An interesting piece in the NY Times talked about how high net-worth, older investors in the United States are being targeted for investment fraud. The articles calls investment fraud a “growth business.”

There is no question that the same thing is happening here.  We have significant populations of older Canadians living in communities like Victoria, Kelowna, and White Rock, providing unlimited opportunities for fraudsters. 

The only thing that prevents investment fraud from happening is investors’ ability to protect themselves.  And, therein lies the problem.  Many investors don’t know how to protect themselves.

We know that the main incentive for older Canadians to take more risk is the promise of greater returns. 

In a recent survey of about 2,500 older Canadians (50+), we found out that at least 2-in-5 don’t understand the fundamental relationship between risk and return. Only 1-in-4 has a realistic expectation of the current rates of return for their investments.

Think about why these findings are so significant.  If you are one of the almost 45% of Canadians who don’t understand the concept of risk and return, you are more likely to fall for any of those fraudulent offers that are being made every day – on the Internet, in sales seminars, on the telephone, or through a friend or family member.

That is why we launched a three-year Be Fraud Aware campaign – to get the message out to people about how to protect themselves.

It is never too late to become better informed about investing!

The Globe and Mail’s Janet McFarland and the Vancouver Sun’s David Baines both wrote about our recent notices of hearing about responding to investment offers on Craigslist.

In March, we alleged that a BC man and two companies he controls made materially false statements while promoting an investment on Craigslist.  Gaia Equity claimed to guarantee BC investors a risk-free monthly rate of return of up to 9.83% through investments in renewable energy projects in developing countries. Samuel Richard Allaby also claimed that these risk-free investments were guaranteed by the World Bank and the International Monetary Fund.

In May, we alleged that Paul Stiles told investors through ads posted on Craigslist that investors could earn returns ranging from 12% annually to 100% within six months by investing in Velocity Entertainment Inc., a private company that he claimed was producing feature films.

Two messages: there is no such thing as a guaranteed return and the returns promised in both of these cases are completely unrealistic.  And, don’t respond to any investment offers on Craigslist.

On Wednesday, CTV’s Lynda Steele featured our Be Fraud Aware campaign on the network’s newscast. The three-minute video is available on the CTV website on a dedicated webpage  that features much of the content from the news story.

Pat Bowles, the BCSC’s director of Communication and Education, appears in the piece talking about some of the warning signs of investment fraud, such as high-pressure sales tactics and offshore tax-free investments. Steele also goes over some other indications an investment could be a fraud, and encourage people to do their due diligence when investing.

For anyone who hasn’t seen the story, we suggest you take the time to watch it online. It’s a great introduction to what you should be looking out for, and we hope it encourages more awareness and reporting of fraud.

When you report an investment opportunity that you know or suspect isn’t right, you enable the BCSC to investigate the matter. Many investigations lead to enforcement actions that shut down sham operations and remove those involved from the market.

You can report through our website by simply clicking on the red “Report to us” button on the homepage.

Recently, we opened an investigation and took action against two people after receiving reports through InvestRight’s Report a Scam form. This online tool allows you to report your concerns about possible investment scams anonymously.

We also have an Inquiries Groups who answer calls from the public. You can reach them at 604-899-6854 or 1-800-373-6393.

BCSC staff ambassadors tour the province, helping people to protect themselves from fraud and unsuitable investments. Our goal is to enable BC investors to develop critical thinking skills so they can become more informed of steps they should take to protect themselves when investing.

Where we are this month 

Campbell River  

Spring Home Expo

May 4 - 5:00 pm - 9:00 pm

May 5 - 9:30 am – 5:30 pm

May 6 - 10:00 am – 4:00 pm

Strathcona Gardens Arena, 225 South Dogwood Street

For more information go http://www.homeshowtime.com/events/events_details.asp?evID=110 
All welcome! Cost: Free

Kelowna 

InvestRight seminar

May 14

Private event

Nanaimo 

InvestRight seminar

May 17

Private event

Abbotsford 

InvestRight seminar

May 17

Private event

Surrey 

May 27

Private event 

We present to various service clubs such as Rotary, Probus, Newcomers, women’s groups, senior’s organizations, and other networks. If your group of 20 or more would like to have the BCSC come and present InvestRight, please contact:

Anne Rutherglen,

Program Manager, Outreach

Communications & Education

Email:arutherglen@bcsc.bc.ca

Phone: 604-899-6731 or toll free: 1-800-373-6393

In this post, I will point to some websites aimed at helping young people develop their financial skills. This is not an extensive list, of course, and we encourage you to post other resources in the comments section below.

The City/La Zone
In 2008, the BCSC and FCAC launched an online resource called The City/La Zone. This resource is available to all young Canadians and their teachers in both official languages. It uses interactive activities and worksheets that let young people practice real-life skills. The City/La Zone is based on the BCSC’s The City: Financial Life Skills for Planning 10 and is available to students and teachers across the country.

My Money $ My Future 

The Certified General Accountants of Alberta offer this free resource to help high school students determine their options when it comes to making financial decisions. The website offers a quiz to see if you are “a saver or a spender”, a debt calculator, and helpful tips on saving and earning. You can also download a free workbook or sign up for monthly financial tips.

Make it Count
The Canadian Securities Administrator’s Make it Count program offers a series of activities, tips and lesson plans that are simple to follow and easy to teach. The program includes a parent’s guide, an instructor’s guide and an online daily budgeting program that uses everyday situations like errands to engage youth in discussions about money management. There is also a mobile app available through the iTunes store.

Your Money 

This website from the Canadian Banker’s Association offers resources for teachers, parents, and students. The website it tailored to serve these three distinct audiences with sections catering to each of their needs. For example, in the student section, young people will find links to information about budgeting, saving, and investing. The website also taps into outside resources, like The City’s “Lifestyle Reality Check” worksheet.

Cranial Cash Clash
This online financial assessment tool allows you to test your knowledge against other people playing online. You play by first choosing a finance-themed, multiple-choice quiz. Your score is determined by how quickly, and correctly, you answer the questions. Your can share and track your score on social networking websites. 

For more links to financial literacy resources for young people, visit the Youth Education section of InvestRight. 

After receiving reports that Medwell Capital Corp. shareholders were contacted in what appeared to be a “recovery room” scheme, the B.C., Alberta and Ontario securities commissions issued Investor Alerts. BCSC staff also added NT Global to the Investment Caution List.

The man contacting Medwell Capital Corp. shareholders went by the name of Michael DeJuan, of NT Global, which purports to be a Toronto-based company. The NT Global website is suspended, and the address the company lists as its headquarters is a virtual office.  Another company with a similar name, NT Global Advisors Inc., confirmed to the Ontario Securities Commission that neither it, nor any of its employees, has been contacting Medwell Capital Corp. shareholders.

You can read more about recovery room schemes in the Investor Protection section of the website.

On March 15, BCSC staff added Ava FX, Ava Financial Ltd., Ava Capital Markets Ltd., 4XP Investments & Trading, and Forex Place Ltd. to the Investment Caution List. A British Columbia resident brought the companies’ websites to the attention of staff.

BCSC staff also added Pennington Global, Wentworth & Wellesley Ltd., and Wentworth & Wellesley Metals to the Investment Caution List in mid-March.

Pennington Global came to the attention of BCSC staff after a representative of the firm solicited a B.C. resident to open a commodities trading account. Another law enforcement agency reported Wentworth & Wellesley to the BCSC. These companies also purport to be commodities brokers, and have opened trading accounts with Alberta and Saskatchewan residents.

None of these eight additions to the Investment Caution List are registered to trade in, or advise on, securities and exchange contracts. We urge B.C. residents to exercise extreme caution when dealing with firms that are not registered to trade or advise in securities.

We also encourage people to report investment offers by unregistered foreign entities to the BCSC immediately. You should always check an advisor or company’s registration by doing a background search.

These are some of the common methods scam artists use to entice people to invest in their schemes.

For example, in one case, BC investors were pressured by boiler-room sales techniques into putting money in an investment that promised returns of more than 400 per cent by year three of their investment. This is just one of the many cases highlighted in the CSA’s 2011 enforcement report. 

When it comes to investing, don’t accept promises without doing your homework. Visit InvestRight.org to learn what you need to know.

On Feb. 14, 2012, the BCSC issued an Investor Alert announcing it was investigating Rashida Samji and Arvindbhai Bakorbhai Patel (aka Arvin Patel).

We also activated an Investor Communications Services Centre (ICSC) webpage on InvestRight to provide investors with resource information and to let them know about developments in the case.

This week, the BCSC’s executive director issued a notice of hearing alleging that Samji and two companies she controls committed a fraud that raised about $83 million from 218 investors.

The BCSC also announced that it had settled with Patel, who admitted he introduced approximately 90 investors to an investment opportunity through Samji, then a notary public. Patel, a former mutual fund salesperson and financial planner with Coast Capital Savings, has received a permanent market ban in B.C. for his misconduct.

Patel has voluntarily transferred his legal and beneficial interest in five properties to the receiver, which the BCSC applied for and was appointed by the Supreme Court of British Columbia (his remaining assets remain subject to a freeze order).

The receiver has published a webpage that includes court documents and a notice about an investors’ meeting. Patty E. Wood is the contact at MNP Ltd. She can be reached at 604-637-1535, or via email at patty.wood@mnp.ca. 

Details about the Samji notice of hearing and Patel settlement agreement can be found in BCSC news releases we link to on the ICSC webpage. You can view the Patel and Samji hearing files on the BCSC website here and here.

Where we are this month 

Nanaimo 

InvestRight seminar

April 4

Private event

Burnaby  

InvestRight seminar

Hosted by Burnaby Public Library

April 16

6:30 pm - 8:30 pm

Program room, Bob Prittie Metrotown Branch, 6100 Willingdon Ave.

Free underground parking

Cost: free

To register contact:  604-436-5400

Vancouver 

InvestRight seminar

April 21

Private event

Dawson Creek 

April 24 - morning

Private event

Dawson Creek 

April 24 - afternoon

Private event

Pouce Coupe 

April 26

Private event 

Surrey 

Focus on Seniors Forum

April 26

9:00 a.m. – 3:00 p.m.

Newton Seniors Centre 13775-70 Avenue, Surrey

This event is free for all seniors - focusing on an English speaking audience. This forum will raise awareness of issues impacting seniors as well as provide valuable information about legal, safety and support resources available to seniors and their caregivers in Surrey.

Lunch will be provided.Lots of great prizes!

Seating is limited, so please register at:

• 604-501-5100 ( 8:30 am- 4:30 pm) Monday- Friday)
• Any City of Surrey ‘s Community or Senior’s Centres
• www.surrey.ca/register 

We present to various service clubs such as Rotary, Probus, Newcomers, women’s groups, senior’s organizations, and other networks. If your group of 20 or more would like to have the BCSC come and present InvestRight, please contact:

Anne Rutherglen,

Program Manager, Outreach

Communications & Education

Email:arutherglen@bcsc.bc.ca

Phone: 604-899-6731 or toll free: 1-800-373-6393

The Canadian Securities Administrators (CSA) today issued an investor watch to make investors aware of the significant risks involved in foreign currency exchange (Forex/FX) investments. Investors who trade Forex are also warned against dealing with unregistered firms offering Forex trading.

The investor watch was created after CSA staff identified an increase in unregistered foreign exchange trading services being offered to Canadian investors, by both Canadian and foreign firms.

“Forex trading can be complex, volatile and extremely risky. It should only be entered into if investors are aware of the risks and prepared to lose their investment,” said Bill Rice, Chair of the CSA and Chair and CEO of the Alberta Securities Commission. “If they do enter this market, investors are advised to get expert advice from a registered professional before participating in Forex trading or purchasing a Forex-related investment.”

Use the National Registration Search or check with your local securities regulator to find out if an individual or firm is registered in your province or territory.

To improve public understanding of foreign exchange trading, the CSA have published a detailed document describing Forex and the various risks associated with this type of investment.  It has also created a Forex resource page on its website.

Investors should be aware of the potential for fraud and avoid offers to trade Forex associated with any
of these characteristics:

• a guarantee of little or no risk and high investment returns;
• dealers or brokers that are not registered with the provincial or territorial securities commissions, and typically are based outside of Canada where it can be difficult or impossible to protect or retrieve funds;
• an unwillingness to discuss the past performance or track record of the specialist traders who will purportedly handle their money;
• an unwillingness to identify specialist traders or traders located in offshore jurisdictions who will purportedly handle their money; and/ or
• high-pressure sales techniques to buy a Forex investment, to purchase software or take courses related to Forex trading.

This investor watch is published on the new Investor Alert Page and is the first major one issued by the CSA since the launch of this resource on its website. This centralized location of investor alerts is designed to aid the public in identifying potential threats related to investing.

The Investor Alerts list is available on the CSA website.

On March 7, the BCSC’s Criminal Investigation Team arrested McLeod at his home, with the assistance of the Surrey RCMP. The arrest followed an undercover investigation conducted by the BCSC. McLeod is charged in connection with the Provina Investment.

In October 2009, McLeod was fined $8 million by a BCSC panel, and was ordered to pay back the US $16 million the Manna scheme obtained from the investors. The panel also permanently banned McLeod from trading securities or exchange contracts and from being a manager or consultant in connection to the securities market. He is also prohibited from being a director or officer of any issuer, registrant or investment fund manager, being a registrant, investment fund manager or promoter, and from engaging in investor relations activities.

“Given his previous misconduct and the severity of the sanctions that were brought against him, we feel it’s important to warn investors not to give any money to McLeod. We also want to make people aware that he has recently had his name legally changed to Michael Smith,” said Lang Evans, Director of Enforcement for the BCSC. “We encourage anyone who has had recent dealings with McLeod to contact the BCSC.”

Investors can contact the BCSC inquiries line at 604-899-6854 or 1-800-373-6393.

When it comes to reporting investment fraud, that is?

Well, in British Columbia, your best bet is the BC Securities Commission.

Because when it comes to investment fraud, it is often the BCSC that can move rapidly to disrupt, stop and prevent fraud from claiming more victims by ordering a cease-trade in a suspicious investment or freezing assets or issuing an investor alert. It helps if we hear about the misconduct as soon as possible.

That’s a key reason for the ‘Be Fraud Aware’ campaign currently underway in BC as we work to raise awareness about investment fraud and how people can protect themselves through a province-wide communications and marketing campaign. Through advertising on TV, radio, newspapers and online, we are making people aware of the warning signs of fraud and importantly, encouraging them to report to us any suspicious investments that they come across.

So, report any suspicious investments to us at InvestRight.org or if you prefer, by calling our Inquiries group at 604-899-6854 (1-800-373-6393).

Your call can start the enforcement process necessary to stop a fraud.

Interesting article in the Vancouver Sun this week by Vancouver-based portfolio manager, Michael Schaab, of Leith Wheeler Investment Counsel.

Schaab tells investors they need to take a closer look at the risks of chasing yield. "Making investment decisions based on yield alone can frequently end in disappointment. Higher yields do not indicate better investments. In fact, they sometimes point to more dangerous ones."

BCSC InvestRight research published earlier this month delves into that danger zone. We surveyed almost 2,500 Canadians 50+ to find out what makes people vulnerable to investment fraud. It turns out that our relationship with investment yield is at the heart of it.

Yield is simply the income return on an investment, usually expressed as a percentage, and also known as market return.

When we asked Canadians 50+ how they would respond to an obviously fraudulent investment offer—a guaranteed 14% – 25% return, risk free—1-in-5 said they’d look into it. For them, the lure of high yield was more powerful than the common sense understanding of risk and return: the higher the return, the higher the risk.

We also asked Canadians what a realistic rate of return would be in today’s market. Fully 75% either didn’t know or expected higher—and sometimes much higher—returns than are now available. By our calculation, a reasonable yield these days is under 4%.

Having unrealistic expectations of market returns and not understanding the relationship between risk and reward can make people vulnerable to investment fraud. Especially, as our research shows, for those worried about low rates of return or afraid they will run out of money during retirement.

Being fraud aware means having the knowledge and perspective to spot scams and avoid them. Avoiding scams involves resisting the lure of too-good-to-be-true investments that might be an unproven business that could fail, or an out-right fraud. Sometimes the best investment we can make is to walk away.

If you’d like a little fun seeing where you stand on the fraud vulnerability front, take the InvestRight Investment Fraud Challenge. The lower your score, the less vulnerable you may be. And you might even win an iPAD2.

The BCSC InvestRight Fraud Vulnerability survey was conducted among 2,461 Canadians by Innovative Research Group in January 2012. The results have an estimated margin of error of +/- 2.0%, 19 times out of 20.

The Alberta Securities Commission (ASC) and the British Columbia Securities Commission (BCSC) are warning investors of what appears to be a ‘recovery room’ scheme that is reportedly targeting Medwell Capital shareholders. Recovery room schemes involve companies that contact investors who may be losing money in a current investment with an offer to buy their shares at an inflated price or exchange them for shares in a different company. Once investors agree to the deal, the operators of the scheme ask the investor to first pay a fee for the transaction or there is a cost to exchange shares. The operators keep the fee, but do not repurchase the shares or issue the promised replacement shares.

This investor alert is in response to reports that Medwell Capital shareholders in Alberta, B.C. and Ontario have been solicited directly via phone or email by a man representing himself as Michael DeJuan of NT Global. The man is offering to purchase Medwell Capital shares from investors in exchange for shares in a different company at a significantly higher price. Shareholders are then emailed a form to complete that includes their contact information and the address of NT Global. The address on these forms is false and NT Global Advisors, a Canadian subsidiary of Northern Trust Global Advisors based out of Chicago, Illinois, indicates that their employee, Michael DeJuan, is not making any such representations to Medwell Capital investors.

If the public has any information regarding the investment scheme described in this alert, they should report or forward this information to the ASC or BCSC by calling the Public Inquiries lines listed below.

The ASC is the regulatory agency responsible for administering the Alberta’s securities laws. The BCSC is the independent provincial government agency responsible for regulating trading in securities within British Columbia. Both agencies are entrusted to foster fair and efficient capital markets in their provinces and to protect investors. 

 

Public Information: 

BCSC Public Inquiries

604-899-6854

Toll Free 1-800-373-6393

ASC Public Inquiries

403-297-4296

Toll Free 1-877-355-0585
 

Do you use the Internet to research investments? When you search certain terms, do you look at the advertisements that show up in the results set? Have you ever clicked on one of those advertisements to take a closer look at a high-yield investment opportunity?

A recent educational campaign run by Canadian securities regulators shows that many investors would answer “yes” to all three of the above questions, confirming investors remain vulnerable to online investment fraud.

Last week, the Canadian Securities Administrators (CSA) released the results of a 10-week public education campaign that used online advertisements and social media promotions to point people to a video and website of a fictitious company, BlueHedge Investments. The goal of the campaign was to illustrate how scam artists use online tools to lure unsuspecting investors into fraudulent investment schemes.

The ads and website contain various investment fraud warning signs. Here are a few examples:

• Guaranteed high returns: BlueHedge offers 9% a month, risk-free investment.  There is no such thing. Every investment involves some level of risk.
• Offshore, tax-free: The offshore fund option says you pay no taxes. You may be able to reduce your taxes, but you cannot avoid them. Also, once your money is offshore, it’s going to be hard to recover if the investment goes sideways.
• High pressure sales: The “invest now” option, is an attempt to stop people from taking their time to consider the offer. Investing under pressure without doing your due diligence can have disastrous results.

The website also includes grammatical errors and references to FOREX (international currency trading), a highly complex and risky investment strategy scam artists often say they, or their expert traders, are engaged in.

Essentially, BlueHedge Investments resembles websites that are used promote investment schemes. The difference, of course, is that this website is set up to educate investors. If you click through to find out more about the investment offer, or you try to enter personal information into the website, you go to links with educational information. These materials include videos and links to materials pointing out how to recognize an online scam like BlueHedge Investments.

At the campaign’s conclusion, the BlueHedge website had received almost 18,000 visits from across Canada, with 71% of those arriving to the site because they clicked on online advertisements. We also found that more than 10 percent of those who received unsolicited e-mails from BlueHedge opened them. And, of those, almost 13 per cent clicked on the provided BlueHedge links, which took them to the website.

These results demonstrate people need to be very wary when dealing with online investment opportunities.

You can help us by getting the word out about the campaign. The website www.bluehedgeisntreal.ca is a great educational resource you can share with your friends, family, and coworkers.

If you are interested in looking at the original campaign website, you can find it at www.bluehedge.ca. The CSA’s website also has a full explanation of the campaign, including examples of the online ads.

Finally, we are running a Fraud Challenge contest at www.befraudaware.ca, where you will also find videos and information you can let people know about.

Last week, we published new research that found 43% of people surveyed did not understand the trade-off between risk and return, which is a basic market principle – the higher an investment’s rate of return, the higher the risk.

We know that no risk, guaranteed investments promising high returns are commonly offered by scam artists. With the low returns investors have been experiencing over the past five years (we said less than 4% in the survey), it’s important to understand fraudsters don’t have to offer extremely high returns to get an investor’s attention these days.

This is why we running our “Be Fraud Aware” advertising campaign across the province. We want people to understand how to recognize and report investment fraud.

As a part of our online campaign, we created the video: Fraudster Exposed.

In it, a fast-talking salesperson is shooting a commercial. On the surface, he seems like a well-intentioned financial advisor who is merely advertising another investment product.

However, as the video progresses, you will realize many of the features of this “product” indicate it is a scam. You will also find out his true colours in behind-the-scenes footage captured by the camera crew shooting the video.

We hope you enjoy the video and share it with friends and family members to show them how fraudsters target people and steal their money.

We also encourage you to enter our Fraud Challenge contest. It asks five questions to test your vulnerability to investment fraud. When you complete the contest, it will give you a score that you can share with your friends and family.

BCSC staff ambassadors tour the province, helping people to protect themselves from fraud and unsuitable investments. Our goal is to enable BC investors to develop critical thinking skills so they can become more informed of steps they should take to protect themselves when investing.

Where we are this month 

Vancouver 

InvestRight seminar

March 2

Private event

Victoria  

Small Change Expo  

Visit our Planning 10 Booth

March 9         12:00 pm - 8:00 pm

March 10       10:00 am - 6:00 pm

Attend our InvestRight seminar

March 9          3:00 pm - 4:00 pm

Victoria Conference Centre 720 Douglas Street Victoria

For tickets and information go to http://www.smallchangeexpo.ca/expo-info

Surrey 

Focus on Seniors Forum 

March 10

10:00 am- 3:00 pm

Guilford Recreation Centre 10470 – 152 Street Surrey

This event is free for all seniors - focusing on a Korean speaking audience.

