Personal Investor: 4 ways to spot an investment scam
No one ever expects to get sucked into an investment scam and that helps explain why fraudsters keep getting away with the same basic cons year after year. While the original approach may vary, the Ontario Securities Commission (OSC) boils it down to four basic scams investors should look out for:
1.High returns and low risk: As a general rule, higher returns on any investment come with great risk. Why else would a guaranteed investment certificate (GIC) only yield 2.5 per cent? It’s called the risk-return relationship. When it comes to stocks, returns are never guaranteed and anyone who says they are is either ill-informed or lying. The bigger the return potential, the bigger the risk.
2.Hot tip or insider information: Scammers will often pretend to take potential victims into their confidence and tell them about an opportunity only they are privy to. They will often claim to have a connection to someone inside an operation. Why would they be so kind to you? If the hot tip is false, your lose your money. If it is really inside information about a public company, it’s illegal to act on it under insider trading laws.
3.Pressure to buy now: High-pressure sales tactics are the hallmark of a scammer. The more time you take to think about it, the greater the likelihood you will be suspicious. If you are asked to make a decision right away, or are presented with a limited time offer, it might be a scam.
4.Seller not registered to sell investments: Before investing, the OSC suggests you check the registration and background of the person offering the investment. Anyone selling securities or offering investment advice must be registered with their provincial securities regulator.
- Check registration through the Canadian Securities Administrators’ (CSA) National Registration Search.
- Check their background to find out if they have been in trouble with a securities regulator using the CSA’s Disciplined Persons List.