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Exclusive investment offers are just one of the red flag warnings from the Canadian Securities Administrators (CSA) in its ongoing effort to crack down on investment fraud.
The umbrella group that represents Canada’s securities regulators cautions investors to be wary of investment pitches promoted as “just for you” and an exclusive group of special (wealthy) insiders.
The CSA says fraudsters posing as investment advisors tend to play on human vulnerabilities such as the fear of missing out (FOMO). They could even drop a few names of familiar investors you might recognize.
In some cases, they could refer to the tip as “insider” information from someone with access to exclusive information about the company that issued the stock. Even if it’s true, it is illegal to knowingly trade on inside information.
Here are other investment fraud red flags from the CSA:
OFFERS OF UNREALISTIC RETURNS
If it seems too good to be true, it probably is. All investments have some level of risk. As a general rule, the higher the potential return, the higher the risk.
Real investment advisors are prohibited from describing a return as “guaranteed” unless it actually is (such as a guaranteed investment certificate or GIC).
Scammers of every stripe will employ tactics to pressure their victims into making a quick decision before they have time to realize they are being scammed.
Even if you push back, they will often pressure you to invest a little at first and come back later looking for a larger amount. Once they get their hook in you, they won’t give up.
OFF THE RADAR INVESTMENTS
Any individual who encourages you to subvert the government or avoid financial institutions is most likely trying to keep their illegal activities from being tracked, according to the CSA.
Without the proper documents and statements, fraudsters can easily slip off into the night with your money. Legitimate investments also require a prospectus, or a formal document that explains the details of an investment and the risks involved.
The CSA cautions Canadian investors to be wary of firms or individuals from outside the country. Brokerage firms need to register with provincial and territorial securities regulators as dealers or advisors to open trading accounts or recommend investments.
PRECATIONS BEFORE YOU INVEST
If you are approached by someone pitching an investment by phone, text, email, social media, or even in person, the CSA suggests ensuring they and their firm are registered using the online National Registration Search (NRS) on the CSA website.
If you suspect it’s a scam, report it to your provincial or territorial regulator immediately.
GETTING YOUR MONEY BACK
If you have already given money to a non-registered individual or firm, there’s a slim chance you will ever see it again.
If you believe you have received unsuitable investment advice or unauthorized trades have been made on your account by a registered investment entity, there are steps to can take to get at least some of your money back.
Always start by contacting the individual and firm in writing with your complaint and how you want it resolved, according to the CSA.
If they do not provide a satisfactory response in writing within 90 days, the complaint can be escalated to the Ombudsman for Banking Services and Investments (OBSI), the independent dispute resolution service.
Quebec residents are encouraged to submit their complaint to the Autorite des marches financiers (AMF).
If the complaint involves a firm that is a member of the Investment Industry Regulatory Organization of Canada (IIROC) or the Mutual Fund Dealers Association of Canada (MFDA), you also have the option of filing it with their internal arbitration programs.
Above all, the CSA says every step should be documented.