This forum will raise awareness of issues impacting seniors as well as provide valuable information about legal, safety and support resources available to seniors and their caregivers in Surrey.

Lunch will be provided. Lots of great prizes!

Seating is limited, so please register at:

• 604-501-5100 ( 8:30 am- 4:30 pm) Monday- Friday)
• Any City of Surrey ‘s Community or Senior’s Centres
• www.surrey.ca/register 

Kelowna 

BC Home & Leisure Show 

March  9          5:00 pm - 9:00 pm

March 10       10:00 am - 5:00 pm

March 11       10:00 am - 4:00 pm

Royal LePage Place 2760 Cameron Rd. West Kelowna

For more information go to http://www.bchomeshows.com/west_kelowna_home_show.html 

All welcome! Cost: Free

Burnaby 

InvestRight seminar

March 12

Private event

Vancouver 

InvestRight seminar

March 16

Private event

Langley 

InvestRight seminar

March 21

Private event

Kelowna 

InvestRight Seminar

March 26 am

Private event

Kelowna 

InvestRight Seminar

March 26 pm

Private event

Coquitlam  

InvestRight seminar

March 28

Private event

We present to various service clubs such as Rotary, Probus, Newcomers, women’s groups, senior’s organizations, and other networks. If your group of 20 or more would like to have the BCSC come and present InvestRight, please contact:

Anne Rutherglen,

Program Manager, Outreach

Communications & Education

Email:arutherglenbcsc.bc.ca

Phone: 604-899-6731 or toll free: 1-800-373-6393

A national study of almost 2,500 older Canadians (50+), released for Fraud Awareness Month, found that almost 1-in-5 are vulnerable to a highly risky investment offer. More than 2-in-5 don’t understand the fundamental relationship between risk and return and only 1-in-4 have a realistic expectation of the current rates of return for their investments.

The BC Securities Commission engaged Innovative Research Group Inc. to prepare this report to develop a profile of older Canadians’ vulnerability to investment fraud.  It shows that Canadians 50+ who have unrealistic expectations about market returns and who do not understand the relationship between risk and reward are more likely to fall victim to a fraudulent investment offer. Fear of running out of money in retirement increases that vulnerability.

“When you combine the fact that many older Canadians don’t have a good grasp of what a realistic level of return is in the market with their lack of understanding about the relationship between risk and return, you have the perfect storm for con artists. This group is more vulnerable to promises of unrealistic returns, especially when the offer comes with the additional promise of no risk,” said BCSC Chair Brenda Leong.

The first question in the study tested older Canadians’ vulnerability by asking how they would respond to a clearly fraudulent investment offer. Over a quarter of Canadians 50+ demonstrated their vulnerability by saying that they either would look at it further (19%) or simply didn’t know (7%). These people tended to fall into the pre-retiree category.

The study also examined other circumstances that heightened vulnerability to investment fraud: those who regularly get involved in risky sales situations such as attending sales presentations; those with little or no savings set aside for the future; and those who have trouble making ends meet.

“This survey tells us that there are a number of significant factors today that make older Canadians vulnerable to investment fraud. The sheer number of Canadians approaching retirement, the current low interest rates and market returns, and the lack of understanding of the fundamental relationship between investment risk and return suggests that we, as regulators have to be as vigilant in helping to protect investors.

“What investors need to understand is that when they are tempted by products with higher than average returns, they are typically being offered high risk investments: unproven businesses that could fail or in some cases, out-and-out frauds,” said BCSC Chair, Brenda Leong. “Investors also need to be vigilant.”

To help people understand the warning signs of investment fraud, the BC Securities Commission is launching the second phase of its three-year “Be Fraud Aware” campaign. 

It includes radio and newspaper ads, a Guide to Investment Fraud newspaper insert and mail drop in population centres with a high proportion of older Canadians, a YouTube video and a province-wide fraud literacy contest. The first phase of the campaign, launched in the fall of 2011, was aimed at the Chinese and South Asian communities, who represent 40% and 26% respectively of BC’s minority population.

This national on-line survey of 2,461 Canadians aged 50 years and older, was conducted in English and French between January 11 and 23^rd, 2012.

La Commissions des valeurs mobilières de la Colombie-Britannique publie son rapport national
sur la vulnérabilité face à la fraude liée aux placements 

Une enquête nationale menée auprès d’environ 2 500 aînés (personnes âgées de 50 ans ou plus), dont les résultats sont rendus publics à l’occasion du Mois de la sensibilisation à la fraude, révèle que près d’un aîné sur cinq est vulnérable face aux offres de placement à risque très élevé. Plus de 40 % d’entre eux ne comprennent pas le lien fondamental qui existe entre le risque et le rendement d’un placement et seulement le quart des aînés ont des attentes réalistes quant au taux de rendement de leurs placements à l’heure actuelle.

La Commission des valeurs mobilières de la Colombie-Britannique (British Columbia Securities Commission, ou BCSC) a confié cette étude à l’entreprise Innovative Research Group  dans le but d’obtenir une analyse de la vulnérabilité des aînés face à la fraude liée aux placements. Les résultats montrent que les Canadiens et Canadiennes âgés de 50 ans ou plus qui ont des attentes irréalistes face au rendement des placements et qui ne comprennent pas la relation entre le risque et la récompense sont plus susceptibles de tomber dans le piège des offres de placement frauduleuses. La peur de manquer d’argent au cours de la retraite vient s’ajouter aux facteurs qui contribuent à cette vulnérabilité.

« Bon nombre de Canadiens plus âgés se savent pas quel est le niveau de rendement auquel on peut réalistement s’attendre sur les marchés financiers et ne comprennent pas la relation qui existe entre le risque et le rendement, fait remarquer la présidente de la BCSC, Brenda Leong. Ces gens-là sont des victimes parfaites pour les escrocs, car ils sont davantage disposés à croire à la promesse de rendements élevés, surtout si on leur dit que le placement offert est sans risque. »

La première question posée dans le sondage cherchait à mesurer le degré de vulnérabilité des aînés en leur demandant quelle serait leur réaction si on leur offrait un placement nettement frauduleux. Plus du quart des répondants ont révélé à quel point ils sont vulnérables en répondant qu’ils se pencheraient sur une telle offre attentivement (19 %) ou qu’ils ne savaient pas comment ils réagiraient (7 %). Ces personnes avaient tendance à se situer dans la catégorie des gens en phase de pré-retraite.

L’étude se penche également sur d’autres comportements des aînés qui font qu’ils peuvent plus facilement être la proie des fraudeurs : les investisseurs qui s’exposent régulièrement à des situations où ils risquent de se laisser leurrer par de beaux boniments; ceux qui consultent des amis ou des membres de la famille avant de faire un placement; les personnes qui n’ont pas mis d’argent de côté pour l’avenir; les gens qui ont de la difficulté à joindre les deux bouts.

« Cette enquête montre que plusieurs facteurs importants ont pour effet de rendre les personnes âgées vulnérables face à la fraude financière, souligne Brenda Leong. Vu le grand nombre de Canadiens et Canadiennes qui s’approchent de l’âge de la retraite et les faibles niveaux des taux d’intérêt et des taux de rendement du marché, vu aussi qu’il y a beaucoup de gens qui ne comprennent pas le lien fondamental entre le risque et le rendement d’un placement, il est clair que les organismes de surveillance doivent être aussi vigilants que possible afin de protéger les investisseurs.

« Il importe également, ajoute la présidente de la BCSC, que les investisseurs sachent que, lorsqu’ils se laissent tenter par des placements assortis de rendements nettement supérieurs aux taux du marché, ils s’écartent de la norme des marchés financiers pour investir dans une entreprise à risque très élevé, qui n’a pas encore fait ses preuves et qui risque de faire faillite ou même de s’avérer être une fraude de bout en bout. »

Pour aider les gens à déceler les indices qui laissent présager un placement frauduleux, la BCSC lance la deuxième phase de sa campagne de sensibilisation à la fraude (Be Fraud Aware).

Cette phase comprend des publicités dans les journaux et à la radio, un encart dans les journaux consacré au guide sur les placements frauduleux (Guide to Investment Fraud), une campagne de publipostage dans les agglomérations où vivent un grand nombre de personnes âgées, un clip vidéo sur YouTube et un concours provincial sur la sensibilisation à la fraude. La première phase de la campagne, entamée à l’automne de 2011, s’adressait aux communautés ethniques chinoise et sud-asiatique de la Colombie-Britannique, qui représentent 40 % et 26 %, respectivement, des populations minoritaires de la province.

Le sondage de Innovative Research Group a été réalisé, en français et en anglais, auprès de 2 461 Canadiens et Canadiennes âgés de 50 ans ou plus, du 11 au 23 janvier 2012.

With the RRSP deadline creeping up (it’s February 29), many of us are trying to figure out where to put our contribution. Historically low interest rates, lacklustre returns, and protracted stock-market volatility make this decision even more difficult.

Unfortunately, the uncertainty of today’s economic climate presents another challenge for RRSP investors – it is ideally suited to investment fraud.

There are unlimited opportunities to target investors by promising quick, solid returns with little or no risk. This pitch is the calling card of almost every fraud artist.

So, before rushing into an RRSP investment, you need to do some research about the person you are dealing with and the investment you are considering. You can use several free tools provided by Canadian securities regulators.

Check registration  

• The National Registration Search contains the names of all registrants (individuals and firms) in Canada, with the exception of those registered solely with the Ontario Securities Commission. If the person you are dealing with does not hold registration in BC, call us at 1-800-373-6393.  

Check disciplinary history  

• The CSA’s Disciplined Persons List contains information relating to persons that regulators in Canada have disciplined. If you find the person you are dealing with on this list, read the supporting documents carefully. If the person was sanctioned for fraud, illegal distributions, or other significant violations, you would be wise to invest your money elsewhere.  

Check for unqualified investments or unregistered firms 

• Among other things, the BCSC’s Investment Caution List provides investors with the names of unregistered brokerage firms and businesses outside BC that have unqualified investments. This list is not exhaustive. If the firm you are dealing with, or the investment you are considering is on this list, call us immediately.  

Check out private placements and real estate investments 

• Read the “private company investing” section of our website to get a better understanding of this type of investment. If the investment is in real estate, you should also look at our recent Investor Watch on the topic.

At this time of year, it can be difficult to resist an investment opportunity, especially when you are up against a hard deadline.  However, it is not worth handing your RRSP contribution to someone you haven’t checked out, or putting your money into an unsuitable or fraudulent investment.

If you are looking at purchasing a mutual fund this RRSP season, you will want to take advantage of a relatively new document that contains key information about mutual funds.

This document, known as Fund Facts, includes a description of the mutual fund, as well as answers to important questions you should be asking when you are making any type of investment.

Some of the questions the Fund Facts document poses are:

What does the fund invest in? 

• This is where you will find a snapshot of the fund’s holdings, including the top 10 positions of the fund, what percentage of net asset value they represent, and the investment mix.

How has the fund performed? 

• Here you will find past performance of the fund, with average and year-by-year returns going back 10 years if the fund has been around that long. If not, this section will show the fund’s performance from the date it was created and became a reporting issuer. Returns are after the deduction of expenses, which can reduce the fund’s returns. 

Who is it for? 

• This part of the document discusses suitability – the kind of investor and the type of portfolio the mutual fund is designed for.  

How risky is it? 

• This section contains a table with a risk rating. There are five ratings available for the fund to use: “low”, “low to medium”, “medium”, “medium to high”, and “high”. The fund will identify which category it falls under using the risk classification methodology chosen by its manager.  

How much does it cost? 

• If you want to know what you are paying in various fees, you will want to go over this section in detail. This is where you will find explanations about sales charges, fund expenses – including the Management Expense Ratio (MER) and the Trading Expense Ratio (TER) – trailing commissions, and other fees.

The Fund Facts document also contains a “Quick facts” section, which gives you an overview of the fund, including its value on a particular date, who manages it, and the required minimum investment, among other things. Additionally, there are sections in Fund Facts where you can find out about guarantees, and how tax rules and rates may affect it.

In July 2011, Canadian securities regulators required companies to make Fund Facts available to investors, so it should be available on the website of the company that is offering the fund. You can also request it from the person who sells you the mutual fund or search for the document you are looking for at SEDAR.com.

Finally, below are some links to a few articles about Fund Facts that you may want to review.

Fund fact sheets can help you help yourself, The Globe and Mail

Fund Facts – The answer to every advisor’s prayer?, Financial Post

Helping out with Fund Facts, Investment Executive

Watch for our final RRSP post next week.

The British Columbia Securities Commission is investigating Rashida Samji and Arvindbhai B. Patel (also known as Arvin Patel) in regards to their involvement in an investment scheme.

As part of a regulatory investigation, the BCSC is looking at transactions related to an investment sold by Samji. As the sole director and officer of Samji and Assoc. Holdings Inc, Samji was a member of the Society of Notaries Public of BC, classified as a “roving notary” who covers the practice of other notaries due to illness or vacation. The BC Society of Notaries Public suspended Samji on February 7, 2012.

The BCSC is also examining Patel’s role in the sale of the investment. He has been suspended from his position as a financial planner and as a mutual fund salesperson.

The investment offered a 12% annual return and funds were purportedly held in a trust account administered by Samji.

“We felt it was important to warn investors not to send any money to either of these individuals,” said Lang Evans, Director of Enforcement for the BCSC. “We encourage anyone who had dealings with Samji or Patel to contact the BCSC.”

Investors can find information about the case and access resources at the Investor Communications Services Centre on InvestRight.org, or contact the BCSC inquiries line at 604-899-6854 or 1-800-373-6393.

The Court has appointed a representative of the BC Society of Notaries Public as the custodian to operate Samji’s notary practice. The custodian can be reached at 604-681-4516.

The BCSC is the independent provincial government agency responsible for regulating trading in securities within the province. For media enquiries, please contact Richard Gilhooley, media relations, at 604-899-6713.

If you are like many Canadians, you are probably just turning your attention to your RRSP and retirement portfolio. In fact, it may be the first time you’ve contemplated your retirement plan in a year, so you should probably sit down and do some reading before heading in to see your financial advisor.

This post points you to some tools and information that can help you during this RRSP season and beyond. After all, you should be checking in on your portfolio and keeping your financial plan in mind throughout the year.

Tools:  

InvestRight Guide to Investing: How to make informed decisions 

• A free publication available in PDF format. You can download it to your computer, load it onto a tablet, or print it off for quick reference. It gives practical guidance on how to choose (or change) your investment advisor, and provides forms you can use to document your financial position and goals. 

InvestRight’s Risk Test and About Investments section 

• The Risk Test is a good way to discover your personal risk tolerance, and the About Investments section of the website will allow you to learn about different types of investment products and the risks associated with them. Going over this section will help you discuss products your advisor might put in front of you when you meet about your RRSP. 

Get Smarter About Money’s calculators 

• The Investor Education Fund provides an RRSP savings calculator and Mutual Fund fee calculator on its website. There are also a number of other useful calculators on this site.  

Before You Invest blog 

• A recent post on this blog from the Nova Scotia Securities Commission asks:  Do you know when the 2012 RRSP deadline is? The post also links to another article titled: What exactly is an RRSP anyway? Both of these articles are great quick references for people who are contributing to an RRSP for the first time. 

IIROC’s Guide to Trading on Equity Markets 

• The Investment Industry Regulatory Organization of Canada (IIROC) provides this free resource to help investors understand how equity trading works, and their rights and obligations when trading on equity marketplaces. 

CBC: Special Report: RRSP Season 

• This section on the CBC’s website has analysis, articles, and tools you can use to get current information on topics related to retirement and retirement planning.  

Globe & Mail’s 29 Ways in 29 Days 

• This special feature in the Globe’s RRSP section discusses various investing-related topics over the month of February.  

If you have any other suggestions, please let us know through our comment section.

We’ll be following this blog post up with two more posts in the coming weeks. Our next post will talk about Fund Facts, and our third instalment will present some more tools you can use to protect yourself from fraud.

BCSC staff ambassadors tour the province, helping people to protect themselves from fraud and unsuitable investments. Our goal is to enable BC investors to develop critical thinking skills so they can become more informed of steps they should take to protect themselves when investing.

Where we are this month: 

Vernon 

InvestRight seminar

February 2

Private event

New Westminster 

InvestRight and Top 10 scams seminars

February 7

New Westminster Public Library  716 6^th Ave.

BC Securities Commission and the Better Business Bureau of Mainland BC will give presentations on how to protect yourself from financial fraud and other common scams.

This is a free presentation

To register call 604-527-4660

For more information go www.nwpl.ca  

Victoria 

InvestRight seminar

February 14

Private event

Kelowna 

InvestRight seminar

February 15

Private event

Kelowna 

InvestRight seminar

February 16

Private event

Surrey 

February 18

Focus on Seniors Forum

9:00am-3:00pm 

Fleetwood Community Centre, 15996 84^th Ave. Surrey

This event is free for all seniors - focusing on an English speaking audience.

Lunch will be provided. Lots of great prizes.

This forum will raise awareness of issues impacting seniors as well as provide valuable information about legal, safety and support resources available to seniors and their caregivers in Surrey. Adult family members are welcome to attend.

Seating is limited, so please register:

• Call 604-501-5100 (8:30-4:30 Mon- Fri)
• At any of Surrey’s Community or Seniors Centres
• www.surrey.ca/register
• Course # 4287558

Vancouver 

InvestRight Seminar

February 21

Private event

Victoria 

InvestRight Seminar

February 22

Private event

We present to various service clubs such as Rotary, Probus, Newcomers, women’s groups, senior’s organizations, and other networks. If your group of 20 or more would like to have the BCSC come and present InvestRight, please contact:

Anne Rutherglen, Program Manager, Outreach

Email:arutherglen[at]bcsc.bc.ca

Phone: 604-899-6731 or toll free: 1-800-373-6393

In October, we launched a new campaign in BC’s ethnic communities to encourage people to “Be Fraud Aware”. This campaign will be a three-year effort aimed at increasing people’s knowledge of investment fraud and its impact on tight-knit religious and ethnic communities. 

Today, the campaign is entering its second phase, with advertising running in the local Chinese and South Asia media.  

We’ve added the video below to our YouTube page. It will serve as an introduction to the campaign for people who may not see the campaign on TV or in the newspaper.  

As part of the initial campaign launch, we published a Chinese, Punjabi, and English website. This website includes important information about how to recognize and report investment fraud. There are also printable, full-colour brochures and posters that we hope people will download for their own use and post in places where friends and family gather to meet or worship.  

Let us know what you think of the video, the websites, or the materials in the comment section below.  

Last week, the Vancouver Sun ran a series on pensions that explored what retirement is looking like for an aging population of Canadians – from living longer, to having an adequate pension (or not), to paying off household debt.

We were able to add our voice with an opinion piece that ran in today’s paper. In the piece, we talk about the ongoing uncertain economic environment. This situation has produced a new reality for people looking at retirement that includes low interest rates, as well as lacklustre returns and protracted volatility in conventional markets.

This kind of economic environment creates uncertainty for those looking for a steady retirement income that will keep them near their current standard of living. In our piece, we argue that this uncertainty creates a potential for investment fraud.

This is because fraud artists see unlimited opportunities to take advantage of investors in search of quick, solid returns. They prey on the most vulnerable – those who are trying to find ways to pay for their retirement in a hurry, and seniors who want to supplement their fixed incomes.

We know British Columbia is fertile ground for fraud artists because we have large concentrations of seniors and pre-retirees in the Lower Mainland and on Vancouver Island. 

A 2009 national study by the Canadian Securities Administrators found that BC is 10% higher than the national average when it comes to being approached with an investment scam. That fact coupled with the finding that British Columbians are the most likely to say that they have an aggressive investment style, (with 38% agreeing with that statement), suggests that BC residents may be particularly vulnerable to investment fraud.

Research has also shown that over-confident men in their 50’s represent one of the most susceptible groups of investors.

So what can people do to protect themselves? They can learn to recognize the five warning signs of investment fraud. Take some time to read over this section of our website if you are retired or thinking about retirement.

The best defence against fraud is a savvy and sceptical investor who recognizes fraud artists and the investment scams they promote.

During the year, InvestRight ambassadors travel around the province to give seminars, attend tradeshows, and talk to people who raise awareness about investment fraud in their communities.

On one of our recent visits to Kelowna, we were able to sit down with Constable Ann Donnelly, of the Kelowna RCMP, to discuss her experience with scams and fraud in that community. She’s been a fraud investigator for seven years, and has seen all types of scams – including investment fraud.

We are posting this video of our conversation in order to promote fraud awareness. The video is about four minutes long, and is available on our YouTube channel if you want to share it with friends or family. Let us know what you think by posting a comment below. We hope to make more of these in the future, so your feedback is welcome.

If you want more information on how to protect yourself and your community from fraud, check out our Investor Protection section. We also have nearly 40 videos on our YouTube page that discuss how to invest wisely and protect yourself from fraud.

Housing prices in British Columbia, and particularly those in Metro Vancouver, have been on a steady rise for the past ten years, causing many people to look to real estate as an investment. However, like any other type of investment, housing prices can fall and there are other risks associated with investing in real estate. With this in mind, the British Columbia Securities Commission is issuing this Investor Watch to remind people to do their research before they make a real estate investment.

What is a real estate investment? 

There are many types of real estate investments. Buying a rental property is a real estate investment that most people understand – a person buys a house or an apartment that they rent out to gain investment income over time. When a group of people invest together, or a company sells a stake in a rental property, the investment becomes more complex. 

Some of these investments classify as securities, while others do not. The BCSC only has jurisdiction over transactions involving securities – an interest in pool of mortgages, an interest in a pool of properties, etc. This is one of the reasons why you need to take your time to assess a real estate investment. Whether you buy a contract from a developer, purchase securities in a company involved in real estate, or buy a property, you need to understand the risks and your legal rights.

What are real estate-based securities? 

Real estate-based securities trade as public and private companies. For example, you can invest in a real estate investment trust (REIT) that trades on a stock exchange like the TSX, or you can buy shares in a property when a company raises money through a private placement. The Informed Investing section of our website details how different real estate investments are structured.

If you buy into a private placement, it is important to understand that you are largely on your own. This is because the company is raising capital through a series of private placement exemptions from the prospectus requirement.  A private company using these exemptions is not required to give investors the same ongoing disclosure (financial statements or press releases) as a public company.

How are real estate-based securities sold?  

You can purchase a REIT through a registered financial advisor, or on your own if you do direct investing. Since they trade on stock exchanges, you can buy and sell them in the same way you would do with shares of other public companies.

