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Fraud prevention: recognize these 3 financial scams

by | Mar 12, 2019 | SELF-PUBLISHED

How to avoid becoming a victim

March is fraud-prevention month in Canada, and unfortunately thousands of Canadians continue to fall victim to scams perpetrated online and by phone, often losing tens of thousands of dollars or in some cases, their entire life savings. Here’s a look at three of the most notorious financial frauds that are still widely active in Canada, and how to avoid becoming a victim.

Fake CRA audit scam

This involves recorded voicemail messages from someone claiming to be from the Revenue Canada Agency, saying that I have overdue taxes and that legal action will be taken unless I pay immediately. There’s a call-back phone number given with an Ottawa area-code. They’ll typically ask for payment in some form of untraceable medium, such as crypto-currency or gift cards. If you receive such a call, simply hang up. Never give any personal or financial information over the phone to someone you don’t know. And never call back on the number given.

Ask yourself why the CRA would be asking for your social insurance number and other identity information – they already have that. If you still aren’t sure whether it’s a scam, hang up anyway, and call the Canada Revenue Agency back through their main toll-free number (1-800-959-8281) or check the CRA’s My Account feature online to see whether you owe money or are entitled to a refund.

A number of these CRA tax scam call centres have been broken up in India recently, but they continue to proliferate because they are so lucrative for the scammers.

The CRA warns taxpayers to be vigilant when they receive communication that claims to be from the Canada Revenue Agency, requesting personal information such as a social insurance number, credit card number, bank account number, or passport number. The Canada Revenue Agency will not do any of the following:

* Send email with a link and ask you to divulge personal or financial information.
* Ask for personal information of any kind by email or text message.
* Request payments by prepaid credit cards.
* Give taxpayer information to another person, unless formal authorization is provided by the taxpayer.
* Leave personal information on an answering machine.

Binary option scam

In this scam, usually initiated through an online link or pop-up, often on an unrelated financial site you might be visiting, you’re offered incredible returns by buying into so-called “binary options.” This is a type of options contract where the payoff comes only if a certain outcome occurs on a specific financial asset. You make a bet on whether the price of a stock, commodity, or currency will rise above or fall below a stated level by a certain time. The term “option” is a misnomer, because buyers of the contract do not actually have the opportunity to buy or sell the underlying security, as they do with real options. A binary option is essentially just a betting slip, similar to what you get at the races for a bet placed on a horse to win.

It’s a scam because the con artists (usually based somewhere offshore) lure you in with a few small early “wins” (all faked, of course). Once you’ve been hooked, the binary options trading platforms will require you to undergo a “credit check” and provide copies of credit cards, passport, driver’s license, utility bills, and other personal data. And once they have that (because it’s what they’re really after), they’ll have effectively stolen your identity, allowing them to rack up thousands of dollars on your credit card, and use your identity for even more nefarious purposes. And you’ll never again see any money you’ve put up or any supposed “winnings” from your binary options trades.

LIRA loan scam

You may get this come-on through an online solicitation, an e-mail or text message, a recorded phone message, or even a personal call by a supposed “financial advisor.” The fraud involves dangling the prospect of “unlocking” money from your Locked-In Retirement Account (LIRA), without tax consequences, and a special RRSP loan. The hook is that you sell your existing LIRA investments and use the proceeds to buy shares of some fake, fly-by-night company offered by the promoter instead. As a sweetener, the promoter promises to lend you back up to 70% of the money you’ve “invested,” with the rest being kept as a “service charge” or “administrative fee.” In truth, victims of this scam end up with a worthless investment and no loan – and no retirement savings.

The scam preys on older investors who may have substantial LIRA accounts, and may have some need for the funds. But remember that a LIRA is designed to be like a pension fund – conservatively managed, long-term, tax-deferred savings until the maturity date, usually at 55 or older. It is not designed for get-rich-quick investment schemes. Avoid these types of pitches like the plague!

How to avoid becoming a victim

The Ontario Securities Commission also offers five excellent best practice tips for judging the legitimacy of any investment opportunity you may be offered:

  1. Always check registration and enforcement history before investing.
  2. Be wary of giving out personal information (including credit card information) by phone or online.
  3. Never make a decision on the spot, even if pressured to do so (and the pressure can be intense). Research the offer and review it with your financial advisor. A legitimate investment will still be there tomorrow or next week or next month.
  4. Insist that written information (e.g., prospectuses, financial statements, etc.) be sent to you. Review them with your financial advisor.
  5. Understand completely what you’re getting into, including risks, transaction details, mechanics of trading, reporting, and so on.

For more information on spotting and preventing fraud, check the Canadian Anti-Fraud Centre. Finally, remember the old investing adage, “If it sounds too good to be true, it is.”

© 2023 by Robyn K. Thompson. All rights reserved. Reproduction without permission is prohibited. This article is for information only and is not intended as personal investment or financial advice.

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