How to spot investment scams

Zoomer | January 1st, 2006

Separating you from your money is the main goal of crooks operating amidst the legitimate financial services industry. They operate in person, by phone and on the Internet. Limited resources make it difficult for regulators to police the Net, and being able to spot an investment scam yourself may be your best defence.


The following characteristics can be indications that an investment is too good to be true:



  • Unrealistic promises:


    In the world of investments, higher returns generally go hand in hand with higher risk. Be very wary if a promoter says he or she can deliver exceptional returns with no chance of losing your money.


    • These con artists also recognize that many investors resent paying taxes, often promising ‘tax-free’ status for your investment. But bear in mind, says Michael Bernard of the B.C. Securities Commission, that an investment that promises to let you avoid taxes is also telling you to break the law. 



  • Lack of proper registration:


    To be legal, an investment product must be approved in the jurisdiction where it’s being sold and the salesperson must be registed with provincial or territorial regulators. Although Canada does not have a national securities regulator, similar rules are in place in each province and territory.


    • Before making a commitment, check whether a salesperson is registered to sell in your jurisdiction and confirm that the investment itself is cleared for sale, advises Michael Watson, director of enforcement with the Ontario Securities Commission.



  • Incentives to recruit friends and relatives:


    Criminals know that a recommendation from a friend can be a stronger sell than a pitch from a stranger. You may be encouraged to bring others into the scheme. There may even be incentives, ‘bonuses,’ for recruitment.



  • Secrecy:


    It might call itself an investment club or go by some other official-sounding name that denotes exclusivity, but demands for secrecy and offers of privacy can be tip-offs that a scheme is actually a scam.


    Says Bernard, “Ask yourself, ‘Why are they offering it to me? Why aren’t they offering it to the rest of the world?'”