Private placements are generally sold without a prospectus (a formal document required by law when a company wants to sell shares to the public), and without the advice of a registered dealer. Sometimes companies sell these securities under an offering memorandum (OM), a document that provides information about the company and the investment. It’s important to remember that securities regulators do not review OMs before the investment is offered to the public.

What are the risks? 

When real estate-based securities are distributed using exemptions, the risks are similar to those related to private companies.

There are also risks associated with the underlying real estate investment. First and foremost, you need to be aware that property values can go down. Additionally, there is the possibility that mortgage or rental payments will not be paid. Furthermore, developers sometimes run into problems – this could cause them to seek more capital, or they could go out of business altogether. All of these risks can affect the value of your investment and your expected returns.

Finally, if you are considering borrowing money to make the investment, you should know that you could be compounding your risk. If the deal goes bad, or if you don’t get the returns you expect right away, you will need to be able to pay back the loan with interest, and the borrowing costs.

What should you do before you invest in real estate? 

Understand the risks associated with the investment. Be sure to do background checks on the developer and the person promoting the investment. Take the time to seek advice from someone independent of the investment, like a lawyer or a registered financial advisor.

You should make sure the investment matches up with your financial goals. The InvestRight Guide to Investing is a free tool that can help you assess an investment, choose a financial advisor, and understand more about investing in private companies. You can download it from our website.  

Who do you contact to ask questions about these type of investments? 

The BC Securities Commission regulates the trading of real estate-based securities. Other real estate investments, like the purchase of a pre-sale apartment from a developer or the purchase of a property, generally fall under other provincial regulatory bodies such as those listed below.

If you’ve made a real estate investment, or are considering making one, and you don’t understand what it is, give the BCSC a call. Our inquiries staff can point you in the right direction. You should also call us immediately if you think an investment is a scam.

We can be reached at 604-899-6854 or toll-free at 1-800-373-6393. You can also e-mail us at inquiries@bcsc.bc.ca. 

Links to other resources 

InvestRight Guide to Investing: How to Make Informed Investment Decisions: http://www.investright.org/tools_for_investors.aspx#informed_investing 

InvestRight webpage on real estate-based securities:  

http://www.investright.org/real_estate.aspx 

The Financial Institutions Commission: www.fic.gov.bc.ca 

The Financial Institutions Commission (FICOM) is a regulatory agency of the provincial Ministry of Finance. FICOM is responsible for administering 10 statutes that regulate the pension, financial services and real estate sectors in British Columbia.

The Real Estate Council of British Columbia: www.recbc.ca 

The Real Estate Council of British Columbia (RECBC) is a regulatory agency that is responsible for licensing real estate representatives, brokers and brokerages engaged in real estate sales, rental and strata property management.  The RECBC also enforces entry qualifications, investigates complaints against licensees and imposes disciplinary sanctions under the Act. 

Recently, I’ve noticed a couple of investment schemes reported in the news that were promoted on social media websites.

In one case, the SEC charged an Illinois-based investment advisor with offering fictitious securities on LinkedIn, a well-known social media site used by professionals (including myself) to expand their networks and industry knowledge.

The SEC is alleging that Anthony Fields offered more than $500 billion in fictitious investments to people through discussions on the website. The news release goes on to say that Fields’ offer attracted interested investors. The release also includes education materials related to social networking that provide helpful advice for investors.

In another case, the Texas State Securities Board (TSSB) announced it was returning money to 43 investors from an investment scheme it had investigated. The TSSB said its investigation of Warr Investment Group and its CEO, James Elton Warr, revealed they were selling investments in a fraudulent real estate program, which the respondents promoted through YouTube and Internet advertising.

A few years ago, we issued an Investor Watch warning people of the dangers of online investment groups and meet-ups. We later turned the Watch into a video podcast that has been quite popular on our YouTube page.

Since releasing these materials, the use of social media sites for networking and communicating has become the norm for many people – Facebook claims to have 800 million users, and YouTube claims that users view over three billion videos every day. Twitter and LinkedIn also claim to have hundreds of millions of users.

In my experience, once something becomes second nature – like checking your status updates or accepting new “friends” on social networks – people tend to let their guard down. Since we tend to trust our friends, it makes sense that we would be open to checking out products or services they are using.

This is where the scam artist comes in. If he can become your online “friend” or get someone you know interested in a product, there is a good chance others in your network will hear about it. Once this happens, there is the possibility that the scam artist could attract investors thought word-of-mouth. This is what we see in many investment scams, which we call affinity frauds.

To protect yourself and people you know from falling victim to this type of fraud, there are a number of things you can do.

• Exercise caution when accepting friends or talking to people on social networks
• Do a background check on people selling investment products
• Seek independent advice when considering an investment
• Report any suspicious investment offerings you see on social networks to a securities regulator
• Be fraud aware, and know the warning signs of investment fraud 

The Globe and Mail’s Rob Carrick recently wrote about how unhappy many boomers are today about their lacklustre portfolios, just at a time when they are seriously considering retiring or have already made that decision. A recent comment on our Facebook page reflects this concern as well.

For years, myself included, we counted on our financial advisors to provide advice and decisions about our investments and the results were pretty good. However, those days are long gone.  The markets are volatile; the products are complex; and the returns much lower.

So here’s the challenge. Most of us don’t have any investor training or education in our backgrounds.  So we are all trying to figure what to do improve our circumstances to prepare for retirement.

One of the first things many of my friends did after 2008 was to move their accounts to new advisors.  The act of doing it was the first sign that they were recognizing the need to take more responsibility for managing their money.

We have a Guide to Investing, which gives lots of advice on how to go through that process, questions to ask, research to do. (Chapter Two)

We also give you the basic questions to ask your advisor when you are seeking investment advice: 

• Is it suitable for me? 
• Where are the risks? 
• How does this investment make money? 
• Does this investment come with a guarantee?
• How much will it cost me?
• Are there better alternatives?
• What research can I do to verify what the advisor is telling me?

By starting with these basic questions, your advisor will begin to see that you are not a passive client, but one who is paying attention.  The result should be that your advisor becomes even more diligent because he or she knows that you will demand credible answers to your questions.

The investor in the Globe column says, “People aren’t pushy enough asking questions.” And Carrick concludes with this: “Get ready, investment industry.  Exam time is coming as baby boomers retire and start to look at what decades of saving and investing got them.”

I hope that it is a wakeup call for all retail investors to pay more attention and be more diligent in overseeing their investments in order improve their financial future.

BCSC staff ambassadors tour the province, helping people to protect themselves from fraud and unsuitable investments. Our goal is to enable BC investors to develop critical thinking skills so they can become more informed of steps they should take to protect themselves when investing.

Where we are this month: 

Vancouver 

InvestRight seminar

January 13

Private event

Lantzville 

InvestRight seminar

January 19

Private event

West Vancouver 

InvestRight seminar

January 23

Private event

Vancouver 

AME BC Mineral Exploration Roundup

January 23 & 24

10:00 am – 5:00 pm

Westin Bayshore 1605 Bayshore Drive

For more information and registration go to http://www.amebc.ca/roundup/overview-2012/Exhibitor-Trade-Show.aspx 

We present to various service clubs such as Rotary, Probus, Newcomers, women’s groups, senior’s organizations, and other networks. If your group of 20 or more would like to have the BCSC come and present InvestRight, please contact:

Anne Rutherglen, Communications Coordinator

Email:arutherglen[at]bcsc.bc.ca

Phone: 604-899-6731 or toll free: 1-800-373-6393

British Columbia Securities Commission staff added six new names to its Investment Caution List in December, including a company that was permanently cease traded by a BCSC panel.  

On Dec. 13, 2011, BCSC staff put Fortune Investment Group (FIG) on the Investment Caution List. Later in the month, a commission panel held a hearing against FIG, High Profit Investment Ltd. (HPI), Martin Butcher, and Robert Meeker. The panel issued permanent cease trade orders against the parties.

HPI and FIG were approached by a BCSC investigator posing as a potential investor. In both instances, the investigator received a response via email that reiterated many of the false statements contained on the companies’ websites, in addition to aggressive requests for money orders in US dollars. You can read more about the case and the panel’s decision in the BCSC news release. Butcher and Meeker are now on the national Disciplined Persons List.

On Dec. 15, 2011, the Ontario Securities Commission (OSC) issued an investor alert cautioning investors not to purchase securities from BluePort Capital Corp. BCSC staff then placed the company on the Investment Caution List. The OSC issued the alert after it suspended BluePort’s registration. Prior to the suspension, BluePort was registered as an exempt market dealer in Ontario.

On Dec. 6, 2011, Macro Trade and Forteco Trading Ltd. were added to the Investment Caution List after one of the companies was brought to the attention of BCSC investigators. Macro Trade claims to offer financial services and online trading accounts to investors. It also claims to be owned by Forteco Trading.

Staff also put two other companies on the Investment Caution List on Dec. 6, 2011. Max Tech Oil and Trinidad Oil & Gas Corporation were added to the list after another provincial regulator alerted BCSC investigators that Max Tech Oil had solicited an investor to purchase an interest in an oil well in Texas that Trinidad Oil & Gas operated.

None of the six companies are registered in BC to trade in, or advise on, securities or exchange contracts. Additionally, Max Tech Oil and Trinidad Oil & Gas Corporation have not filed a prospectus with the BCSC.

The BCSC urges investors to use extreme caution when dealing with firms that are not registered in BC.

Scam artists love the holidays and will use your good intentions of giving to their advantage. Be an informed investor and learn the warning signs of fraud this season with this Christmas-themed song. Sing the InvestRight Carol (sung to the tune of Silver bells)

Holiday season, is the reason

To be watchful of scams

Con artists

come ou - out in full force

They ‘ll get to know you,

Pretend they like you

And promise high returns

But, all they want to do is rob you!

CHORUS 

Be fraud aware, get the Guide 

InvestRight is here to help you 

Subscribe to our blogs, recognize the frauds 

And re-port those pushing the scams 

They will cold call

Hold a seminar

Lure you in the best they can

Everything just sounds

So-o amazing

They’ll offer offshore

No risk tax-free

What a great opportunity

You’ll be pressured to get in quickly.

CHORUS 

Who’s a con artist?

What do they look like?

How will you recognize them?

When they look just like

You-u and me-e.

Your family likes him

Your pastor trusts him

So why shouldn’t you?

Why should you be left out of this deal?

CHORUS 

Who’s a con artist?

What do they look like?

How will you recognize them?

When they look just like

You-u and me-e.

Give your family and friends the gift of InvestRight this season, so we can all be fraud aware.

During the holidays, many of us feel the need to give to those less fortunate. Be aware! Scammers feel the same need - but they feel the need to empty your pockets.

Some of us donate throughout the year, and during this holiday season we like the opportunity to give to new and different charities. Scammers will try get you to donate to charities that use names that are very close to the names of legitimate charities. Check it out! The Canada Revenue Agency maintains a searchable list of Canadian charities.

This time of year, we go to great lengths to find the ultimate gift for family or friends. Scammers will post rare and unusual items on the internet. Is this really a good deal or is it a scam? Shop around. Ask questions. Do your research. You just may end up with a bad debt instead of a good intention.

Give your holiday shopping and donating the same care and attention you give to your investments.  As we say ‘Be an informed investor’.

• Know your advisor. Who is selling you this charity or gift?  Have you heard of this before?
• Know yourself-what is your risk tolerance – or- how much are you willing to spend?
• Know your investments – what is it you are wanting to donate to or buy? Is this charity real?

Investigate before you invest and enjoy your scam free holiday season!     

Last month, a colleague and I presented the BCSC’s Investright seminar to a group of 50 retired business and professional people in Ladysmith BC. We discussed tips on how people could protect themselves from fraud and how to avoid unsuitable investment products.

Investor questions 

When we participate in events or give seminars, there are always great questions about who we are and what we do. Below are three answers to questions that we thought would be useful to share with our online audience.

Are offshore-listed companies risky? 

This question arose from one of our warning signs of investment fraud when an investor is told that their money is going offshore so they don’t have to pay taxes. This warning sign does not apply to listed foreign companies, which are a big part of Canada’s market place. However, whenever a listed company operates in a jurisdiction with different legal and accounting environments, these differences lead to additional risks that investors should consider beyond those that would apply to an equivalent Canadian company.

Does the BC Securities Commission cooperate with other regulators in Canada? 

We work with securities regulators across Canada and around the world to share information and conduct investigations. Many of the cases we’ve seen recently involve parties in multiple jurisdictions, leading us to cooperate with regulators in those jurisdictions. We tend to focus our efforts on individuals and companies based in BC who are alleged to have acted contrary to the public interest, and cases where investors are based in BC.

Are securities covered by CDIC insurance? 

It is useful to ask your advisor whether the product you are considering is covered by insurance from Canadian Deposit Insurance Corporation (CDIC) or some other investor protection fund.  Most securities are not covered by CDIC insurance because that insurance protects money deposited in Canadian banks and certain other financial institutions from failure by that institution. 

Other investments may be protected by investor protection funds, such as Canadian Investor Protection Fund (CIPF) or the Mutual Fund Dealers Association’s Investor Protection Corporation (IPC).  Whether you will be eligible for this coverage will depend on where your advisor works.  This recent article in the Financial Post describes in laymen’s terms how CIPF works. 

None of these funds protect against market losses or fraud that does not lead to insolvency.  All have limits on coverage, ranging from $100,000 to $1,000,000. 

For more answers to questions that people ask us, go to our Questions & Answers section of our website.  You can also send us your questions by commenting on this post.

If you are part of a group of 20 or more would like to have the BCSC come and present InvestRight in your community, please contact:

Anne Rutherglen, Communications Coordinator

Email: arutherglen@bcsc.bc.ca

Phone: 604-899-6731 or toll free: 1-800-373-6393

I’ve worked at the BC Securities Commission for nearly five years, and I often find myself explaining to people who we are and what we do. In my experience, people who don’t invest, or count themselves as investors, don’t spend a lot of time thinking about securities regulation or investment fraud.

This is fair. Securities regulation can be difficult to understand, and fraud is something people don’t usually consider until it happens to them or someone they know.

That said, if you’re interested in how companies raise money in BC economy, the size and scope of our capital markets, or how you can help others avoid investment fraud, you may want to read two speeches our chair, Brenda Leong, gave recently.

In her speech to the Hong Kong Business Association, Leong spoke about the BCSC’s role in regulating the province’s capital markets. She also talked about how the commission is working to make the province a good place for investment and investors.

Her speech begins with some interesting and revealing stats about BC’s capital markets. For example, did you know that Vancouver, not Toronto or Calgary, has the most head offices of publicly traded companies in Canada?

She goes on to talk about the role of the BCSC in creating reputable capital markets, where investors only have to worry about the legitimate business risks facing a company. This includes a number of initiatives that require a combination of sound regulatory policy, active compliance and enforcement work, and proactive investor education.

“Simply put,” she says. “Our goal is to provide the best balance between investor protection and market efficiency.”

In her second speech to the Vancouver branch of the Association of Certified Fraud Examiners, Leong discusses in detail what the BCSC is doing to protect investors.

She starts by explaining how the Internet is tailor-made for those who use fraudulent investments to steal people’s money. She then goes on to talk about how the BCSC is combating fraud, both on the Internet and on the ground.

Leong presents the audience with a number of case studies that provide interesting insights into how investigators and examiners work. The examples illustrate how important it is for the public and financial institutions to be our eyes and ears on the ground.

Throughout the speech, she illustrates how the BCSC uses both old and new tools to discover and take action against people who engage in market misconduct.

Together, both speeches paint a good picture of what we do. They are available to the public on our corporate website. Here are the links.

BC’s Capital Markets: A Major Engine of Growth for Canada’s Economy, Brenda Leong’s speech to the Hong Kong Business Association

Securities Fraud: New Threats from an Old Foe, Brenda Leong’s speech to the Association of Certified Fraud Examiners, Vancouver Branch

The recent collapse of MF Global once more reminded us that we have in place an important safety net for investors whose brokerage firm faces bankruptcy. MF Global, as US based securities firm, collapsed on October 31, 2011 after making disastrous bets on European debt. Its Canadian subsidiary filed for bankruptcy four days later.

In this case, the process may not have been perfect, but the outcome is pretty good. Canadian clients have had their accounts transferred, intact, to other brokerage firms and it doesn’t look like anyone lost money.

Here’s how it works in Canada.  We have the Canadian Investor Protection Fund (CIPF) which was established by the investment industry to ensure the return of assets belonging to eligible customers if a member becomes insolvent.

First, you have to be doing business with a dealer member of the self-regulatory Investment Industry Regulatory Organization of Canada (IIROC).  It’s over 200 members make contributions to the CIPF of up to 1% of their revenue annually.  Over the past 40 years, its members have contributed up to $36 million and no eligible customers have lost  their assets.

To be eligible, your investment must be acquired and recorded in your client account. Your loss must be the result of insolvency, not from a major downturn in the marketplace, an unsuitable investment, or the default of an issuer of securities.  Assets may include cash, securities, commodities, futures contracts, segregated insurance funds and other property.

There is a limit of $1-million for a customer’s general account and $1-million for each separate account. The CIFP's detailed coverage policy is available on its website.

It’s comforting to know that Canadian dealer bankruptcies are rare. Since 1969, there have been only 17.  But it is even more comforting to know, that if it happens to you, and your firm is a member of CIPF, you will be able to recover up to a million dollars/per account of your money.

BCSC staff ambassadors tour the province, helping people to protect themselves from fraud and unsuitable investments. Our goal is to enable BC investors to develop critical thinking skills so they can become more informed of steps they should take to protect themselves when investing.

Where we are this month 

Prince George 

InvestRight seminar

December 1

Private Event

We present to various service clubs such as Rotary, Probus, Newcomers, women’s groups, senior’s organizations, and other networks. If your group of 20 or more would like to have the BCSC come and present InvestRight, please contact:

Anne Rutherglen, Communications Coordinator

Email:arutherglen@bcsc.bc.ca

Phone: 604-899-6731 or toll free: 1-800-373-6393

In the past few years, financial literacy has become a hot topic. Designating November as financial literacy month in Canada is another positive step in raising awareness and encouraging dialogue around the subject.

In writing some blog posts this month, and reading over our National Report Card on Financial Literacy, I came to the realization that it is tough to convert positive thinking into results.

Our survey found that the kids we surveyed had good attitudes toward financial literacy, but they weren’t necessarily turning this into good behaviours.  Here are some results to make the point that kids tend to “talk the talk”, but they don’t necessarily “walk the walk”:

• 93% believe it is important to learn about finances at an early age
• 93% believe it is important to build up personal savings
• 60% believe it is important to have a written financial plan

When it comes to acting on these beliefs, we get a different picture:

• Less than half keep a budget to record income and expenses
• 4-in-10 don’t know how much they earned or spent last month
• Only 1-in-10 have written financial plans

The study also shows that financial literacy courses need to be both comprehensive and delivered in an effective and interesting format to have an impact. This is certainly something we can ask of the education system, but it’s not enough to get kids on the right path.

For the most part, kids report learning about personal finance from their parents or family (66%), followed distantly by a course in high school at 10%. This stat may surprise many parents – yes, your kids are listening, watching, and learning from you.

So, knowing this how can we help? Here are a few suggestions that may be worth thinking about.

First, we know that Canadians need adults to start acting on our attitudes when it comes to investing and savings. The 2009 CSA Investor Index found that only one-in-four Canadians say that they have a formal written financial plan, despite the fact that two-thirds agree that having a plan is important for people like them.

Perhaps, bringing our children into the planning process would be a good idea. They are very much a part our financial lives, so let’s involve them. We don’t have to reveal all the family finances, investments or debt, but we could certainly talk to them about how they fit into the picture with regards to expenses, education planning, etc.

Second, we know from the same survey that most Canadians (85%) believe that it is important to build up their own personal savings and investments, but 35% do not have any savings or investments, an increase from 27 % in 2006.

To teach savings, money could be set aside money in a special savings fund – maybe for this year’s vacation, a family outing, or a nice dinner. This would be an opportunity to involve our kids in the planning and budgeting process before, during, and after the event.

This could start with a News Year’s resolution to save more. This kind of project would also open the discussion around the types of financial products that are used to save money and which one might be best to realize the goal.

Third, we should find out when our kids are taking financial literacy courses at school. In B.C., kids learn about financial life skills in Grade 10. As we’ve discussed before, we offer a free resource to teachers to teach the course. Ask your kids about it, and have them run you through some of the material. It’s really interesting.

Obviously, as a parent or family member, you need to strike a balance. If you put on too much pressure or get too involved, kids will tune you out. Nevertheless, a little give and take can go a long way.

Maybe opening the window into the family’s finances a little is a good first step in getting kids acting on what seem to be solid attitudes toward financial literacy.

Let us know if you have any other ideas or experiences that help kids learn better financial life skills.

We released our National Report Card on Youth Financial Literacy to coincide with the launch of Canada’s first Financial Literacy Month. The media response to the survey has been excellent.

They focused much of their attention on the incredible optimism of these kids. For example, when asked how much they’ll be making in 10 years, the average answer was $90,000. The actual average wage for that age group is just over $31,000.

It’s obvious from the findings that there is a need to temper their enthusiasm with some realistic thinking. One way to do this is by introducing financial literacy programs into schools.  However, the study also showed us that rushing financial literacy courses into the schools could do more harm than good.

“Simply having taken a financial literacy course or not having taken one at all has little impact on financial attitudes, behaviour, and knowledge,” the survey concluded. “To have an impact, courses need to be both comprehensive and delivered in an effective and interesting format. Having a bad course experience produces financial literacy outcomes similar to having not taken a course at all.”

When I read this finding, it resonated with me. I struggled in Grade 11 math class. This wasn’t because I was bad at math – it was just that the course wasn’t interesting, nor was it being taught well. In the end, I got a decent grade, but I struggled the next year because of the experience I had in Grade 11. It wasn’t until college when I took a mathematics class that was well taught that I started to enjoy the subject again.

In our experience, creating a good course for students and teachers takes a lot time and effort. The BCSC has been at it since 2004, providing a free The City: Financial Life Skills for Planning 10 resource to BC teachers. We’ve worked hard to ensure it is contemporary and meeting teacher’s needs, including a completely updated version that was published last fall. We know teachers like it, because teachers in all of BC’s school districts use it.

We also know that it is important to train teachers how to use the resource.

We have learned that most teachers never took a financial literacy course in high school. So, we’ve even taken it a step further, and now do workshops with student teachers to introduce them to our resource and to show them how to teach financial literacy in a way that will get the students involved.

So far, so good.

