Too good to be true? Avoiding investment scams
We have all heard the phrase “if it seems too good to be true, it probably is” for years. And while we may all rationally know that there is no such thing as a surefire “get rich quick” scheme, investment scammers are not relying on the rational parts of our brains. While they’ve always been skilled at tapping into the emotions of people - who doesn’t want there to be a way to see high returns with virtually no risk? - the last few years of uncertainty, stagflation, and then the record year of interest rate hikes combined with new under regulated industries such as cryptocurrency have given investment scammers new avenues to part individuals from their hard earned cash.
According to the Alberta Securities Commission, in 2023 there were three investment scams that became more popular that investors should beware heading into 2024.
1) Celebrity endorsements / social media deepfakes. If you’ve seen the ads where the likes of Connor McDavid and Sidney Crosby are “all in on this investment - and you should be too!” you will know what I’m talking about. In some cases, the celebrity or athlete in question has no idea about the “investment” that they are supposedly excited about, with no involvement in the scheme whatsoever. Even in the cases where there is a legitimate endorsement, that is still not a guarantee of something being an appropriate investment, or of future returns. Athletes and celebrities are not automatically qualified to be giving financial advice (and frankly anyone who is would not be blasting a “one size fits all” suggestion on the internet).
2) Romance scams. This one is a classic, for the simple reason that it works. You meet someone online, everything is going great - you connect, you talk all the time, they know you so well and understand you… of course this person loves you and only wants the best for you! Once the ‘relationship’ has been established, they will suggest a great investment opportunity (more frequently this has been related to cryptocurrency investments) that they can help you invest in. In Alberta in 2023 there were 70 reports of romance scams resulting in over $2.6 million in lost assets - and many individuals who fall prey to this sort of scam never report it, meaning the actual total is likely much higher.
3) Recovery scams. This one is particularly insidious, as the people who have successfully scammed a person once will circle back impersonating a recovery agency, law enforcement, or regulator to ‘help’ recover the stolen assets - for a fee. These individuals may use information from the original scam to make themselves seem knowledgeable about the situation and further increase their credibility to encourage individuals to pay them a fee, or potentially hand over banking information to make a repayment simpler.
So what can you do to protect yourself? The Canadian Securities Administrators have a list of concerning behaviours to look out for, and recommend any suspected fraudulent activity be reported to your securities regulator.
Always be cautious about providing information to individuals that you have met online and never in person - while non face to face business has become more popular, it is important to be able to verify the person you are communicating with is who they say they are. If someone has never met you face to face (or at least via video call) and starts asking for money for an investment opportunity that can’t be missed - stop and verify before proceeding any further. If this person also asks for access to your mobile device or computer, or for banking details you should proceed extra cautiously.
If you are thinking of taking investment advice from someone online, verify their credentials. Are they or the firm they work for registered with the securities commission? The Alberta Securities Commission has an “Investment Caution List” of firms that are NOT registered but appear to be engaging in activities that require registration, or that may be outright scam operators. You can also check to confirm if the individual you are speaking with or their firm are registered at the Alberta Based Registrant List, or for those outside of Alberta on the National Registration Search.
Be wary of offers for risk free investment with high returns - all investments have some level of risk. If anyone is promising a specific return, or a high level of return for extremely low risk, there is probably more to that story. This is usually combined with a pressure to make a quick decision. If an investment professional is working with you, they should be taking time to ensure they understand your circumstances and what sort of investment is appropriate for you, and ensuring that you understand broadly how this investment works and what the risks are. You should not be pushed to invest before you are able to gain a comfort level with the proposed investment. If this is also an “exclusive offer” you’ve got a trifecta of red flags and should definitely take this idea with a grain of salt and independently verify it.
Another red flag is an offshore firm or advisor - brokerage firms need to be registered in your province / territory to open trading accounts or make investment recommendations. If they are not located in Canada and not on the registration list, be extremely wary.
Firms / advisors offering “confidential” investment advice, encouraging you to subvert the government / avoid financial institutions and limiting a paper trail may be trying to keep their illegal activities more easily hidden and make it more difficult to recover any lost assets. Investment advice given to you “confidentially” may be a fabrication to make you feel more secure in investing, or it may be insider information - either way this puts you at risk as an investor.
If you attempt to verify the registration and identify of an individual, understand the investment opportunity better, or just want more details about how their business operates and they deflect from answering or try to divert the conversation away, they may be trying to hide something. Most legitimate investment advisers have nothing to hide and encourage questions from clients and transparency from their firms.
If you are ever unsure if an opportunity is a scam - stop and don’t invest. Visit checkfirst.ca to learn more about the possible investment scams related to this type of investment, determine if the individual / firm is registered (and that they are not on the cautionary list), and if you suspect this individual may be engaging in fraudulent activity report them to the Securities Commission of your province / territory. The evolving nature of investment scams means we have to keep evolving our knowledge of them, but to protect your hard earned money that is absolutely a worthwhile risk.
Elyce Harris is a CFA Charterholder working with Cornerstone Investment Counsel, a registered ICPM in Alberta, Canada. She is also a licensed insurance broker in Alberta, Ontario, and PEI. While every effort is made to ensure the accuracy of statements, errors may occur. If a specific stat or carrier policy is cited, a source will be provided, however some opinions / generalizations have been provided without a specific source.