website explains how the scam worked.
A promoter advertises an RRSP Loan that lets you take advantage of a supposed loophole in the tax laws to access your locked-in funds. The promoter instructs you to liquidate your current LIRA holdings, usually to purchase shares of a start-up company of the promoter’s choosing. The promoter promises to loan you 60-70% of the value of the investment, keeping the balance as a fee. You are told you will get ready cash, with no tax consequences, and still hold a valuable investment in your LIRA.
The reality is that the stocks the promoter recommends are virtually worthless. You often get no funds from e promised loan, and you may be forced to pay tax on the de-registered money even though you did not receive it. There is no tax loophole that allows you to use the money in a locked-in retirement plan. The end result is that your retirement savings are gone, and you may have violated federal income tax law.
The OSC says that a considerable number of people were taken in by the scheme. Brian Verbeek, who worked with Dundee and two other companies, is said to have put through hundreds of transactions with a value of more than $17 million between 1998-2001. Needless to say, Mr. Verbeek is no longer in business and the investigation is continuing.
Sadly, there may be no recourse for the people who were defrauded. Even worse, they may be looking at a high tax bill for deregistering their RRSPs.
It just proves once again that if a proposal looks too good to be true, it probably is. (Sept. 2003)