BC and Alberta performed higher than the national average on the financial literacy test that was included in the survey –  42% of BC graduates scored an “A” or higher followed by Alberta graduates at 37%, above the national average of 35%. 

One explanation for this result is the fact that BC and Alberta both have comprehensive financial life skills courses in their high school curriculum. Another reason could be that the courses are well taught, and enjoyed by the students who take them. While we did a little bit better in BC than the rest of Canada, we have no reason to be smug.  We too have a long way to go before BC can say it has done its job.

Whatever the explanation, most of us can probably agree that kids, like adults, respond well to courses that capture their interest and imagination.

With this in mind, it would be great to hear some ideas from you on how we can better teach financial literacy. Let us know what you think.

A few months ago, I talked about allowance charts for kids. Since this month is financial literacy month, I thought I’d follow-up and share some of the results I’ve seen from our chart system after I read a Globe and Mail article that discussed the best age to teach financial literacy.

The experts quoted in the article didn’t necessarily agree on the exact age you should start teaching about money, but they all argued it is good to start kids at a fairly young age.

In my opinion, a good, healthy relationship with money is something that should start from a very young age. Our kids are five and almost three. We started the allowance charts when they were both about two and a half.

We give our kids stickers for doing chores around the house. I don’t feel comfortable just handing them money. I think they need to understand that it is something you earn. They have a say in the types of chores they do, and we ensure the tasks aren’t too difficult. We’ve changed the charts a few times to reflect their opinions and input.

At the end of every week, we tally up their earnings (it’s anywhere from $1 to $2 a week). We pay them, and then have them deposit their money into talking piggy banks that tell them how much is in the bank. We also put money they receive from grandparents, etc. into the banks.

A couple of weekends ago, I decided it was time to use some of the money from their savings. They had both built up a decent balance. Before heading off to the toy store we had agreed upon, I set a budget (our eldest son was allowed $20 and the youngest $15), and told them both that we’d put the rest of the money into their savings accounts.

When we arrived at the store, it took them quite awhile to choose what they would like. As you can image, setting a young child loose in a toy store is a dizzying affair.

My five-year-old looked at 30 or 40 items. During the selection process, we discussed whether the price of every item was within their budget, and we talked a lot about value – how much he’d use the particular item and whether he would enjoy it. My younger son made his choice quickly, but still went through a few items before making his choice.

In the end, they both came in well under budget. They also bought items they are getting a lot of use out of – the youngest sleeps with “Zella”, the stuffed zebra. The eldest “races” his new car almost every night.

After going through this exercise, I’m finding it easier to explain to them why we don’t buy everything we see when we go shopping. For example, they were both coveting toy cars during a grocery-shopping trip the other day. I explained the cars weren’t in the budget, and my eldest stopped asking for them immediately. It took longer with the youngest, but that’s to be expected.

This week, we will head to the bank to deposit the money they saved to close the loop on the lesson. I will also talk to them both about making a small donation from their savings, to teach them about charitable giving.

My takeaways from this exercise are threefold:

1. I realize that you can teach kids about saving and spending at a very young age.
2. As they grow older, it’s easier to teach them about value and decision making when it comes to making purchases.
3. If I want my kids to have a healthy relationship with money, I’m going to have to work hard to keep reinforcing these lessons. I will also have to think about new ways to talk about saving, earning, and charity, as they grow older.

Let me know about your experiences teaching kids about money.

We recently commissioned a national study asking youth (high school grads 17-20 years of age) questions about their expectations, behaviour and attitudes towards money. 91% were enrolled in post secondary courses.

Media coverage of the study focused on the incredible optimism of these kids.

For example when asked how much they’ll be making in 10 years, the average answer was $90,000. The actual average wage for that age group is just over $31,000.

Almost three-quarters believe they will own their own home within a decade, yet stats show that number is closer to two-in-five.

Media asked the question: what’s wrong with these kids, why are they so out of touch. My answer has been two fold:  first, I am glad that Canadian youth are optimistic and ambitious.  We mustn’t stifle ambition at that age.

I also suggest that they need a reality check.  They need to know that what lies ahead, and plan accordingly and that means managing the financial side of their life.   

The next question the media asked is what about the parents’ role in helping their kids develop financial life skills? The study tells us that the majority of those surveyed learned about money and personal finance from their parents.  Only ten percent said that they took a course at high school. 

Learning from their parents could be a good thing, if their parents understand how to manage their personal finances well. But the reality on this front is that Canadians’ average household debt hit six figures last year, surpassing the Americans!

So what do we take away from this?  Well first, we need financial life skills taught well in our schools so that we give our youth the tools to manage money going forward. They need to learn how to put together a budget and a financial plan, in particular to pay off any debt, particularly student loans, that they acquire along the way.

The Canadian Federation of Students claim that by the time students graduate from post secondary schools, the average student loan debt is closer to $25,000.  A recent federal actuarial report says that national student debt is about to reach a whopping $15 billion by 2013.

In fact, I would suggest that before anyone gets a student loan, they must take a financial life skills course.

The key value that we need to instil in our youth:  the premise that it is better to save your money, and then buy what you can afford, reversing the practice of buying on credit that has become the norm.

In a previous blog post, we talked about our “Be Fraud Aware” website and the campaign website we’ve launched to help people in BC’s Punjabi and Chinese communities protect themselves against scams.

As part of the campaign, we’ve also updated our social media channels, adding new backgrounds to YouTube and Twitter, and a welcome page to Facebook. Let us know what you think about them.

On YouTube, you will find the campaign commercials, investor stories that are based on real investment scams, and a video that helps you identify the warning signs of fraud. We plan to add more videos throughout the year, so stay tuned. We’d also appreciate suggestions for videos that you might find useful.

We’ve also made some other tweaks to InvestRight.

As we mentioned in our last post, there is a new Punjabi landing page and banners that promote the “Be Fraud Aware” campaign.

There is also a new “Report to Us” button. Before the change, it was the “Talk to us” button. We changed it because users told us they felt it looked like a chat function.

You will find this button on the upper right side of the screen. If you click on it, you will be taken directly to an area where you can report a scam online, file a complaint about an advisor or firm, or get the information you need to contact BCSC inquiries.

We have also added a glossary link to the front page above the search box to give people quick access to this tool. Users told us they liked the glossary, but found it hard to find, so we put the link on the homepage.

As you can see from this post, we are open to suggestions for the site. If we feel a suggestion improves the experience of users we’ll certainly consider making the change.

BCSC staff ambassadors tour the province, helping people to protect themselves from fraud and unsuitable investments. Our goal is to enable BC investors to develop critical thinking skills so they can become more informed of steps they should take to protect themselves when investing.

Where we are this month 

Coquitlam  

InvestRight seminar

November 9

10:00am-12:00pm 

Glen Pine Pavilion, 1200 Glen Pine Court, Coquitlam

Be Fraud Aware!  Learn to protect yourself from Investment fraud, identity theft, & other scams. The BC Securities Commission and the Better Business Bureau of Mainland BC will present this FREE fraud awareness seminar. 

Light refreshments will be served after the presentations.

Register today at the Coquitlam Parks, Recreation & Culture Services -604.927-6940

All welcome! Cost: Free

Ladysmith 

InvestRight seminar

November 16

Private Event

Richmond 

InvestRight seminar- Cantonese

November 17

Private event

Victoria 

InvestRight seminar

November 24

Private event

We present to various service clubs such as Rotary, Probus, Newcomers, women’s groups, senior’s organizations, and other networks. If your group of 20 or more would like to have the BCSC come and present InvestRight, please contact:

Anne Rutherglen, Communications Coordinator

Email:arutherglen@bcsc.bc.ca

Phone: 604-899-6731 or toll free: 1-800-373-6393

A national youth financial literacy survey, released to mark November as Financial Literacy Month, shows that high school graduates are highly optimistic about their financial futures.  On average, students expect to earn over $70,000 in 10 years’ time (more than double the reported income of Canadian post-secondary graduates ten years their age) and almost three quarters expect to purchase a home within ten years, which is a much higher rate than actual home ownership. Over 90% of those surveyed were enrolled in post secondary courses.

“This is the first comprehensive Canadian benchmark study on youth financial life skills.  We believe that the information and analysis in this study will help educators and policy makers develop and deliver financial literacy programs for Canadian youth,” said BCSC Chair, Brenda Leong.

The study surveyed the impact of financial literacy courses on high school graduates. Students who took comprehensive financial literacy courses and had good experiences taking them performed better overall on financial literacy outcomes (attitudes, behaviour and knowledge). The survey also showed that simply having taken a financial literacy course has little impact on these outcomes and having a bad course experience is the same as not having taken a course at all.

“This information points to the importance of how financial life skills are taught in our secondary schools.  The study tells us that the more comprehensive a course is and the better taught, the more likely students will have higher scores on financial attitude, behaviour and knowledge,” said BCSC Chair, Brenda Leong.

The study included a financial literacy test.  BC and Alberta performed higher than the national average.  42% of BC graduates scored an “A” or higher followed by Alberta graduates at 37%, above the national average of 35%.  One explanation for this result is the fact that BC and Alberta both have comprehensive financial life skills courses in their high school curriculum.

On the important matter of student debt, the survey showed that over half of the respondents carry debt, which for nearly 70% includes a student loan.

And while half say they plan to pay it off in five years, the numbers tell a different story. Student debt has reached a record-high of nearly $15 billion, according to 2010-2011 actuarial report released by the federal government.

Concludes Ms. Leong, “The financial realities that we face as Canadians indicate that there is a lot at stake in educating young Canadians to be financially prudent. We need to build on the momentum created by the Taskforce on Financial Literacy and become global leaders in graduating students who are not only well versed in Languages and Mathematics, but in personal financial management as well.”

La Commission des valeurs mobilières de la Colombie-Britannique 

publie son rapport national sur la littératie financière des jeunes 

Selon les résultats d’une enquête nationale sur la littératie financière des jeunes, publiés à l’occasion du Mois de la littératie financière en novembre, les diplômés des écoles secondaires manifestent un grand optimisme quant à leur avenir financier. L’étudiant médian s’attend à gagner 70 000 dollars dans 10 ans, un montant plus de deux fois supérieur au revenu déclaré des diplômés postsecondaires qui ont 10 ans de plus qu’eux. Près des trois quarts de ces étudiants s’attendent à acheter une maison d’ici 10 ans, une proportion beaucoup plus élevée que celle qu’on peut observer dans la réalité. Plus de 90 % des jeunes qui ont pris part à l’enquête étaient inscrits à des cours postsecondaires.

« Le rapport national sur la littératie financière des jeunes [National Report Card on Youth Financial Literacy] est la première étude de référence canadienne consacrée à une évaluation détaillée des aptitudes financières acquises par les jeunes, a déclaré Brenda Leong, présidente de la Commission des valeurs mobilières de la Colombie-Britannique (British Columbia Securities Commission, ou BCSC). Nous croyons que les données et les analyses que renferme cette étude aideront les éducateurs et les décideurs à mettre au point et réaliser des programmes destinés à améliorer la littératie financière des jeunes Canadiens. »

L’enquête visait à mesurer l’impact des cours de littératie financière sur les étudiants détenteurs d’un diplôme d’études secondaires. Ceux qui avaient suivi un cours approfondi d’apprentissage financier et pour qui ce cours s’était avéré une expérience enrichissante manifestaient dans l’ensemble de meilleurs résultats en littératie financière, mesurés d’après les attitudes, les comportements et les connaissances. L’enquête a montré, par contre, que le seul fait d’avoir suivi un cours de littératie financière n’avait guère d’influence sur les résultats et que, dans les cas où l’assistance à un cours d’apprentissage financier s’était avérée une expérience négative, les résultats étaient les mêmes que si l’étudiant n’avait pas assisté au cours.

« Ces résultats illustrent l’importance que revêt la façon dont les connaissances financières sont transmises dans nos écoles secondaires, a ajouté la présidente de la BCSC. L’étude montre que, plus un cours est détaillé et mieux il est enseigné, plus il est probable que les étudiants auront des marques élevées sur les échelles des attitudes, des connaissances et des comportements financiers. »

L’étude comportait également un test des connaissances financières. Les résultats des étudiants de la Colombie-Britannique et de l’Alberta étaient supérieurs à la moyenne nationale de 35 %. En Colombie-Britannique, 42 % des diplômés secondaires se sont mérité la marque A ou A+, tandis qu’en Alberta le chiffre correspondant était de 37 %. Ces résultats tiennent en partie au fait que ces deux provinces offrent des cours approfondis pour l’acquisition d’aptitudes financières.

L’enquête portait également sur une autre question importante, celle de l’endettement des étudiants. Les résultats révèlent que plus de la moitié des répondants sont endettés et que dans près de 70 % des cas, la dette comprend un prêt étudiant. Plus de la moitié des étudiants endettés croient qu’ils pourront rembourser leur prêt d’ici cinq ans, mais les chiffres réels tracent un portrait bien différent. Selon le rapport actuariel publié par le gouvernement fédéral pour 2010-2011, en effet, l’endettement total des étudiants atteint aujourd’hui près de 15 milliards de dollars.

Bref, conclut Brenda Leong, « les réalités financières auxquelles nous sommes confrontés en tant que Canadiens indiquent à quel point il importe d’enseigner aux jeunes Canadiens à se montrer prudents en matière financière. Nous devons faire fond sur la dynamique impulsée par le Groupe de travail sur la littératie financière et devenir des leaders mondiaux produisant des diplômés qui se débrouillent bien non seulement dans les langues et les mathématiques mais aussi dans la gestion des finances personnelles. »

On October 11, we announced our three-year fraud awareness campaign, which starts by focusing on BC’s Chinese and South Asian communities. We are excited about the many different components of our “Be Fraud Aware” campaign, which includes advertising in a variety of media.

In this blog post, I want to introduce you to the updates we’ve made to InvestRight, and the in-language campaign website.

Let’s begin with updates we’ve made to InvestRight.org.

If you are familiar with the website, you will know that it went live in October 2006. Last year, we redesigned the website, adding additional content and sections to help people invest wisely.

In June 2010, we updated our Chinese landing page and added a Chinese version of the InvestRight Guide to Investing.

This month, to supplement our “Be Fraud Aware” campaign, we’ve added a Punjabi version of the Guide to Investing, along with a landing page. Like the Chinese landing page, we added information that will help people make informed investment decisions.

On the Chinese and Punjabi landing pages you will find links to our new “Be Fraud Aware” campaign website. You can also get to this website through a “light box” that will appear when you open InvestRight. If you choose to close the light box, it will not appear again, and you can use the banners to get directly to the campaign website from the homepage.

The campaign website is available in three languages – English, Punjabi & Chinese. On it, you will find posters on the bottom of the page that you can print off and put up in your local church or community centre. There are also videos on the Fraud Watch page that give you a sense of the damage an investment fraud can do to someone’s life.

We’ll talk more about the videos in a future blog post. For now, take a look at our campaign website, and let us know what you think.

"Scam artists follow the news and economic trends, often using the headlines to their advantage," said Bill Rice, Chair of the CSA and Chair and CEO of the Alberta Securities Commission. "They will try to lure investors with the opportunity to protect themselves from economic uncertainty or get in on the 'ground floor' of new technologies that turn out to be false or exaggerated.”

With October being Investor Education Month, the CSA is releasing a list of five common “traps” scam artists use to entice investors across Canada:

1. Illegal sales of misleading exempt market securities. Private placements, or securities sold under an exemption, offer legitimate businesses the opportunity to raise funds by selling shares to a relatively small number of investors as opposed to a public offering made through national securities markets. Unfortunately, scam artists illegally raise money in the exempt market by offering misleading securities that often promise investors guaranteed or unrealistic returns with little or no risk. Furthermore, these individuals are often not registered to give investment advice or make securities transactions.

2. Energy investments. Swindlers continue to attempt to trick investors with the lure of untapped oil and gas reserves or new energy technologies, often using complex technical jargon to confuse the message. 

3. Gold and precious metals. High precious metal prices and the promise of a "tangible" asset that will “never decrease” in value make gold and silver investing seem like a sure thing. Investors should be aware that there are no guarantees, even in legitimate markets.

4. Affinity fraud. Marketing a fraudulent investment scheme to members of a group or organization continues to be a highly successful and profitable practice for fraudsters. Investment decisions should always be made based on careful evaluation of the underlying merits rather than your relationship with the promoter or recommendations from friends and family.

5. High risk or false FOREX schemes:  Trading in foreign currencies requires knowledge and resources far beyond that of most investors. Con artists play on the complexity of the system, using jargon to confuse novice investors into risky trades. In some fraudulent schemes, securities may be sold, but investors’ money is not invested as promised or is simply stolen.

The CSA urges investors to learn the warning signs of investment fraud and independently verify any investment opportunity and the background of the person and company offering the investment. Investors are reminded that while securities regulators cannot provide advice, they can provide background information about those who sell securities or give investment advice, as well as about the products being offered.

Investors should always ensure an adviser and their firm are registered, and can verify registration online through the Canadian Securities Administrators’ National Registration Search. Investors can also visit the CSA’s website, www.securities-administrators.ca to search the Disciplined Persons list, read recent investor alerts, or take the Fraud Awareness Quiz.

The CSA co-ordinates and harmonizes regulation for the Canadian capital markets.

Here are the facts.  Research tells us that 48% of British Columbians have been approached with a possible fraudulent investment in their lifetime, less than 25% report it and just over 10% became victims of fraud.  Half of those were solicited by an existing relationship of trust, such as a family member or work colleague.

The first part of the campaign focuses on the Chinese and South Asian communities because they have very low awareness of the BC Securities Commission, most likely due to language and culture barriers.  We want these communities to recognize the role we play in stopping and disrupting investment fraud from happening, so we are talking to them in their language through the media they use the most.

The campaign consists of television commercials in Mandarin, Cantonese and Punjabi, supplemented with radio and full- and half-page print ads.  InvestRight feature new investor protection information and tools, including two victim videos and the Guide to Investing, in Chinese and Punjabi. 

We will make it possible for people to report suspicious activities in their language because we are seeing an increasing number of Ponzi schemes occurring within ethnic communities.

We did some research with Chinese-speaking British Columbians.  We found that one-third relied on investment information from friends and family, making them a potential target to Ponzi schemes that target groups with tight-knit relationships – we call this affinity fraud.

The first phase of the campaign will run from October 2011 to March 2012. Over the next year, the campaign will be expanded to reach British Columbians across the province.

By delivering this message over a three-year period, we believe that, over time, more people will be able to recognize warning signs of investment fraud and warn others.

It is also our hope that people will call our inquiry line 1-800-373-6393, or report on-line if they have information about a suspicious scheme.

The British Columbia Securities Commission and other participating Canadian securities regulators are seeking comments from retail investors on proposed changes to the regulatory regime that governs junior public companies, or venture companies, in Canada. These companies list their shares on exchanges like the TSX Venture Exchange, and are usually smaller companies with limited resources.

The proposed rule introduces changes to the current regulatory regime for venture companies.  The goal is make these companies’ disclosure more useful and user-friendly for investors, while creating a regime that is more suitable and manageable for venture companies.  More information can be found here and comments can be made on or before October 27, 2011 when the survey closes.

Last year, BCSC staff and other CSA representatives met with investors, industry representatives, from across the country to discuss existing and proposed rules for venture issuers, and obtain feedback.

To help us better understand retail investors’ needs in this market, we are asking Canadians who invest in junior public companies to fill out a short survey that asks what information is important to them. In particular, we are interested in finding out how much retail investors rely on financial reports to make investment decisions.

You will find the survey here: http://www.bcsc.bc.ca/surveys/external/2011/investoren_c.htm 

(For the survey in French, click here)

Your participation in the survey, and the information you provide, will be treated in confidence to the fullest extent permitted by law.  Publication of information from the survey will be aggregated and no identifying information will be released.

BCSC staff ambassadors tour the province, helping people to protect themselves from fraud and unsuitable investments. Our goal is to enable BC investors to develop critical thinking skills so they can become more informed of steps they should take to protect themselves when investing.

Where we are this month 

Vernon 

InvestRight seminar

October 7

Private event

Burnaby  

InvestRight seminar

October 14

Private event

Duncan 

InvestRight seminar

October 20

Private event

Kelowna 

InvestRight seminar

October 22

Private event

Kamloops 

InvestRight Seminar

October 25

Private event

Penticton 

InvestRight seminar

October 26

Private event

We present to various service clubs such as Rotary, Probus, Newcomers, women’s groups, senior’s organizations, and other networks. If your group of 20 or more would like to have the BCSC come and present InvestRight, please contact:

Anne Rutherglen, Communications Coordinator

Email:arutherglen@bcsc.bc.ca

Phone: 604-899-6731 or toll free: 1-800-373-6393

BCSC staff added two Panamanian companies to the Investment Caution List after the country’s national securities commission issued a warning about them.

The Panamanian securities regulator warned that InovaTrade Inc. and InovaTrade Panama Inc. are not licenced to do business in the country’s securities industry. The U.S. Commodity Futures Trading Commission also took legal action against InovaTrade Inc.

The BCSC has learned that InovaTrade Inc. has BC clients. If you are contacted by the company, or have information about it, please contact the BCSC immediately.

Penthouse Capital Financial Services Ltd. was also added to the Investment Caution List in mid-September. The Qualicum Beach-based company was put on the list, after staff determined the company appeared to be engaging in trading and advising activities on its website. It is not registered to trade in, or advise on, securities and exchange contracts in BC.

Finally, BCSC staff added Martin Donald Heppner to the Investment Caution List, after the Ontario Securities Commission (OSC) issued an investor alert to warn investors he could no longer sell securities to investors.

Heppner, the principal of Anchor Securities Limited (ASL), was suspended in late August after the OSC held proceedings on the matter. The OSC also suspended ASL’s registration at the proceedings. Details of the decision are available on the OSC website. [http://www.osc.gov.on.ca/en/SecuritiesLaw_ord_20110830_anchor-heppner.htm]

We urge you to let us know right away if you are contacted by any individual or company that is not registered to trade or advise in BC.

You can do a background and registration search on the InvestRight website if you are unsure about a company or individual’s registration status. Our Inquiries Group can also help you determine registration status. Their contact information is listed under in the “Contact Us” section of the website.

With the price of gold reaching record heights during the latest market downturn, it’s no surprise that fraudsters jump on this news to offer investment schemes that involve precious metals.

The benefits of precious metals such as gold and silver – their “tangibility” and security, as well as the fact their value often increases during market downturns – make them appealing to investors, especially during times of economic uncertainty. Fraudsters play on this and use well-worn tactics to entice unsuspecting people into investing in suspect financial products.

