Investment frauds represented 5.1% of the frauds reported to the Canadian Anti-Fraud Centre in 2022, identifying 4,283 victims. Despite the low number of reports filed, the losses from this type of fraud were more than $308M, with an average loss of just over $72,000. Recovery of fraud losses was less than 1%.
The Canadian Securities Administrators (CDA) recently warned of fraudulent investment groups using social media to promote their scheme. Fraudsters use private WhatsApp chats, fake credentials, shifting targets, and pressure tactics to find their targets.
The scheme is a pump-and-dump, where high returns are promised, and the price of the shares is artificially inflated. When the price is high enough, the fraudsters dump their shares and stop promoting the investment, causing the value to crash. Those who invest at higher price points lose the most.
Another type of investment scheme that has drawn the attention of fraudsters is investments in foreign exchange (forex). As with many types of fraud, this scheme uses pressure to convince potential investors using the promise of high returns as the lure. Investors need to be cautious because forex trading is a legal form of investment. Before investing money in this high-risk market, investors should ensure the broker is registered with the provincial regulator, such as the Alberta Securities Commission.
Other types of investment frauds
- Affinity fraud schemes are where targeted individuals are enticed into the investment because they know the fraudster.
- Emerging sector schemes involve conning investors into believing they are investing in a new sector, only to lose everything to the fraudster.
- Ponzi schemes like the one Bernie Madoff orchestrated,
- Pyramid schemes are very similar to multi-level marketing businesses. However, pyramid schemes generate profits from recruitment instead of product sales.
All investment frauds share the red flags of promising high returns in a short period, pressure to make a decision, and a tip about a “hot” stock. The individuals who carry out these frauds will go to great lengths to convince the public that it is an authentic investment, including setting up fake sites. Before investing, check your area’s securities regulatory body to ensure the investment is legitimate.
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