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How to avoid investment scams, cons, and ripoffs

by | Sep 4, 2014 | SELF-PUBLISHED

Educate yourself on ‘too-good-to-be-true’ schemes

There are plenty of bad boys out there (and it’s usually the boys, though the girls aren’t totally innocent) just itching to steal your money. Instead of holding you at gunpoint in a dark alley, these types of thugs, who are politely called “white collar criminals,” hold you up using a big smile, a persuasive line of patter, and a bagful of phony investments. Either way, you’ve been robbed. There’s not much you can do about the gun-toting type except to avoid those dark alleys. But there’s lots you can do to avoid white collar thugs.

The Canadian Securities Administrators regulatory umbrella group lists these as the most common swindles to recognize and avoid.

Exempt securities scam

An “exempt security” is a type of investment available only to so-called “accredited investors,” who are demonstrably in the high net worth category and are typically financially very sophisticated. These securities can be offered without a prospectus, and are in themselves perfectly legal. Where the scam comes in is if you get an unsolicited offer to buy an exempt security that is allegedly “about to go public,” and a “special exception” to the accredited investor rule is being made just for you.

Legitimate issuers won’t make an exception to the rule. Chances are you’re the target of a scam. At the very least, you’re being offered a hugely risky “investment.” If you’re not a high net worth investor (investable assets of at least $1 million), you will never legitimately be offered an exempt securities investment.

Forex scam

You might have seen these things online, in a spam email, or in the business papers. The pitch is that you’ll soon be richer than Warren Buffett by “investing” in the foreign exchange (forex) market through this or that investment outfit promising insanely high returns using some sort of foolproof black-box algorithm. Forget it! It’s incredibly difficult to make a buck in the forex markets, even if you’re a professional trader. These scammers simply steal the money of anyone foolish enough to give it to them.

Pump-and-dump scams

It’s an unsolicited phone call or email inviting you to invest in a “ground-floor opportunity” in a low-priced stock that’s ready to take off. Trouble is, the scammer owns all the shares and relies on a growing number of naïve investors to buy the junk, artificially driving up the price. When the share price has skyrocketed, the fraudster sells his majority holding, and the “market” collapses. The marks are left holding worthless stock that they can’t sell. Don’t buy stocks from a phone or email tip.

Tax, pension, and offshore swindles

By far, these scams are the most dangerous to your finances and investments. These are perpetrated by crooks who work hard to gain your trust by becoming your “friend.” People over the age of 50, who are getting close to retirement and don’t feel they have a sufficiently large nest-egg, are particularly targeted by these swindlers.

Introductions and referrals are often made by friends or relatives who are already victims (but don’t yet know it). Sometimes they’ll rope you in through glitzy “investment seminars” or presentations to a social, ethnic, or religious group you might belong to. Always, there’s the promise of fantastically high returns, huge tax savings, or tax-free unlocking of locked-in retirement accounts. And they all involve your handing over lots of money to the crook first and fast, before this “once-in-a-lifetime” chance disappears.

All of these promises are impossible to fulfill. Once they’ve bled you dry, they disappear with your money, never to be seen again.

Outfox the scammers

The best way to avoid being scammed is to deal with an objective, independent financial planner who doesn’t have an interest in selling a particular type of investment and doesn’t receive secret commissions or other payments for doing so. Ask for and double-check proof of credentials and claims of performance.

If you have any doubts about the person you’re dealing with or about someone who’s offering you an investment that seems too good to be true, check with your provincial securities commission or agency, or with the Canadian Securities Administrators. The Ontario Securities Commission has an especially good website where you can check registrations, disciplinary actions, and proceedings against individuals and firms by all key regulatory agencies.

© 2014 by Robyn K. Thompson. All rights reserved. Reproduction without permission is prohibited.

© 2021 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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