Sometimes, it’s as simple as telling investors that they are looking to raise money to re-open a defunct mine. In exchange for providing funds to purchase equipment, the fraudster will promise the investor a high return on their money, plus a stake in the proceeds of the mine. Or, the scam could involve the sale of gold bullion (which may or may not exist), with promises of large returns based on trading coins and other materials in private markets. Other times, the stories are more involved and fanciful, such as promises of sunken treasure being raised (literally) from a ship-wrecked galleon after centuries on the sea floor.

But, regardless of the backstory, these scams will likely share a few common elements:

• In the case of mining scams, there is often a ludicrous over-representation of the amount of gold found within a mine.
• The fraudsters may over-estimate claims of the share price of gold mining companies, or make speculative claims about the value of a mine based on its proximity to a proven reserve.
• Prospective investors may be invited to visit a property, but only during set times and under careful supervision.
• Fraudsters may allude to so-called “specialty” markets that only they can access.
• High-end brochures, a slick website, or pictures are often used to demonstrate a mine or an investment’s value, with little other evidence provided.
• The scam may include supposed offshore or foreign brokerage firms soliciting people to open trading accounts (in this case, to trade in gold or other precious metals). These brokerages are rarely registered and often hail from jurisdictions where securities regulation may be less stringent than in Canada, both of which greatly increase the risk to investors.

All of these are variations on established methods of fraud, such as promising high returns with no risk, the ability to profit like an insider, and the need to get in quickly without doing any research.

Always remember, whether you’re investing in conventional blue-chip stocks or precious metals, there is risk in every investment, and anyone telling you NOT to perform your due diligence on an investment is not someone you should give your money to.

If you have been approached or know of an investment that fits the description above, contact your provincial securities regulator immediately. Residents from other Canadian provinces can find contact information for their provincial securities regulator at www.securities-administrators.ca.

In BC, contact BCSC Inquiries. You can also anonymously report suspicious activity through InvestRight’s Report a scam webpage.

If you know a person who has put money into, or is considering contributing, to an investment like the one described above, give or send them this information, and encourage them to do more research.

The Investment Industry Regulatory Organization of Canada (IIROC) is now offering an online resource that helps people understand how trading works on stock exchanges and Alternative Trading Systems (ATSs).

The guide is free, and is a good tool for people who want to understand the ins and outs of trading securities (stocks, ETFs, etc.) on equity marketplaces. There are six easy-to-navigate lessons, with each offering a quiz to test your knowledge. The lessons introduce you to:

• Canadian equity marketplaces
• The different types of orders you can place when trading on a marketplace
• How to place the orders and how they are filled
• Your dealer’s duties to you
• Your responsibilities when you are trading on an equity marketplace

It takes about 10 to 15 minutes to complete each lesson, and you can come back to do the modules at your leisure. If you wish, you can also repeat modules until you understand the concepts. There is no requirement to finish one lesson to be able to move on to another.

The concepts in the guide should help all types of investors – new and experienced investors, those who trade with the assistance from an investment advisor, and self-directed investors who trade through an online brokerage.

We are often asked at trade shows or seminars about the types of courses are out there for people who want to learn more about trading and investing. We usually suggest the Canadian Securities Course (CSC), but it requires a time and financial commitment.

For those looking for an overview of how equity markets work, this tool is a nice alternative to get your feet wet. These modules are also good for people, like myself, who passed the CSC and need a refresher.

Mixing this knowledge with other information that is available on other investor education websites, will go a long way in helping you understand how equity markets work.
 

In your community this month 

BCSC staff ambassadors tour the province, helping people to protect themselves from fraud and unsuitable investments. Our goal is to enable BC investors to develop critical thinking skills so they can become more informed of steps they should take to protect themselves when investing.

Where we are this month

Vernon
BC Home & Leisure Show
September 9 5:00 pm - 9:00 pm
September 10 10:00 am - 6:00 pm
September 11 10:00 am - 4:00 pm
Vernon Curling Club 3310 39th Avenue
For more information go to http://www.bchomeshows.com/vernon_home_show.html  

All welcome! Cost: Free

Sidney  

InvestRight seminar
September 10
Private event

Vancouver  

InvestRight seminar
September 10
Private event

Salmon Arm  

InvestRight seminar
September 14
Private event

Kelowna  

InvestRight seminar
Sept 15
Private event

Richmond  

InvestRight seminar
September 15
Private event

Lanzville  

InvestRight Seminar
September 22
Private event

Vancouver  

InvestRight Seminar
September 22
Private event

Surrey

Focus on Seniors Forum
September 24
10:00 am- 3:00 pm
Newton Recreation Centre 13730- 72 Ave.
This event is free for all seniors - focusing on the South Asian (Punjabi speaking) audience.
This forum will raise awareness of issues impacting seniors as well as provide valuable information about legal, safety and support resources available to seniors and their caregivers in Surrey.
Lunch will be provided. Lots of great prizes!
Seating is limited, so please register at:

• 604-501-5100 ( 8:30 am- 4:30 pm) Monday- Friday)
• Any City of Surrey ‘s Community or Senior’s Centres
• www.surrey.ca/register 

Roberts Creek
InvestRight Seminar
September 27
Private event

Sechelt  

InvestRight Seminar
September 27
6:00 pm - 7:00 pm
Hosted by Sechelt Rotary
Pebbles Restaurant, Driftwood Inn Trail Ave. Sechelt
Cost: free
Contact: sechelt_rotary@dccnet.com to leave a message call 604 885 0131
Coffee/tea will be served

We present to various service clubs such as Rotary, Probus, Newcomers, women’s groups, senior’s organizations, and other networks. If your group of 20 or more would like to have the BCSC come and present InvestRight, please contact:

Anne Rutherglen, Communications Coordinator
Email:arutherglen@bcsc.bc.ca
Phone: 604-899-6731 or toll free: 1-800-373-6393

The common offer in this scheme is the purchase of debt obligations (for example, loans, bonds or debentures) guaranteed by the world’s top banks, so-called prime banks, which are offshore. Common terms promoters use to describe these schemes are bank-secured trading programs, high-yield investment programs, standby letters of credit , prime-bank notes, bank-issued debentures or bank guarantees.

How does it work? 

 Scam artists lead investors to believe that they are participating in a secret trading regime with the world's major banks. They often tell investors that this type of investment is usually reserved for rich, powerful individuals or corporations. Dropping the names of the rich and famous is common in these schemes.

Investors might be required to sign non-disclosure agreements that prevent them from disclosing the identity of the parties involved and the terms of the transactions. The promoters may say these agreements are necessary to preserve the exclusive, secret nature of scheme. However, it’s just a technique used in many investment schemes that buy the fraud artist time to move money offshore before the ruse is up.

The promised returns in these schemes are usually very high—annual returns from 20% to 200%, or more. The returns investors receive usually come from other investors’ money. Payments eventually stop because the promoters take the money offshore or squander it all on themselves.

Watch out for one or more of these common characteristics: 

• Assurances the investment is guaranteed by the World Bank, International Monetary Fund (IMF), an international central bank, etc.
• Characterized as a secret, exclusive investment that requires you to sign an agreement not to talk about it
• Vague, complex terminology used to describe how the investment works, and promoters may claim they are too complex for most people to understand
• Promises of high returns that you will receive in payments over time  

Assurances the investment is guaranteed by the World Bank, International Monetary Fund (IMF), an international central bank, etc.

You can read more about common investment schemes on InvestRight.
 

The British Columbia Securities Commission added Imperia Invest IBC to its Investment Caution List after the U.S. Securities and Exchange Commission issued an Investor Alert warning investors about a possible advance fee scheme that specifically targets deaf investors.

In October 2010, the SEC’s Office of Investor Education and Advocacy alerted investors about Imperia Invest IBC, after the agency alleged the company raised more than $7 million, of which $4 million was collected primarily from approximately 6,000 deaf investors in the U.S.

The SEC also said in its complaint Imperia Invest IBC had defrauded more than 14,000 investors worldwide.

The SEC alert warns potential investors, including deaf investors, about the risks of possible “advance fee” schemes related to the companies with names similar to Imperia Invest IBC. In such a scheme, the scam artist asks for money up front for the deal to go through. The bogus fee may be described as many things – a processing fee, or commission, for example. These types of schemes are known to target victims who lost money in a previous scam.

If you live in B.C. and you are aware of anyone promoting what looks to be an advance fee scheme or an investment under the Imperia name, call or e-mail us immediately. Our e-mail is inquiries@bcsc.bc.ca and our toll free number is 1-800-373-6393. Residents of the Lower Mainland can call 604-899-6854.

AMF warns about Forex internet solicitations

Yesterday, the Autorité des marchés financiers warned Quebeckers about unregistered companies that were soliciting investors to speculate on the currency market.

The regulator signalled out two websites forexcanus.com and forex.com, warning that the companies running these websites are not registered in any capacity with the AMF.

We’ve added the information from the AMF watch to our Investment Caution List, under 6149154 Canada Inc.

We urge British Columbia residents to exercise extreme caution when dealing with firms that are not registered to trade or advise in British Columbia. You can find out more about the risks associated with investing in Forex in the Informed Investing section of our website.

Nova Scotia and Ontario investor warnings  

The Nova Scotia Securities Commission is alerting investors who may be considering purchasing securities from Seisma Oil Research, Seisma Energy Research, or related companies. The companies were permanently cease traded in Saskatchewan, are listed as a potential scam the U.S. and Australia. For more information, check out the NSSC Investor Alert.

The Ontario Securities Commission added Thunderlight Entertainment, I.W.F. Inc. (“TWF”), Horizon Explorations Ltd., and Keystone Explorations to its Warning List in August. The OSC posts updates to its warning list on its Twitter feed, @OSC_News.
 

Uncertainty in the financial markets is distressing for us as we look for ways to grow our savings. The media coverage and commentary from multiple sources adds to our anxiety, sometimes causing us to make rash decisions.

One way to take control is to create a financial plan. Setting out your goals, remaining actively involved in the management of your portfolio, and diversifying your investments should help you not make poor investing decisions at the spur of the moment.

Set your financial goals

Before you invest any amount of money, you need to ask yourself some critical questions. These questions will help you create a road map that you can follow (and act upon) in times of crisis or uncertainty.

For example, you may want to save up to buy your first home. To meet this goal, you will need to understand the timeframe you intend to buy, the type of risk you are willing to take with the money, and the kinds of financial products or strategies you can use to get there.

We’ve got a list of questions in our Informed Investing section that you can ask yourself. There is also a worksheet on the webpage that will help you start planning your investments. We also talk about risk and products in this section of the website.

Remain actively involved
For many people, this is the hardest part about investing. It’s very easy to walk into an investment advisor’s office, hand over some money, and walk out thinking that you are taking care of your retirement. The problem with this approach is that the headlines from the past week cause the same person to call up the advisor in a panic to tell them to “sell everything.” As I said off the top, this could be a bad idea that hurts you in the end.

Monitoring a portfolio and understanding investment products does take time and effort. But, it’s worth it. You don’t have to become an expert. You just have to know enough to be able to talk with your registered advisor, set out your goals, and ask questions to make sure they have you on the right path.

You should meet with your advisor regularly, and always check your statements. This will keep you both in sync, and allow you to make informed decisions even when things look dim.

Diversify your investments
You shouldn’t have all of your eggs in one basket. Once you’ve set out your plan and your risk tolerance, you can start to look at investment products and strategies. As you move forward, you will want to ensure that your portfolio remains balanced and in tune with your current goals and financial situation.

Your advisor will help you find the right mix for your needs. However, you still need to ask the right questions about the kinds of investments in your portfolio.

Our InvestRight Guide to Investing provides worksheets with questions to ask. You should never be afraid to ask a question when you don’t understand something. It’s your money.

Final thoughts
In the end, it comes down to having a plan. This will allow you to make calm, informed decisions.

Also, the Globe and Mail’s Rob Carrick wrote an article titled Some do’s and don’t for investors in this market. He outlines some common sense portfolio strategies for retail investors who are worried about market losses.
 

Stark U.S. economic news and the debt worries have caused financial markets to gyrate dramatically over the past week.

On Monday, U.S. stocks posted their worst losses since the 2008 financial crisis, as the markets reacted to the news of the S&P’s historic downgrade of the U.S. credit rating and fears of a second recession began to set in. The downgrade news also affected markets in Canada, with the S&P/TSX sliding dramatically, only to start to recover on Tuesday.

With this kind of volatility comes uncertainty, especially for retail investors who are looking for solid, long-term returns on their investments. These are just the people who scam artists target with schemes that guarantee high returns, with little or no risk.

So, how can you, your friends, or your family members avoid falling victim to an investment fraud?

Don’t panic 

• Fraud artists prey on fear. They know you are worried about your financial future and the safety of your investments. To get you into the scheme, they will offer safety and guarantees, like high monthly interest payments that can’t be achieved legally. Often, these offers turn out to be Ponzi schemes.

Take time to consider an investment  

• Once scam artists get your attention, they will try to get you to buy right away. If you are suspicious, or even unsure of an investment, say “no”. Take the time to consider if the investment and the individual are legit. If you don’t, your money may be lost forever with little, or no hope, of recovery.

Watch out for investments based on fads  

• Right now, gold is trading at record highs. You’ve probably seen the recent surge in ads in newspapers and online offering to buy gold jewellery. Fraud artists watch the markets and trends too. They will try to capitalize on whatever is hot, whether it be gold, a foreign currency, or an industry that is being talked about a lot. They will then create a scam that uses that fad to their advantage.

Learn to spot the warning signs of a scam  

• Even though fraudsters grasp onto fads, securities regulators tend to see the same schemes come and go. Every scam tends to have one or more warning signs, which we call “red flags”. Learn them, they will help you protect your money.

Stick with your plan  

• If you have a financial plan, don’t let a fad or fear get you off track. If you don’t have a plan, now is the time to put one together. This way, you will be able to say no to pressure tactics and offers that sound too good to be true.

For more information on how to spot a scam and to learn about the warning signs of an investment scam, visit the Investor Protection section of our website.
 

In your community this month  

BCSC staff ambassadors tour the province, helping people to protect themselves from fraud and unsuitable investments. Our goal is to enable BC investors to develop critical thinking skills so they can become more informed of steps they should take to protect themselves when investing.

Where we are this month

North Vancouver
InvestRight seminar
August 8
Private event

Nanaimo
InvestRight seminar
August 9
Private event

Whistler
InvestRight seminar
August 11
Private event

Parksville
August 15
InvestRight Seminar
Private event

Comox InvestRight seminar
August 17
Private event

Victoria InvestRight seminar
August 17
Private event


We present to various service clubs such as Rotary, Probus, Newcomers, women’s groups, senior’s organizations, and other networks. If your group of 20 or more would like to have the BCSC come and present InvestRight, please contact:

Anne Rutherglen, Communications Coordinator
Email:arutherglen@bcsc.bc.ca
Phone: 604-899-6731 or toll free: 1-800-373-6393
 

• Practical guidance on choosing (or changing) an investment advisor
• Simple steps for monitoring your investments
• Where to go and how to use research when making investment decisions
• Words of caution about investing in private companies

The Guide to Investing comes in PDF format and it is available on our website for download. What’s great about the PDF format, is that you can load it onto iPad through the iBooks application for free. This is also true for the iPhone and iPod touch.

Putting the Guide to Investing on these devices allows you to have it with you for quick reference when you are checking in with your advisor, or doing some casual reading during the summer holidays. I know most people want to relax and not think about money during July and August. However, it’s been awhile since RRSP season, which may have been the last time you were thinking about your investments.

Furthermore, saving the Guide to Investing on a mobile device gives allows you the flexibility to go through it at your leisure. Personally, I find myself using our iPad a lot more around the house for casually surfing the internet and research. I often put apps and documents I want to try out on it, and then go back over time to test them out or read them.

Finally, putting the Guide to Investing onto a mobile device saves paper, which is good for the environment.

To get the Guide to Investing in PDF format on your device, simply,

• Navigate to the “Get the Guide” page on InvestRight
• Link to the PDF, and it will download onto your device
• Touch the screen to make a bar with two buttons appear on the top of the screen
• Click on the button on the top right that says, “Open in iBooks”
• The Guide to Investing will appear on the bookshelf, and remain there

If you are working from a computer, and you want to put the Guide to Investing into iTunes, Apple provides instructions on viewing, syncing, saving, and printing PDFs on their portable devices.

If you want to use the worksheets, you will still have to access the Guide to Investing on your computer, since iBooks does not give you the ability to fill in PDF forms. I came across one app that will give you this functionality. However, I haven’t tested or downloaded it, so I can’t say how well it works. You also have to buy the app, so I will leave it up to you whether or not it’s worth purchasing.

If you do decide to download the Guide to Investing onto your mobile device, let us know what you think by commenting on this post.
 

A purported New York-based investment firm that was advertising its services in online classifieds is one of six recent additions to the British Columbia Securities Commission’s Investment Caution List.

BCSC staff added High Profit Investment Ltd. to the Investment Caution List after finding out the firm solicited BC residents to open trading accounts and have the company trade commodities on their behalf. The solicitations were through online classified ads that recently appeared in the Vancouver region.

On its website, High Profit Investment purports to be a U.S.-based securities and commodities firm, specializing in “online Foreign Exchange (“Forex”) brokerage.”

A Google search of High Profit Investment’s address turned up a pizzeria in the borough of The Bronx in New York City. In our experience, anchovies and investments are not usually sold from the same location, so we made a phone call. It turns out that the pizzeria is no longer located at this address, nor is anyone else. According to the business next door, the location is now an empty storefront.

What’s even more important for investors to know, is the fact High Profit Investment is not registered to do business in the securities industry, in any capacity, in U.S. or Canada. This can be verified by doing a registration search.

The five other recent additions to the Investment Caution List are: Royal Securities Corp., International Youtrade Investments MA Ltd., You Trade Holdings Limited, Offshore Trading Company and Golden Futures Trader.

The Ontario Securities Commission suspended the registration of Royal Securities Corp. and issued an investor alert regarding the firm and its principal, Ningyuan Guo, also known as Mark Guo. The BCSC added the company to the list after receiving this information.

BCSC staff added International Youtrade Investments and You Trade Holdings to the list after Québec’s Autorité des marchés financiers (AMF) cautioned Québec residents about the two firms.

In a news release, the AMF warned about the solicitations the companies were making on their websites, which invited Québec investors to open accounts to invest in derivatives, a complex and volatile investment product. The release went on to say that the companies are not registered as derivatives dealers or advisors with the AMF.

A warning from Panama’s national securities commission regarding Offshore Trading Company prompted BCSC staff to add the company to the list. In its warning, the commission said that Offshore Trading (a.k.a. Offshore Trading Inc.) is not authorized to carry out business as a financial intermediary in or from the Republic of Panama.

Finally, the BCSC added Golden Futures Trader to the list. Staff has information that this company contacted BC residents who lost money after investing with Occidental Capital Partners, a company that was added to the list on March 2, 2011. On its website, Golden Futures Trader falsely claims to be a member of the National Futures Association.

None of these new additions to the Investment Caution List hold registration to trade or advise in British Columbia. We urge you to let us know right away if you are contacted by any individual or company that is not registered to trade or advise in BC.

You can do a background and registration search on the InvestRight website if you are unsure about a company or individual’s registration status. Our Inquiries Group can also help you determine registration status. Their contact information is listed under in the “Contact Us” section of the website.

On July 8, 2011, the British Columbia Securities Commission announced its Criminal Investigations Team arrested Ronald James Conn and his wife, Sze Man “Ella” Conn.

The Conns were arrested in Vancouver on June 28, 2011 by members of the BCSC’s Criminal Investigations Team, with assistance from the Vancouver Police Department.

It is alleged that Ronald Conn and Ella Conn solicited over a million dollars from 21 different investors between July of 2008 and September of 2010. The allegations have not been proven.

 
This is the third arrest for Ronald Conn and the second arrest for Ella Conn related to illegal trading in the securities. The couple have allegedly used various methods to contact investors.

In April 2011, the Saanich Police and the team arrested Ralph Kelly, 46, a Colwood resident, Garrett Campbell, 30, a Colwood resident, and Frank Joseph Pecorelli, 33, a Saanich resident. Multiple charges were recommended, including Fraud Over $5,000.00 and various Securities Act violations. Again, these allegations have not been proven.

Both Ronald Conn and Ralph Kelly received trading bans and fines after being sanctioned by BCSC panels.

In light of these recent arrests, we want to remind people to investigate before investing. Below are a few tools that will help you do your due diligence.

National Disciplined Persons List  

Sanctioned individuals appear on the Canadian Securities Administrators national disciplined persons list, which is available through InvestRight. The list is a valuable resource for investors who are conducting background checks on individuals who are selling investment products.

If you come across a person that is offering an investment product who is on the list, we encourage you to report it to us immediately.

Court Services Online  

BC’s Ministry of the Attorney General provides this searchable database to the public. You can search Court Services Online for documents on civil and criminal matters. Searching an individual’s name will provide you with file numbers, court dates, and court locations. Cases the BCSC is pursuing through Crown counsel normally show up in a search. If you see civil or criminal court cases related to an individual who is selling investment products and you have concerns, you can contact our inquiries group to ask questions.

Investing in Private companies  

If an individual is offering you an investment in a private company (a non-prospectus company), there are rules he needs to follow. Most of the BCSC’s illegal distribution cases relate to the sale of non-registered (private company) securities to unqualified investors.

InvestRight has a section on investing in private companies. We also issued an Investor Watch on the subject, and have a section on private companies in our downloadable Guide to Investing, which is available in Chinese. All of these resources inform you about the rules and risks involved with this type of investment product.
 

You’ve lost money due to a disagreement with your advisor or maybe your advisor’s firm went bankrupt.  Where do you turn?

Last month, the Joint Forum launched a new webpage called Seeking Compensation that sets out an easy-to-use, step-by-step description of where you can turn if you believe that you have lost money because of

• an error or disagreement with, or the possible misconduct of, your representative or financial company. For example, your account was mishandled, or you received inappropriate advice or misleading information.
• your financial institution going bankrupt.The guide provides information about compensation funds that may protect you in these circumstances.

The Joint Forum is a mechanism through which pension, securities, and insurance regulators co-ordinate, harmonize, and streamline the regulation of financial products and services in Canada

Today, we’ve added a link to this Joint Forum webpage to the advisor misconduct page on our website.

In addition to covering investment losses, it also provides information if you have lost money for the reasons above in connection with insurance or banking products.

BCSC adds information about Exchange-Traded Funds 

As we discussed in an Investor Watch from 2009, certain Exchange Traded Funds may not be appropriate for retail investors.

Today, we’ve added an advisory from the North American Securities Administrators Association to the ETF page of our website, which discusses the risks and costs associated with this increasingly popular product.

Over the last few years, ETFs have grown in complexity, and investors may not understand how these investment products work or the potential risks they may face.

We want people to make sure they understand ETFs before they invest and consider whether these investments are right for them. The NASAA advisory , which you will find at the bottom of our ETF page, contains sections explaining

• what an ETF is, and how it compares to a mutual fund
• common traditional ETFs that mirror stock market indexes or industry segments
• non-traditional ETFs, like inverse or leveraged products
• how to determine whether they are suitable for you

The ETF advisory also outlines several risks associated with ETFs, including

• Liquidation. The number of ETFs that are shut down or liquidated, while previously a rare occurrence, is on the rise, up 500 percent in each of the last three years over 2007 levels (which equates to one ETF each week).
• Fees. Leveraged and inverse ETFs must be traded all the time, therefore incurring substantial brokerage fees and commissions. 
• Tax Consequences. Leveraged and inverse ETFs may be less tax efficient due to daily resets that can result in significant short-term capital gains that may not be offset by a loss.

Have a look at all of this information if you are considering investing in ETFs. If you have any questions, send us a comment or contact us through our website.

In your community this month
BCSC staff ambassadors tour the province, helping people to protect themselves from fraud and unsuitable investments. Our goal is to enable BC investors to develop critical thinking skills so they can become more informed of steps they should take to protect themselves when investing.

Where we are this month 

There are no events in July. 



We present to various service clubs such as Rotary, Probus, Newcomers, women’s groups, senior’s organizations, and other networks. If your group of 20 or more would like to have the BCSC come and present InvestRight, please contact:

Anne Rutherglen, Communications Coordinator
Email:arutherglen@bcsc.bc.ca
Phone: 604-899-6731 or toll free: 1-800-373-6393
 

In Part one, we talked about the big problem that British Columbia had with unscrupulous operators using the loosely regulated US over-the-counter (OTC) markets to fleece investors.

Now, I am going to outline how we are cleaning up this market to protect BC investors and its reputation. Unfortunately, there was no one silver bullet to clean this market up. We initially used enforcement as our main tool, but the cases were often cross-border, hard to prove, and very time consuming.

In 2008, we brought in a new rule to deal with the problem. Companies with a BC connection now have to comply with the same timely and continuous disclosure requirements as those who trade on the TSX Venture Exchange. We also impose restrictions on dealers for their trading activities in the US OTC market. Finally, we report geologists, lawyers and accountants who aid and abet this unscrupulous behaviour, and pursue them if they contravene our securities laws.

Since the rule took effect, about 400 of the 800 OTC companies with a significant BC connection have left the province or gone out of business. Of the remaining 400, over 200 have been cease traded for failure to comply with the rule, leaving a manageable population of less than 200 companies that are monitored by BCSC staff.

Prior to the adoption of the rule, new OTC companies, mainly shell companies, were being created at a rate of two or three a week. Since the rule came into force in September 2008, only about 25 new OTC companies with significant BC connections have been created.

Because we learned that some companies moved their operations to other parts of Canada, we convinced most of our colleagues (with the exception of Ontario) to follow our example.

On June 10, 2011, most Canadian securities regulators put a rule that builds on the BC approach out for comment, following our lead and cracking down on this market segment. This is a positive result to a difficult problem, which we continue to deal with, day in and day out.

Nevertheless, significant challenges with OTC companies in BC remain.

Investors must watch out for inappropriate promotions. But, with the dedication of BCSC staff, and with the cooperation of our Canadian counterparts and US regulatory authorities, we believe that we have made great progress. Protecting investors and the integrity of our markets is our primary responsibility.
 

As part of the Canadian Securities Administrators, the BCSC published proposals today that aim to provide investors with personalized information about the costs and performance of their investments

Patricia discussed this topic from a client perspective in an earlier blog titled: What information must a financial advisor give to their clients. As you can see from that post, these new proposals would shift to a new model that expands the way registered dealers and advisors report to investors.

Under the proposals, investors would receive key information about their account and product-related charges and dealer or advisor compensation. Dealers and advisors would provide this information at relevant times. Additionally, investors would receive reports on the performance of their investments on account statements and annually.

Today, many investors do not receive any information about how their account is performing. If they do, the information is often complex and difficult to understand.

Regulators expect that providing investors with clear and meaningful account performance reporting will assist them in evaluating how well their account is doing and provide them with the opportunity to make more informed decisions about meeting their investment goals and objectives.

During this phase of the project, regulators surveyed 2,000 investors. We also held document-testing sessions to gain better insight into investors’ understanding, and expectations related to fees, performance measurement, and reporting.

BC investors are welcome to provide their feedback on the proposals, which are open for public comment until Sept. 23, 2011. You can find more information in the notice, which is available on the BCSC website.
 

A few years ago, British Columbia had a big problem.  Unscrupulous operators were using the loosely regulated US over-the-counter (OTC) markets to fleece investors.

These markets are not like a regulated stock exchange, such as the Toronto Stock Exchange or the New York Stock Exchange.  Instead, many of these penny stocks trade on little more than hype, unproven rumour and speculation.

From 2000 to 2008, there was, simply put, an explosion of growth of these companies either based in BC or using BC promoters.  The numbers were growing at an alarming rate.  While the stories about these companies were somewhat amusing, the problem was not.  It was beginning to affect the reputation of our capital markets, and BC investors were at risk.

Here are just a few examples of the types of companies that promoters tout as being the “next big thing”.

One company was supposed to be in the wine storage business.  We discovered that all it had rented was 265 square feet of space – smaller than even the standard size storage locker. Another example was the dance studio located in a strip mall in Langley with
“vice-presidents” of dance and Pilates – this tiny business would not normally be a public company.

Also, many of these companies listed bogus shareholders, creating so-called “shell” companies.  In one case, the company listed the coach and some players of a local BC community college basketball as its shareholders.  Once a “shell” company is built, it is sold for hundreds of thousands of dollars to promoters who use it to carry out “pump and dump” schemes that harm investors. 

“Pump and dump” is a type of stock fraud that involves artificially inflating the price a stock, by making false or misleading announcements. This type of promotion leads to an inflated stock price, or the “pump”. Meanwhile, the operators of the scheme dump their overvalued shares into the market.

When the dust settles the price falls, the shares become nearly worthless, and investors lose their money. The promoters, on the other hand, stand to make millions.

This is why investors should be extremely careful when they see the stock of a company trading on the over-the-counter markets hyped through e-mail, on Internet, or in newsletters. There’s a chance it may be a pump and dump, and you could end up losing all of your money. 

In Part Two, we will talk about how we have tried to protect investors and reduce the damage these types of companies doing to BC’s reputation.

Today, we launched a new Chinese Resources page on InvestRight that includes a Chinese-language version of our popular InvestRight Guide to Investing: How to make informed investment decisions.  

We translated the Guide to Investing into Chinese as part of our ongoing efforts to reach out to ethnic communities with our investor education programs. Investors also told us that there is a strong need for more information in various ethnic languages to help them make informed investment decisions.

Because the Chinese community is the largest ethnic group in the Lower Mainland, we felt it made sense to translate the guide and provide it to this community in their own language. We hope it will help even more people avoid unsuitable investments and investment fraud.

The guide provides investors with practical information about investing, like:  

• Investment basics and how to research investment products
• How to research and choose an investment advisor
• The responsibilities and expectations in working with an advisor
• How to check an advisor’s registration status, and how to use the Disciplined Persons List

Additionally, the guide includes a chapter on investing in private companies with information about what people need to know when considering these types of investments. Worksheets support each chapter, making the guide easy for investors to use as a research and planning tool.

The worksheets are available individually for download on the Chinese Resources page. On this page, you will also find other resources, like videos, tips on avoiding investment fraud, and contact information if you need to get in touch with the BCSC.

Check it out, and let us know what you think. We plan to add resources in other languages in the near future, so your feedback will help inform how we present this information.

Over the past couple of weeks, we have discussed some things investors should be aware of regarding the changeover to International Financial Reporting Standards (IFRS) in Canada.

In our previous two posts (Introduction to IFRS for investors and Changes in financial statement terminology), we said that IFRS would apply to most Canadian public companies for financial years beginning on or after January 1, 2011. You will see changes from the conversion to IFRS in first quarter financial reports of these companies.

You may have also seen discussion of expected changes in the management discussion and analysis (MD&A) of these companies over the past few years.

This first IFRS financial report will include an opening IFRS balance sheet as at the date of transition to IFRS. This date of transition, which is the first day of the comparative period, is the starting point for accounting under IFRS.

A company may use IFRS accounting policies that differ from those applied under old Canadian GAAP. Under old Canadian GAAP a company may have treated some expenditures as assets on the balance sheet. Now, under IFRS, they may include them as expenses on their income statement.

In its first IFRS financial report, a company must explain the effect of such changes by including reconciliations of its old Canadian GAAP equity and comprehensive income to its IFRS equity and comprehensive income.

A company’s first IFRS financial report should clearly communicate its significant accounting policies. Most companies will provide a complete list of policies; some may list only the changed policies and state they have not changed other policies as a result of adopting IFRS.

As we said in our last two posts, if you are someone who does not feel you have sufficient information or you do not understand the information in the financial statements, you have options: 

• Ask your advisor to discuss your questions with you
• Ask another trusted professional (your accountant, for example) to discuss your questions with you 
• Submit your question in writing to the company
• Ask your question(s) at the company’s annual general meeting

You can find more information about financial statements and MD&A in the informed investing section of our website.

Finally, the BCSC website has a page dedicated to IFRS. There are a number of resources available through the webpage.

BCSC staff ambassadors tour the province, helping people to protect themselves from fraud and unsuitable investments. Our goal is to enable BC investors to develop critical thinking skills so they can become more informed of steps they should take to protect themselves when investing.

Where we are this month

Victoria InvestRight seminar
June 14
Private event

Penticton InvestRight seminar
June 14
Private event

Kelowna Seniors Safety Fair
June 16
9:00 am – 12:00 pm
Trinity Baptist Church, 1905 Springfield Road (the corner of Spall & Springfield)
This free, public event focuses on the safety, health and overall well-being of seniors. Through booth displays and interactive demonstrations, seniors will learn about the many programs and services available to them. There will be a feature presentation, refreshments, as well as time for attendees to browse the display booths and ask questions.

Kamloops InvestRight seminar
June 17
Private event

Courtenay June 22
Private Event

Kelowna InvestRight seminar
June 28
Private event

We present to various service clubs such as Rotary, Probus, Newcomers, women’s groups, senior’s organizations, and other networks. If your group of 20 or more would like to have the BCSC come and present InvestRight, please contact:

Anne Rutherglen, Communications Coordinator
Email:arutherglen@bcsc.bc.ca
Phone: 604-899-6731 or toll free: 1-800-373-6393

The British Columbia Securities Commission’s executive director issued a hearing notice on May 24, 2011 seeking orders against James Dupree, Ian T. Ball, Stephen Armitage, and Peter B. Thompson alleging that they attempted to carry out an advanced fee scheme involving two B.C. shareholders of York-Rio Resources Inc. You can view the notice below.

In 2009 and 2010, the BCSC issued two joint Investor Alerts with the Manitoba Securities Commission warning York-Rio investors about possible recovery room schemes.

If you have any information or questions please contact the BCSC at 604-899-6854,
1-800-373-6393, or e-mail inquiries@bcsc.bc.ca.

BCSC Executive Director’s Bulletin: Securities regulator issues notice of hearing seeking orders against four individuals for advance fee scheme  

Vancouver – The executive director of the British Columbia Securities Commission has issued a notice of hearing alleging that four individuals breached securities laws when they proposed to execute trades for British Columbia residents in exchange for payment as part of an advance fee scheme.

The notice of hearing alleges that James Dupree (Dupree), Ian T. Ball (Ball), Stephen Armitage (Armitage) and Peter B. Thompson (Thompson) attempted to carry out an advanced fee scheme involving two B.C. shareholders of York-Rio Resources Inc. The four men claimed to be representatives of Douglas Charles, a purported offshore investment firm with offices in Switzerland and Panama. Orders are also being sought against Douglas Charles.

The notice of hearing also states that the Douglas Charles website consists almost entirely of text plagiarized from websites of other established financial services firms. For example, text was taken from a B.C.-based investment dealer, an investment dealer owned by a Canadian chartered bank, a wealth management firm based in Manitoba, a Japan-based securities dealer, and two broker dealers based in the U.S.

Furthermore, the Panamanian address given on the website as the head office location for Douglas Charles is actually that of a virtual office services company with which Douglas Charles has had a contract since January 2010.

The notice also alleges that:

• In January of 2011, Dupree contacted a British Columbia shareholder of York-Rio Resources and arranged a phone call between the shareholder and Ball, a Senior Vice President of the Wealth Management and Taxation department of Douglas Charles.
• During the phone call, Ball told the shareholder that he represented an investor who was interested in trading York-Rio shares for shares in Apple, Inc. in order to show a loss in his portfolio.
• Under the terms proposed by Ball, the shareholder would need to send $9,000 to Douglas Charles to make up the difference in share price between the York-Rio shares and the Apple shares.
• On January 17, 2011, Ball sent the shareholder an email that included a document summarizing the transaction described above.
• On February 28, 2011, a representative of Douglas Charles contacted a second British Columbia shareholder of York-Rio by phone and made a similar offer. The second shareholder later received documents via email from Thompson, confirming the offer discussed on the phone.

In addition to the allegations concerning the attempted advance fee scheme, the BCSC is also alleging that Dupree, Ball, Armitage and Thompson engaged in trading securities without being registered in British Columbia.

These allegations have not been proven. Counsel for the executive director will apply to set dates for a hearing into the allegations before a panel of commissioners on June 14, 2011.
 

We are discussing some things investors should be aware of in regards to the changeover to International Financial Reporting Standards (IFRS) in Canada.

If you read our first blog post Introduction to IFRS for investors, you will know that Canadian Generally Accepted Accounting Principles (Canadian GAAP) for public companies transitioned to IFRS beginning January 1, 2011.

IFRS will apply to most Canadian public companies for financial years beginning on or after January 1, 2011. You will see changes from the conversion to IFRS in first quarter financial reports of these companies.

You may have also seen discussion of expected changes in the management discussion and analysis (MD&A) of these companies over the past few years.

In this post, we simply summarize some of the terminology changes you may encounter in financial statements after the IFRS changeover.

As you can see from the examples in the chart below, it is important for you to familiarize yourself with new IFRS terminology because some companies may use it in their financial statements. You should also be aware that some companies may carryover old Canadian GAAP language (like balance sheet) to their IFRS statements.

 
The Canadian Securities Administrators published a more exhaustive list  of terminology and accounting reference changes relating to the continuous disclosure rules of public companies if you need it. We won’t get into them all in this post, but it is worth a read if you want to familiarize yourself with new IFRS terminology.

As we said in our last post, if you are someone who does not feel you have sufficient information or you do not understand the information in the financial statements, you have options:

• Ask your advisor to discuss your questions with you
• Ask another trusted professional (your accountant, for example) to discuss your questions with you
• Submit your question in writing to the company
• Ask your question(s) at the company’s annual general meeting

Finally, we have a section on financial statements in the informed investing section of our website. Most public companies have their financial statements and MD&A available on their website.

We have also updated our InvestRight glossary to help you understand some IFRS terms.
 

Over the next three weeks, we will discuss the changeover to International Financial Reporting Standards (IFRS) in Canada from an investor’s perspective.

These posts are a starting point for investors, to increase awareness that some companies are now reporting in IFRS. Our goal is to point out a few things to be aware of, so that you can investigate further on your own, or ask your advisor questions.

We’ll start in this post by answering a few general questions about IFRS to give you some background on the changeover.

Who issues IFRS standards?
The International Accounting Standards Board (IASB) develops and issues IFRS standards. The board consults with interested individuals and organizations around the world through an ongoing consultation process.

What are IFRS standards?
IFRS standards are global accounting standards that are now required or permitted in over 100 countries, including the European Union, and much of the Pacific Rim. Their purpose is to provide transparent and comparable information in financial statements.

India, Japan and Brazil have announced plans to adopt or converge with IFRS. The SEC has indicated that it will be in a position to make a decision in 2011 about incorporating IFRS into the financial reporting system for US issuers.

Canada’s move from GAAP to IFRS

Canadian Generally Accepted Accounting Principles (Canadian GAAP) for public companies transitioned to IFRS beginning January 1, 2011.

IFRS will apply to most Canadian public companies for financial years beginning on or after January 1, 2011. You will see changes from the conversion to IFRS in first quarter statements of these companies. You may have also seen discussion of expected changes in the MD&A of these companies over the past few years.

The Canadian Securities Administrators amended securities legislation to reflect Canada’s changeover to IFRS. In addition, it published staff notices in the period leading up to the changeover to IFRS that are available on the BCSC website.

What does the changeover mean to investors?
While the principles are very similar between Canadian GAAP and IFRS, there are differences in detail that may affect a company’s recognition, measurement, presentation or disclosure of financial information. IFRS often requires more disclosure of assumptions and estimates than Canadian GAAP.

Investors need to know that some Canadian issuers are now using IFRS, and they should familiarize themselves with new terminology and the potential impact IFRS may have on financial statements.

What if you don’t understand IFRS?

If you do not feel you have sufficient information or you do not understand the information in the financial statements, you have options:

• Ask your advisor to discuss your questions with you
• Ask another trusted professional (your accountant, for example) to discuss your questions with you
• Submit your question in writing to the company
• Ask your question(s) at the company’s annual general meeting

We have a section on financial statements in the Informed Investing section of our website. Most public companies have their financial statements and MD&A available on their website.
 

We continue to have concerns about so-called “wealth enhancement” seminars taking place across the country. Recently, the BC Securities Commission has become aware of seminars that are taking place in Vancouver and Calgary.

 
In Calgary, a company called eConventus is scheduled to conduct a seminar on May 28th and 29th. eConventus is a private BC company that has previously operated seminars at locations throughout the Lower Mainland. The company will hold a seminar at a hotel in Richmond on June 18 and 19.

 
In Vancouver, a company called Peak Potential Training is scheduled to conduct its Millionaire Mind seminar on June 24th to 26th. Peak Potential Training is based in North Vancouver.

 
Anyone considering attending these seminars would be well-advised to think twice and do their research. A good place to start is David Baines' column on seminars in the Vancouver Sun. He talks about “wealth experts” who use financial seminars as a way to get at investors’ hard-earned money. In these seminars, slick salespeople promise great returns, the opportunity to “retire in less than a year with more regular, passive income than you need to live on.”

In addition to eConventus Holdings (BC) Ltd and Peak Potential Training, Baines also talks about DollarMakers, based in Coquitlam, BC. We seem to have more than our share of these types of companies based in BC.

Why are we concerned? Well, we’ve seen cases where investors have lost millions to companies offering financial education seminars.

For example, there was a case in Alberta called Kustom Design Financial Services Inc. This company held seminars supposedly offering financial education. As it turned out, the seminar was merely a cover for the illegal selling of securities to vulnerable investors. Three companies, Kustom Design Financial Services Inc., Kustom Design Group and Hightide Management Inc. raised more than $8 million by luring investors to financial and tax planning seminars where they illegally offered and sold investments to attendees.

In the end, not only was most of that money lost, but the Canada Revenue Agency rejected investors’ ability to claim tax losses on these investments, as was promised to them in the seminars.

“Wealth experts” may be offering a “free” seminar, but their ultimate goal is for it to be anything but free. Even if they don’t offer investments, they often try and get you to pay membership fees or entice you to attend seminars in far-off locations.

The power of these seminars is that they dazzle you with incredible promises. They try to create that magic moment that entices you to write a cheque. It’s a magic moment that can turn into a tragic event. Don’t do it. Don’t even go to the seminar.

Our Investor Watch on wealth enhancement seminars gives some tips on how to protect yourself before handing over any money. We also talk about seminars in the Investor Protection section of our website. 

The British Columbia Securities Commission (BCSC) is issuing a warning to consumers about so-called “wealth enhancement” seminars that are being held throughout the country. The BCSC strongly urges consumers to avoid these types of seminars, and to consult with a registered advisor for any investment advice.

Many companies that put on investment seminars claim to provide proven wealth enhancement strategies to attendees. However, in the experience of the BCSC, these types of seminars (which are often marketed as “free”) are more likely to include substantial “membership” fees that provide access to questionable ways to succeed in business and/or to make money through things like precious metals, consumer debt, environmental projects, and international mutual funds.

Seminar presenters are careful to stress that they are only selling memberships into their organization and not investments. However, the BCSC remains concerned because, according to media reports, attendees could be encouraged to purchase investments at some point. They are also frequently encouraged to recruit their friends and family.

Often, supposed “wealth experts” will tell investors that they can move funds offshore to avoid paying tax. Remember, you can defer paying taxes, but you can’t avoid paying them. If the promised tax savings are false, you may also be required to pay the Canadian government money in back taxes, interest, and penalties.

Furthermore, the BCSC wants consumers to be aware that they increase their risk when money is moved offshore because it usually makes efforts to reclaim their money more difficult, if not impossible, should their investments go awry.

Help protect yourself by taking these steps before you hand over any money:  

• Check with the Canadian Securities Administrators’ (CSA) National Registration Search to see if the company or individuals offering you the investment are registered to sell securities.
• Check the CSA’s Disciplined Persons List to see if an individual has been disciplined in Canada.
• Do your own background check on the company and individuals by searching the Internet to see if they have previously used other company or personal names, and to look for any indication of past problems such, as other investors losing money or company bankruptcies. 
      o Do a land titles or corporate registries search at BC Registry Services    
      o Contact the Office of the Superintendent of Bankruptcy in Canada  
• If individuals promote a designation or other training, check into what was required and where the credentials come from.
• Ask many questions about the investment and get information in writing. Consult with someone with business knowledge that is not involved in the deal to get a second opinion.
• If the opportunity sounds suspicious, consider not going to any of their seminars, as once you are there it is difficult to say no to what is being offered due to high pressure sales tactics.

The BCSC strongly encourages investors to be cautious about anything they are offered through a wealth enhancement seminar, and to be extremely cautious about investments that involve any of the following warning signs:

• Invitations to attend seminars in far away urban centres, for which you must pay a significant fee to attend
• Marketing that plays on your desire to get your family out of financial debt
• Investments that promise high rates of return with little or no risk
• Individuals who describe impressive-looking credentials and designations that you are not able to verify (e.g. “wealth enhancement expert”)
• Opportunities that are promoted through word of mouth by referrals of close friends or family

If the public has any concerns regarding investment seminars, they should report or forward this information to the BCSC immediately.
 

British Columbia Securities Commission staff recently added FXDD Malta Limited to the Investment Caution List.

Staff recently received information that BC residents have accounts with FXDD Malta Limited (FXDD Malta), a firm offering foreign exchange trading services.

FXDD Malta is not registered in British Columbia to trade in, or advise on, securities and exchange contracts.

We urge BC residents to exercise caution when dealing with firms that are not registered to trade or advise in British Columbia.

The BCSC takes a proactive approach to help protect BC investors by publishing an Investment Caution List. This list provides investors with the names of:

• Unregistered foreign brokerage firms that have solicited BC investors to open trading accounts
• Businesses from other jurisdictions that have solicited BC residents to buy unqualified investments  
• Businesses connected, or purporting to be connected, to BC that have solicited investors in other jurisdictions to purchase unqualified investments

To learn more about foreign exchange trading and the risks associated with it, you can visit the Informed investing section of InvestRight. We’ve set up a Foreign exchange page that answers common questions like:

• What is foreign exchange?
• What risks does it have?
• Can you sell it easily?
• What are the costs?
• What are the expected types of returns? 
    

BCSC staff ambassadors tour the province, helping people to protect themselves from fraud and unsuitable investments. Our goal is to enable BC investors to develop critical thinking skills so they can become more informed of steps they should take to protect themselves when investing.

Where we are this month  

Richmond - InvestRight seminar
May 4
Private event

Terrace - InvestRight seminar
May 9
Private event

Williams Lake - InvestRight seminar
May 9
Private event

Kitimat - InvestRight seminar
May 10
Private event

Terrace - InvestRight seminar
May 11
Private event

Smithers - InvestRight seminar
May 11
Private event

Vancouver - InvestRight Ambassadors

May 11 at Library Square McDonalds as part of Team BBB

Prince Rupert - InvestRight seminar
May 12
Private event

Courtenay - InvestRight seminar
May 17
Private event

Richmond - InvestRight seminar
May 19
Private event

We present to various service clubs such as Rotary, Probus, Newcomers, women’s groups, senior’s organizations, and other networks. If your group of 20 or more would like to have the BCSC come and present InvestRight, please contact:

Anne Rutherglen, Communications Coordinator
Email: arutherglen@bcsc.bc.ca
Phone: 604-899-6731 or toll free: 1-800-373-6393

On a gorgeous Saturday in central Surrey, the BCSC InvestRight team joined thousands of people celebrating Vaisakhi to help raise awareness about safe and suitable investing.

Invited onto the stage at the RJ1200 radio station setup, I conducted a simple and fun contest with the crowd to give out some InvestRight travel mugs and a gym bag while quizzing the audience about safe and suitable investing. Immediately after, I did a live on-air interview with the radio station about the BCSC's participation in this year's Surrey event and the importance of properly researching investments , as well as how BCSC staff and InvestRight can help investors.

According to some estimates, over 150,000 people attended this year's event and parade. Being on the ground, I can attest to just how crowded and well-attended the event was this year. At times, on 128th Street, it was literally a standstill as I made my way about handing out InvestRight giveaways and chatting with those in attendance sampling the free food and entertainment.

All in all, what a fun and colourful event!

Full of savoury food and bhangra music it is a feast for all your senses. Reportedly, the largest event of its kind outside of India, the Surrey event is certainly the largest street party that I have ever attended!

Here’s a video of InvestRight’s day at the Surrey event. There are also some photos on our Facebook page. Happy Vaisakhi!

This is the final instalment in a five-part series on the exclusive Financial Times interview From Behind Bars, Madoff spins his story – the second interview Bernie Madoff has given since he was sent to jail for life for fraud charges in 2009.

From the interview, we learned that he followed the classic route by using affinity fraud to feed his Ponzi scheme.

Affinity fraud is the term used to describe how investment frauds prey upon members of identifiable groups, such as religious or ethnic communities, language minorities, the elderly or professional groups.

Madoff acknowledged that he used his Jewish connections, together with a network of important people in Europe to feather his nest. In Europe, he attracted high-profile clients like Liliane Bettencourt, heir to the L’Oréal fortune, that by example attracted lots of European investors. He had close ties with respected Swiss and French banks. In the US, Madoff also mined the wealthy Jewish community for clients.

As his client list grew, so did his reputation. He was appointed Chairman of the NASDAQ index, to the board of the Depository Trust & Clearing Corporation, and was vice-chairman of the National Association of Securities Dealers.

All of this is classic. Being a leader in a particular community helps dispel any worries about legitimacy, and in this case, helped to prevent securities regulators from being suspicious. He managed to avoid any serious investigations by the U.S. Securities and Exchange Commission because he was so big and so credible. He even duped many financiers running hedge funds and other complex investment schemes, including senior partners in Goldman Sachs.

In the “Fraud Among Friends” section of InvestRight, we discuss the affinity fraud warning signs and common targets. 

The Saanich Police Department issued the news release below this afternoon. It is related to the arrest of three men: Ralph Kelly, 46, a Colwood resident; Garrett Campbell, 30, a Colwood resident; Frank Joseph Pecorelli, 33, a Saanich resident. Campbell and Pecorelli have been granted bail, and at this time, Kelly remains in custody.

The BCSC Criminal Investigation Team assisted in the investigation and arrests.

The Saanich Police are seeking further victims or witnesses in relation to this investigation. If you have invested money, or know somebody who has, with any of the suspects and feel you may have been a victim of a fraud, you are encouraged to contact the Saanich Police Financial Crimes Section at 250-475-4321

Investment Frauds Lead to Multiple Arrest File No. 11-4509 

Over the past two days, the Criminal Investigation Team of the B.C. Securities Commission (BCSC) and the Saanich Police Financial Crimes Section have made a series of arrests.  

The investigation started over a year ago when two witnesses arrived at the Saanich Police front counter to seek information. This led to the Saanich Police Financial Crimes investigators starting an investigation. Given it was found to be an investment related fraud, a request for assistance was made to the B.C. Securities Commission.

The original allegations included obtaining money from investors for what was thought to be a legitimate investment. The money then appears to have been converted to personal use. The total value of the frauds is unknown but believed in the hundreds of thousands of dollars.

As a result of the investigation by the BCSC Criminal Investigation Team, warrants for three suspects were obtained. The three suspects arrested by the Saanich Police and BCSC Investigators were Ralph Kelly, 46yrs, a Colwood resident; Garrett Campbell, 30yrs, a Colwood resident; Frank Joseph Pecorelli, 33yrs, a Saanich resident.

Multiple charges have been recommended including Fraud Over $5000.00 and various Securities Act violations.
The Saanich Police are seeking further victims or witnesses in relation to this investigation. If you have invested money, or know somebody who has, with any of the suspects and feel you may have been a victim of a fraud, you are encouraged to contact the Saanich Police Financial Crimes Section at 250-475-4321.

The Saanich Police would like to thank the BCSC Criminal Investigative Team for their assistance in bringing this investigation to a successful conclusion. Learn how to avoid investment fraud at the BCSC investor education website www.investright.org.

This is the fourth instalment in a five-part series on the exclusive Financial Times interview From Behind Bars, Madoff spins his story – the second interview Bernie Madoff has given since he was sent to jail for life for fraud charges in 2009.

Bernie Madoff claims that when he began creating false paper records, his original four clients knew what was going on. It is impossible to know if what he says is true. None of the four individuals has ever been charged.

Three of the four are deceased. The trustee, Irving Picard, has retrieved US $7.2 billion from Picower’s estate and US $220 million from Levy. Chais’ family has not settled and claims no wrongdoing.

Shapiro, who is still alive, settled for US $625 million and denies any wrongdoing. His lawyer counters, saying, “Mr. Madoff is a liar. These latest statements are no more believable than all the other lies that Madoff told his investors and the authorities for decades.”

The article concludes with the heated question of how Madoff was able to keep the scheme running for so long.

Picard says that major banks ignored serious warning signs about the business. He has sued more than a dozen US and European banks, long-time friends, and relatives, seeking over US $100 billion in improper gains and fines.

Picard estimates that the actual losses are about US $19.6 billion. Picard has acknowledged claims from more than 2,400 victims representing about US $6.8 billion.

When the reporters switched topics and asked how he felt about ruining other people’s lives – Madoff says that he took no satisfaction in this…claiming “no malicious action.”

Madoff says that he has spent a lot of time in prison trying to figure out the “why.” Here’s his explanation: “I have spent a lot of time with a psychologist (in prison) which I had never done before in my life, in order to try to figure out how I could have done it.

“There are these mafia people who can kill people all day long, do terrible things, and then go home to their families. I used to wonder how it was that people in wars can shoot people. But the thing is that you could compartmentalize things in your life.”
 

Next: How Madoff used his network to attract more investors 

This is the third instalment in a five-part series on the exclusive Financial Times interview From Behind Bars, Madoff spins his story – the second interview Bernie Madoff has given since he was sent to jail for life for fraud charges in 2009.

With more money rolling in, Bernie Madoff continued to play the market using his so-called “black box” theory – a complicated model that most people wouldn’t begin to understand, but is typical of Wall Street players who like to create winning formulas that impress naïve investors.

It was around 1992, Madoff says, that he began his Ponzi scheme, countering the claim by others that he started as early as 1983. Whether or not it started in the 80’s or 90’s, Madoff was able to run a massive Ponzi scheme for a long time, before it unravelled.

After discussing the timing of when it all began, Madoff makes probably the most astonishing statement of the interview – he says, “it wasn’t about the money.”

But the facts speak for themselves.

He had a very lavish lifestyle – which is a common trait of most fraud artists. A penthouse in New York, holiday homes in Palm Beach and Long Island, and his yacht aptly named Bull. Authorities discovered $75 million in a Gibraltar bank account, along with millions in jewellery and luxury goods.

He claims he did it because of his ego.

All of a sudden, he was no longer an outsider, but part of the ‘club’ with many of the big banks knocking at his door – Deutsche Bank, Credit Suisse. As is always the case in a Ponzi scheme, he had to continually raise more money to provide the steady returns (about 10 %) that was making his reputation on Wall Street and attracting a lot of conservative European investors.

Next: Madoff claims others knew what was going on.
 

This is the second instalment in a five-part series on the exclusive Financial Times interview From Behind Bars, Madoff spins his story – the second interview Bernie Madoff has given since he was sent to jail for life for fraud charges in 2009.

Madoff begins the interview by saying: “I take full responsibility for what I did. I was aware of what I was doing.” He then begins to tell his story to explain, in his view, how it all happened, beginning with the story of his father.

Madoff was born in 1938, the son of Ralph and Sylvia Madoff, a Jewish couple from Queens, New York. His father ran a “moderately successful” sporting goods business which failed when Madoff was a young man. He started out in business with no family money and few academic credentials. He implies that his early years had a profound effect on him.

“You have to understand my history. I started with $500 in capital,” he tells the reporters. “I watched my father go bankrupt. I was very driven. I was always outside the club, the club being the New York Stock Exchange and white shoe firms. They fought me every step of the way.”

He started a small brokerage company in the 1960s called Bernard L. Madoff Investment Securities. Madoff claims that he ran a legitimate business starting in the 1960’s with four prominent clients – Jeffry Picower and Stanley Chais, both investors; Norman Levy, a real estate developer; and Carl Shapiro, a Boston clothing manufacturer. These are the guys that went on to make millions from Madoff’s Ponzi scheme.

In the 70’s and 80’s, taxes were high and many wealthy investors sought creative ways to reduce taxes and grow their money. Madoff says that he successfully invested their money in capital markets – deferring taxes and reinvesting it.

Everything changed when the market crashed in 1987 and his clients started to panic, wanting to liquidate their investments. He says that he wasn’t in a position to get out of the US equity market quickly. He had to find other clients, and he did, with the help of his big four.

Next: Madoff says when the Ponzi scheme began and explains why he did it.
 

In an exclusive interview with the Financial Times, Bernie Madoff tells his story to two journalists, David Gelles and Gillian Tett.

The pair visited Madoff in Butner, North Carolina home to the US prison complex that houses a hospital, a minimum-security unit, and two medium security units where he has been since July 2009.

This is only the second interview he has given since going to jail. The piece, entitled From Behind Bars, Madoff spins his story it is worth examining because it gives us a glimpse of the man and his version of the truth.

Remember he pulled off the largest Ponzi scheme known, taking about $20 billion US in capital from investors, including European nobility, ordinary people, charities, the Jewish community and his own family.

For a quick refresher, here’s a short chronology from the piece on the “rise and fall” of Madoff’s life.

1960 – Bernard Madoff launches Bernard L. Madoff Investment Securities LLC.
1990 – Madoff named chairman of NASDAQ.
December 11, 2008 – Federal agents arrest Madoff after he confesses to his family that he was running a $65 billion Ponzi scheme.
March 12, 2009 – Madoff pleads guilty to 11 counts of fraud, money laundering and other charges.
June 29, 2009 – Madoff sentenced to 150 years in prison.
August 11, 2009 – Frank DiPascali (Madoff lieutenant) pleads guilty to fraud charges. He agrees to cooperate with government.
November 13, 2010 - US marshals raise more than $2 million in an auction of 400 items including jewellery and slippers.
December 11, 2010 – Deadline for bankruptcy trustee to file lawsuits and seek recoveries for victims. Madoff’s son Mark commits suicide on the two-year anniversary of his father’s arrest.

Over the next few days, I am going to highlight Madoff’s comments in the interview to illustrate how he used wealth, power, and influence to deceive regulators, investors, banks, associates, and even, he claims, his own family, over a 16-year period.

Next: Madoff starts the interview by talking about being “an outsider” who was driven to succeed 
 

Recently, I have noticed a lot of discussion around children, money, and allowances.

Dianne Nice and Sonali Verma wrote a couple of interesting articles in the Globe and Mail on the subject, and the Suddenly Frugal Blog discusses kids and money in the context of a recent TD Bank survey.

It could be because April is National Financial Literacy Month in the United States. On the other hand, maybe it is because we just came out of Spring Break where parents were dipping into their wallets a lot to keep their kids busy.

Regardless, it is a popular topic in our household, so I thought I would share how my partner and I introduced allowances into our home.

Our allowance system

My kids are four-and-a-half and two, and they have both have an allowance. Earning the allowance, however, is optional, fun, and (we think) beneficial for everyone.

We started our allowance system with our eldest about a year ago.

At the time, we saw that he was starting to ask for things (treats, toys, etc.) when we were out shopping. He was also developing a keen interest in money, picking up and pocketing every coin he found with great fanfare and depositing it into his piggy bank.

Noticing this behaviour, we thought an allowance, accompanied by a chart that outlined chores and tracked his progress, would be good way for him to understand the value of saving and spending.

Before introducing the allowance chart, we set some simple ground rules:

• Chores would be easy, achievable, and practical
• Doing chores is optional, not required
• Nothing is based on behaviour (ie. going to bed on time)
• Each chore is worth five cents
• Stickers are put on a chart for every completed chore

Flexibility and a new chore 

 
In the end, we settled on four chores for each weekday – putting away dishes (anytime during the day), putting dirty laundry in the hamper (a pair of dirty socks counts), putting away toys before bed (some, not all, is okay), and making the bed (to the best of his ability). Finally, we left it at only the four chore for Saturday and Sunday.

After a month or two, we found bed-making was too hard, so after some discussion with our eldest son, we altered his chart. We ended up splitting putting away dishes into morning and evening dishes. In addition, to our surprise, he asked “getting ready in the morning before daycare” to be added to the list, which we all agreed would be worth 10 cents.

We added the chore to his chart a couple of weeks ago, and he has got a sticker every day so far. The two-year-old still has the original chart.

Since the eldest now knows the difference between five and ten cents, he is super keen on getting ready in the morning. I think he also appreciated the fact he was involved in developing a new chore for himself.

How it’s working  

When we first introduced the chart, we were not sure how it would go. But, after about a year it’s been great for all of us:

• Our eldest is learning about numeracy (he counts his stickers and tries to add), savings, and the value of money.
• Our youngest is getting a sticker here and there, so he is able to participate when his older brother is loading up his piggy bank on payday (Sunday nights).
• My partner and I are benefitting from our son helping with out a few things, making our lives a little easier.
• Our eldest plans his purchases, putting gift money from relatives together with his savings to get things that he wants (he has bought a couple of toy trains to this point, and he’s planning another purchase in the near future).
• When the eldest asks for treats at the grocery story, it is much easier to explain to him that we use our money to buy the groceries we need to stay healthy (we don’t make him buy his own treats, we just try to keep them to a minimum).
• We have interesting discussions about money – how we make choices, saving money, donations, etc.

Final thoughts and interesting links  

I am not sure that there is any magic age or formula to introduce an allowance system.

This is just what works for us. And, if we need to change it to adapt to our youngest son’s needs, we will. I think more important than the systems and charts is to be creative, flexible, fun, and involved when teaching young kids about money and savings.
 

Our goal is to enable BC investors to develop critical thinking skills so they can become more informed of steps they should take to protect themselves when investing.

Where we are this month 

 
Langley - InvestRight seminar
April 6
Private event

Campbell River - InvestRight seminar
April 12
Private event

Whistler - InvestRight seminar
April 19
Private event

Kamloops - BC Home & Leisure Show
April 15 5:00 pm - 9:00 pm
April 16 10:00 am - 6:00 pm
April 17 10:00 am - 4:00 pm

McArthur Island Sports Centre, 1665 Island Parkway Drive
For more information go to http://www.bchomeshows.com/kamloops_home_show.html

All welcome! Cost: Free

Duncan - Cowichan valley Spring Home Expo
April 29 5:00 pm - 9:00 pm
April 30 9:30 am – 5:30 pm
May 1 10:00am - 4:00pm

Island Savings Centre, 2687 James Street
For more information go to http://www.homeshowtime.com/events/events_details.asp?evID=111 

 
All Welcome ! Cost: Free

Prince George - 34th Annual Canadian Home Builders Show
April 29 3:00 pm - 9:00 pm
April 30 9:00 am - 9:00 pm
May 1 10:00am - 4:00pm

Prince George Exhibition Grounds, 2187 Ospika Blvd.

Admission prices:

• $8.00 for adults
• $6.00 for seniors, students & persons with disabilities
• Children under 12 free when accompanied by an adult

Advanced Tickets available at RONA, April 1-28th for $5.00
For more information go to: http://www.chbanorthernbc.ca/Default.aspx?PageID=55  

We present to various service clubs such as Rotary, Probus, Newcomers, women’s groups, senior’s organizations, and other networks.

If your group of 20 or more would like to have the BCSC come and present InvestRight, please contact:

Anne Rutherglen, Communications Coordinator
Email:arutherglen@bcsc.bc.ca
Phone: 604-899-6731 or toll free: 1-800-373-6393

When should I use the list?  

• You should use the list as a part of a comprehensive background check when you are choosing an advisor.
• You should also use it to check the background of anyone who is trying to sell you an investment.

Where can you find the list?  

• You can find it linked from InvestRight and the British Columbia Securities Commission’s corporate website.
• It is available on the Canadian Securities Administrators’ (CSA) website in the enforcement section.
• The MFDA, IIROC, and other provincial securities regulators offer direct links from their own websites.

What is on the expanded disciplined persons list?  

• All persons disciplined in BC since 1987, including persons whose sanctions have now expired.
• Individuals who have been subject to sanctions, no matter how serious, imposed by any provincial securities regulator, IIROC or the MFDA.
• Names of persons IIROC and the MFDA have disciplined, dating back to 2004.
• Links to supporting records and orders.

What is the purpose of the list?
The expanded Disciplined Persons List complements disciplinary databases made available by Canada’s various regulators, which detail cases involving firms and ongoing hearings.
 

To find out more on how to do a background check go to the “Choose an advisor” section or the “Investigate before you invest” section of InvestRight.

With Fraud Prevention Month winding down, I thought it would be a good time to point people to a special information feature in the Globe and Mail’s Special Reports section.

The Canadian Securities Administrators (CSA) and other organizations participated in a three-page supplement that ran at the end of the Globe’s business section on March 22, 2011. We posted it to InvestRight in our “Tools for investors” section, and it will remain on the Globe’s website for 90 days.

The feature focuses on how different kinds of scams are perpetrated online. The articles in the feature warn that this problem is only going to grow as more people use digital devices to pay bills, buy things, and invest.

In April 2010, a BCSC panel banned an international website that was soliciting investors in B.C. with promises of returns of as much as 1.9 per cent a day and 9 per cent weekly - that translates into nearly 500 per cent in a year.

An article in the Globe feature references the case – Genius Funds – and you can find out more about it on a special page we set up on InvestRight in our “Investor Communications” section.

To sum it up briefly, Genius Funds solicited two B.C. investors: one wired $25,000 to the company; the other did not. BCSC staff received a tip about this transaction from a financial institution in February 2010, and a temporary order was issued against Genius Funds.

In April 2010, a BCSC panel permanently banned Genius Funds for illegally selling securities through its website and offering investors a rate of return so high it could not be earned through legal means.

Genius Funds did not attend the hearing. It is now on the BCSC’s Investment Caution list.

At the time, we spent a lot time blogging about Genius Funds and High-Yield Investment Programs (HYIPs). Take some time to read these posts, and spend some time looking through our Investor Protection section.

Finally, remember, if you think you know of or suspect a scam, report it through the “Talk to Us” button the home page or by calling us toll free at 1-800-373-6393.

Investor questions  

When we participate in events or give seminars, there are always great questions from the public, who are curious about who we are and what we do. Below are three answers to questions that we thought would be useful to share with our online audience.

How do I determine safe vs. less risky investments from others?

It is a good idea to understand your risk profile, and your short- and long-term goals before determining what kinds of investment products are suitable for your portfolio. Our website assesses products from a risk perspective. You can check out the About investments section, which talks about the risks, returns, fees associated with specific investment products, and whether you can sell them easily.

Where do mutual funds sit on the "risk-scale”?  

Each mutual fund has a different level of risk. The fund manager’s investment strategy, skill, and the products and companies the fund invests in are all factors that can determine the fund’s risk. The chart on our Mutual funds page shows the types of risk you can expect from different funds.

Who do I talk to if I want a second opinion on what my advisor recommends?  

As a securities regulator, we cannot give advice about investment products.

Nevertheless, we do provide a free guide that can help you manage the relationship you have with your advisor. It provides you with questions that you can ask your advisor questions about investments and investment strategies. If that is not enough, you can always seek the opinion of another advisor, keeping in mind that you should check their registration status and background beforehand.

To find out more about choosing an advisor and managing your relationship with that person, visit the Work with an advisor section of InvestRight.

For more answers to questions that people often ask us, go to our Questions & Answers section on our website. We also invite you to send us your questions through our Talk to Us button on the InvestRight homepage, or by commenting on this post.

 

• See something you like in a store? Start a savings goal in My Make it Count.
• Bought a snack? Record your transaction in My Make it Count.
• Worried you are spending too much on clothes? Review your recent spending habits in My Make it Count.

About Make it Count Make it Count information and guides for parents and instructors are available at mymakeitcount.ca and provide tips, activities and plenty of opportunities to engage youth in talking about effective money management. Order or download your free copy at makeitcountonline.ca.

The Canadian Foundation for Advancement of Investor Rights (FAIR) released a report that was covered in the Globe and Mail by Janet McFarland.

The title of the report is “A Decade of Financial Scandals.” It’s an interesting read and it raises many good questions. The basis for the report is an analysis of fifteen securities or investment related scandals that occurred in Canada over the past ten years.

Over that time, Canadians suffered significant financial losses and this report examines the causes – everything from Ponzi schemes, now made famous by the Bernie Madoff case in the US and the Earl Jones case in Quebec; to the misappropriation of assets and the mismanagement of books and records. Of the 15 cases examined, three were from BC: Ian Thow, Manna and Vantage.

FAIR makes four recommendations in the areas of fraud prevention, earlier detection of fraud, prosecution and compensation. BCSC is working hard in all of the areas outlined by FAIR and agrees that more needs to be done to protect investors.

After you have read FAIR’s report, look at the just released 2010 Enforcement Report by the Canadian Securities Administrators. It outlines how Canadian securities regulators are working to detect and disrupt misconduct in Canada’s capital markets. It shows that securities regulators are working very hard to bring more cases before the courts that result in jail sentences.

The report also shows that 48% of the total cases concluded in 2010 were under the category of illegal distributions that often involve Ponzi schemes, affinity fraud and boiler room operations. This points to FAIR’s first recommendation – the need for a well funded national campaign to educate consumers on how to avoid financial fraud.

Both reports are timely. March is Fraud Prevention Month.

If you’re a young Canadian between 15-to 21-years-old, be prepared to get fit – financially fit, that is – and have fun doing it while challenging and competing against friends and other youth across the country. 

The Canadian Securities Administrators (CSA) ‘Financial Fitness Challenge’, an online contest that uses videos, Facebook and Twitter tips to help youth increase their financial literacy begins today. Young Canadians will have the chance to win an Apple® iPad or a grand prize of $2,000 for participating in the contest. 

The Financial Fitness Challenge runs from February 15 to April 15, 2011 and uses interactive tools and scenarios to raise awareness of important financial concepts such as balancing needs versus wants, budgeting, saving and investing. This year, there are four new entertaining and informative videos featuring “Buck,” an animated host who tells it like it is when it comes to budgeting, credit cards, investing and online or investment fraud.  

The bilingual contest is open to Canadians ages 15 to 21 and offers them the opportunity to invite friends to join the Challenge, and to compete and engage with contest participants at a local and national level. Close to 60,000 youth actively participated in the challenge over the past four years.  

Teachers can download classroom materials including lesson plans from the Teacher and Parent Resource Centre online at the contest website. 

BC teachers should also check out the BC Securities Commission’s award-winning resource, The City: Financial Life Skills for Planning 10.  

I met Garth Rustand several years ago before he started Investors Aid Co-Operative of Canada. He had worked in the financial services industry for over 10 years so he understood how the industry worked.

At the time I met him, he talked about consumers having a hard time understanding the complexities of investing in the market. He was particularly concerned that the vast majority of people investing in mutual funds do not understand that after subtracting the management fees, the average return tends to be much lower than expected.

A recent article in the Vancouver Sun talks about Rustand’s goal with his organization to “empower Canadians who want to cut costs and take greater control of their investments.” Clearly, some Canadians agree because the Co-operative already has about 600 members and partners like the Certified General Accountants of BC and Alberta.

We give the same message to investors. It is important to do your homework, ask questions, do research, so that you can be part of the decision. It is your money after all.

Rustand points to a couple of investing traps.

Real estate based securities. While Canadians are used to investing in their own homes, they need to be wary about investing too heavily in securities, based on real estate. Remember Eron Mortgage. Take a look at this information about investing in real estate.

Leverage. Again, Canadians are used to borrowing money to buy a home, but they should be very careful using borrowed money to invest in mutual funds or stocks. There is always risk involved and if they lose money on the investment, it will be much harder to pay off the loan.  

Anne Rutherglen, Program Manager- Investor Education - Outreach
Email: arutherglen@bcsc.bc.ca  
Phone: 604-899-6731 or toll free: 1-800-373-6393 


 

RRSP season is a great time to check in with your registered investment advisor and decide how to allocate your contribution for 2010. But don’t let yourself feel pressured by them, or by the RRSP advertising that’s in full swing this month.
 

As long as you make your contribution by the March 1 deadline, the actual investments you choose are up to you. Not ready to decide? You can also leave your contribution in cash, in the form of a deposit or cash balance, where you bank or at a registered securities firm. Then, when you’re ready, you can choose the type of investment that fits your investment strategy.
 

It’s as easy to feel pressured to do the same old thing as it can be to look into something new. So, whether this is your year to step into new investing territory or to revisit your usual assumptions, start with InvestRight’s Informed investing section.
 

Know yourself: Could your risk profile have changed since last year? Find out by taking the risk test.
 

Know your investments: It’s much easier than you think to follow the market and monitor your portfolio. Here's how to get started.
 

Work with an advisor: Your advisor is registered, right? Make sure they are, then find out how to make the most of your advisor-client relationship … in RRSP and every season.
 

About investments: InvestRight’s unbiased approach to investment information takes off the rose-coloured glasses and looks at the risks, returns, and fees first.
 

Where we are this month

North Vancouver InvestRight seminar
January 10, 2011 
Private event 

Nanaimo InvestRight luncheon seminar
January 12, 2011
11:15 am – 1:00 pm
Grand Hotel 4898 Rutherford Road
Hosted by Nanaimo Chamber of Commerce
Cost for lunch: Members- $30.00; Non-members- $40.00 (HST not included)
To RSVP call 250-756-1191 or email info@nanaimochamber.bc.ca 

Duncan InvestRight seminar
January 13, 2011
Private event 

Burnaby InvestRight seminar
January 19, 2011
Private event 

Vancouver Mineral Exploration Roundup
January 24-25, 2011 
10:00 am - 5:00 pm
Westin Bayshore -1601 Bayshore Drive, Vancouver
Hosted by Association for Mineral Exploration BC
Come visit the BC Securities Commission booth

On-line registration: http://www.amebc.ca/roundup/overview-2011/roundupregistration.aspx
For more information visit: http://www.amebc.ca/roundup/overview-2011/aboutroundup.aspx  

We present to various service clubs such as Rotary, Probus, Newcomers, women’s groups, senior’s organizations, and other networks. If your group of 20 or more would like to have the BCSC come and present InvestRight, please contact:

Anne Rutherglen, Program Manager - Investor Education - Outreach
Email: arutherglen@bcsc.bc.ca
Phone: 604-899-6731 or toll free: 1-800-373-6393

The Ontario Securities Commission has issued an investor warning about a possible advance fee scheme. In this case, investors in a number of real, but poorly-performing companies were offered premium prices for their shares provided they first sent a fee to cover the transaction.

Advance-fee schemes aim to gather money from investors by promising to buy their illiquid securities for much more than they are currently worth. Once the fee is paid, the investors never receive any money for the securities they agreed to sell.

In this case, investors in Canada, the US, and UK were contacted by callers claiming to work for the OSC, or the US Securities and Exchange Commission, and persuaded to pay up-front fees to bank accounts in Toronto and Hong Kong.

To put a stop to this activity, the OSC issued a temporary cease trade order against Michael Chomica, Peter Kuti, Jan Chomica and Lorne Banks, and companies named Global Consulting and Financial Services, Crown Capital Management Corporation, Canadian Private Audit Service, and Executive Asset Management. A hearing will be held on November 17, 2010.

The OSC warns investors not to send money to these people and companies, or the following: Belmont Group Limited, Chelsea International Consultants, Eurasia Mergers and Acquisitions Registration Authority, Global Capital Group, Global Asset Management, Highgate Consultancy Services, Jermar Inc., Jermar Productions and Macao Management.

For further information, contact the OSC Contact Centre at 1-877-785-1555.

Our revamped website InvestRight.org has a new section on high-risk investments, which includes hedge funds. For good reason. Just say the words, hedge fund, and people’s eyes light up with visions of spectacular returns (never mind spectacular risks).

It is generally believed that hedge funds are for sophisticated, wealthy investors. The minimum investment for these funds used to be $1 million or more. Today, investors with as little as $100,000 participate in pooling programs, or even as low as $10,000 for funds that are structured more like mutual funds.

Remember hedge funds are not subject to specific regulation and are usually highly speculative in nature. Because investors tend to believe that hedge funds promise fabulous returns, they often don’t investigate before they invest. Just because a major accounting or law firm is involved in a hedge fund does not necessarily guarantee everything is on the up and up.

Now there is some evidence to suggest that hedge funds might be another vehicle for scam artists to exploit. A recent article in the National Post describes a hedge fund that is being investigated by the Ontario Securities Commission. The alleged fraud scheme is based on a Luxembourg-based (hint) water business that has the rights to tap glaciers in Iceland. More than 200 Canadians invested about $30 million in the fund.

The OSC alleges that investment funds units were sold at falsely inflated values, and the moneys generated by the funds were misappropriated. A prominent Toronto business executive was among the Canadian investors who invested in this hedge fund company.

Just alike any other investment, even if you consider yourself a sophisticated investor, do your research. Look at how the hedge fund is run, who is involved, and anything (like marketing glacier water) that might ring alarm bells.

We are hosting a joint conference with the Alberta Securities Commission to talk about the vital role of small and medium size enterprises (SMEs) to BC and Alberta’s economy.

Iain Black, BC Minister of Small Business, Technology and Economic Development spoke at the Vancouver Board of Trade this week. He told us that a whopping 98% of all businesses in BC are in the small business category.

At the conference, we will be releasing new information about the amount of money raised in BC’s and Alberta’s private market. We will examine the importance for start-up companies to access capital in the current economic environment. We will look at what kinds of information investors need in order to consider investing in a small to medium sized company.

We are also going to examine our highly successful venture capital markets and discuss the concept of proportionate regulation – less burdensome but more efficient.

The conference features the following speakers and panellists:

• Jock Finlayson, Executive Vice president, Policy, Business Council of BC
• John McCoach, President, TSX Venture Exchange
• Martin Eady, Director Corporate Finance, BC Securities Commission
• Darrin Hopkins, Vice President, Macquarie Private Wealth Inc.
• Hans Knapp, Partner and General Counsel, Yaletown Venture Partners
• Andrew Rae, President and CEO, iCO Therapeutics Inc.
• Bill Rice, Chair Alberta Securities Commission
• John Wright, President and CEO, Petrobank Energy and Resources Ltd.

Our moderator is Dr. Cristie Ford, Assistant Professor, UBC Faculty of Law.

Capital Ideas, Tuesday, October 26, Four Seasons Hotel, Vancouver. Register today.

BCSC staff ambassadors tour the province, helping people to protect themselves from fraud and unsuitable investments. Our goal is to enable BC investors to develop critical thinking skills so they can become more informed of steps they should take to protect themselves when investing.

Where we are this month
Prince George
InvestRight seminar
Oct 19, 2010
6:00 pm - 8:00pm
Coast Inn of the North - 770 Brunswick Street
Hosted by Prince George Chamber of Commerce
Free
Contact (250) 562-2454 for reservations.

Prince George
October 19 & 20
Private events

Quesnel
October 21
Private event

We present to various service clubs such as Rotary, Probus, Newcomers, women’s groups, senior’s organizations, and other networks. If your group of 20 or more would like to have the BCSC come and present InvestRight, please contact:

Anne Rutherglen, Communications Coordinator
Email: arutherglen@bcsc.bc.ca
Phone: 604-899-6731 or toll free: 1-800-373-6393

Some people may need help in hiring a financial advisor. It is important that it is a good fit and that you get the kind of support and service that you need.

The Globe & Mail’s investor section launched Financial Planning Week with a conversation with certified financial planner Debbie Ammeter. Check it out. She is giving sage advice that may assist you in your search.

We also provide help in choosing an advisor. Don’t hire someone who is unwilling to spend time answering questions you raise. Watch out for the advisor that uses a lot of industry jargon that you don’t understand. Make sure you feel comfortable with this person. It’s your money, and you need to have a relationship based on respect and mutual understanding of the goals of your portfolio.

Look at our Guide to Investing, especially the interactive work sheets that guide you through the process. It helps you do the research, suggests the kinds of questions to ask and how to manage your portfolio going forward.

The new website has a lot of information to help you become an informed investor. Check it out. Give us feedback about what works and doesn’t work for you on InvestRight.org.

Well, this is it! Today, we finally take the covers off our redesigned website – InvestRight.org.

All summer we have been working behind the scenes to revamp our website to improve how we can help investors protect themselves from scams, avoid unsuitable investments and make more informed investment decisions.

As our director of communications and education points out: "The plethora of Ponzi schemes and investment fraud over the past couple of years has made the public painfully aware of how easy it is to get caught up in a bad investment."

As the province’s securities regulator, our job is to help people better protect themselves against investment scams. That said, we also want people to look to us when they need help with their investments, such as when they want to know what questions they should be asking about their portfolios or what they should consider when choosing an investment advisor.

We hope the revamped website allows people to do all of this better through a fresh, smart design with better navigation and easier access to all the content that you have come to expect in our former web offering. In addition, we have added new content about high-risk investment products and investing in the private companies – topics that we know people have questions about when it comes to investing.

So please take a tour through and let us know what you think about our new InvestRight.org website.

Vancouver – The British Columbia Securities Commission (BCSC) and the Manitoba Securities Commission (MSC) are warning investors who may have lost money by investing in York-Rio Resources Inc. that they could be targets of a ‘recovery room’ or ‘re-up’ investment scheme.

The BCSC and MSC have learned that an organization identifying itself as Featherstone and Bellman Equity Exchange Group (a.k.a. FAB Equity Exchange Group), purportedly based in Mexico, is contacting York-Rio investors. There are approximately 160 B.C. and more than 50 Manitoba residents that own York-Rio securities, and who may be contacted.

On Sept. 15, 2010, the Ontario Securities Commission (OSC) issued a warning about the FAB Equity Exchange Group. 

According to the OSC warning, FAB Equity Exchange Group representatives are contacting investors who hold York-Rio securities and are offering to sell the securities at a substantial premium.  The York-Rio investors are required to send an advance fee payment to FAB Equity Exchange Group representatives before their securities can be sold. 

Securities commissions in Manitoba, British Columbia, Alberta, Saskatchewan and Ontario have issued orders to cease trade York-Rio Resources Inc.

On Sept. 24, 2009, the BCSC and the MSC issued an investor alert about a company called Penn Capital Management Ltd. That company also contacted York-Rio investors with an offer to repurchase shares in what appeared to be a ‘recovery room’ or ‘re-up’ scheme. 

In a ‘recovery room’ or ‘re-up’ scheme, victims of investment schemes are offered inflated prices for their shares. Once the investor agrees to sell their shares, a contract is drawn up and the investor is instructed to wire a sum of money to an offshore bank account to cover business costs. The perpetrators withdraw the money that is sent to the offshore account and the victim loses money a second time.

If someone contacts you about selling your York-Rio shares, you should immediately notify your local securities regulator and ask to speak to an investigator. Other companies may be making the same offer.

FAB Equity Exchange Group is now on the BCSC’s Investment Caution List, which is available at www.bcsc.bc.ca.

The B.C. Securities Commission is the independent provincial government agency responsible for regulating trading in securities within the province. Learn how to avoid investment fraud at the BCSC's investor education website: www.investright.org.

The Manitoba Securities Commission is a special operating agency of the Government of Manitoba that protects investors through educational programming and promotes fair and efficient capital markets throughout the province.

The report confirms what we have been blogging about extensively.  The increased use of social networking sites to recruit victims and promoters combined with the economic downturn has produced more Ponzi and fraudulent investment schemes than ever. 

According to the report, Canadian losses amount to $320 million to date. This reflects the amount of losses that are reported. We know that many are not reported, so the amount of money Canadians have lost is probably much higher.

The report uses the statistics gathered in a national study undertaken by the Canadian Securities Administrator’s 2009 Investor Index that provides year-over-year information about Canadians’ knowledge about investments and investment fraud.

In the trends section, the writers note, “the size and complexity of these schemes help conceal criminal activity, generate ample profits and facilitate tax evasion and money laundering.” They go on to suggest that these types of operations require a minimum level of organization, (just like we have seen with high yield investment programs HYIPs), and are able to involve lots of people through the use of social media.

Clearly, the message to consumers is written in bold here – fraudsters are using sites like MySpace, Facebook, Craigslist, and YouTube to provide professional-looking, but false, information to part people from their money. These sites also allow the perpetrators to trade lists of potential victims and recruit intermediaries who promote these schemes for a commission.

Be sceptical, ask questions. Don’t fall for schemes that are promoted through social media sites.  When in doubt report any suspicious activity to your securities regulator.

The US Financial Industry Regulatory Authority’s (FINRA) Investor Education Foundation has produced an hour-long documentary called Tricks of the Trade: Outsmarting Investment Fraud, based on four years of research.

You get to hear fraud artists describe how they con people out of their money. The film is very instructive. It is well worth ordering. Limited quantities of the documentary are available on DVD at no cost.

You learn how to identify the many different persuasion tactics fraudsters use and how effective the tactics can be on people who haven’t learned to protect themselves. The documentary begins by identifying the most vulnerable audience – overconfident, financially literate men 55 to 65, who engage in risky behaviour. 

What is particularly interesting about this documentary is that it is based on what is learned from listening to hundreds of undercover tapes of con men pitching victims.

One of the most riveting moments in the film is the simulation of a telemarketer phoning a potential investor from a boiler room. If you want to learn how to develop your own “refusal” script, go on line, and look at FINRA’s website and order this documentary.

If you happen to fit the criteria of the most vulnerable target, you watch it, especially if you think it would never happen to you.

He went on to explain that of the 14.6 million officially unemployed, nearly 45 percent have been looking for a new job for six months or longer. There are 5.9 million people who have stopped looking for a job but still want to work and 8.5 million Americans who are working part time but would like to work full time. That is 30 million Americans who desperately need to find work. The consequences of such high unemployment are huge. 

In Canada, the situation is not as dire but still worth noting. Stats Canada numbers released early August show that the unemployment rate was 8.0%. The percentage of unemployed Canadians who have been looking for work for more than six months is 22.5%.   Worrisome too was the news that the unemployment rose for women 55 and over (6.5%, the highest in six years) and men 55 and over (7.1%).

Now think like a con artist.  Wow!  What an opportunity for people to promote schemes that promise significant returns with little or no risk to people who are desperately in need of money. 

Watch out for on-line Ponzi schemes called high yield investment programs.  Watch out for people who use personal relationships in religious communities or any other tightly knit community, to promote very sketchy investments.

Now is the time to get the message out.  Anyone who promises you unusually high returns and says in the same breath, low or no risk should be suspect and reported to us.

To read previous posts on this and other topics, click on Let’s talk about investing.

In BC, more than 60,000 students will apply for student loans this year while BC student unemployment reaches 21%. The cost to the province of unpaid student loans is growing at 30% a year. Seems like a crisis worth solving, doesn’t it?

A group of BC-based MBA students are trying to address this problem. Their company, Sustainable Debt Solutions Inc., is developing a pilot program that teaches students how to manage their money – everything from knowing how to live within your means, tracking your income and expenses, and how to save.  The program will teach students how to develop a plan to pay back the loans within a reasonable amount of time. The goal is to increase repayment rates of student loans overall.

Why would they be talking to us? We both agreed that students that are applying for students loans could benefit from financial literacy training. BCSC has developed a comprehensive program called The City, to teach financial life skills to BC high school students.  University students could benefit from taking this course, in particular, the credit and debt module, in order to help them figure out the best way to anage their way through post secondary education.

This fall, BCSC will launch its revised and updated version of The City. It believes that the resource should be used not only to educate high schools students, but could be used in continuing education courses in community colleges and for helping students manage their student loan debt.

To read previous posts on this and other topics, click on Let’s talk about investing.

Earlier this year, our enforcement division received an anonymous tip that Orion Advisory Services and IntelliSource Markets B.V. (aka IS Markets) were targeting Canadian and UK investors, eight of whom lived in BC. 

We were able to contact five of the eight BC residents. All said they had been cold called to invest in Orion. Three opened trading accounts with IS Markets, sending thousands to a Dutch bank for the purpose of trading gold options. All three lost their money and, as our investigators unraveled the story, it became clear that others had as well.

Orion claimed to be a securities trading business specializing in options on precious metals, oil, and foreign currency, with offices in Cancun, Mexico, Barcelona, Spain, and Panama City. Orion presented IS Markets as a financial institution in Amsterdam that held accounts for Orion investors. Neither company was registered to sell securities in BC.

People often hesitate to report that they have been defrauded, or that someone is trying to pressure them into an investment. Thanks to the tips we received in this case, our investigators gathered enough information to put Orion and IS Markets on the BCSC Investment Caution List and bring their activities to a BCSC hearing. Last week, the hearing panel ordered both companies to cease trading securities and exchange contracts and banned them from investor relations activities in our province. 

As I wrote in a post about boiler rooms last year, if you’ve attended a fund-raising lunch, or walked on a fairground midway, then you know that once you start listening to somebody’s pitch, your hand is already on your wallet.

The first step to protecting yourself from an operation like Orion is to hang up the phone. If you don’t hang up, step two is to ask questions: if you don’t get answers, hang up. Step three: report.

You may think that nothing will come of your report, or there’s nothing to gain if you, or someone you know, has already lost money. But that’s far from the truth. As the anonymous tip about Orion and IS Markets shows, these operations can be stopped. And you can help. 

When my parents were getting older, I used to worry about their health. How long would they remain independent, able to look after themselves? Would my mother’s smoking finally take a toll? How long would Dad be able to play golf, his favourite past time?

What I did not worry about, and should have, was the possibility that someone could con them out of their life’s savings. I was never able to work up my nerve and even begin a discussion about money.  (Many of their generation did not think money should be a topic of discussion. My parents belonged to that category.) 

I would now, knowing what I know today. June 15 is World Elder Abuse Awareness Day – a day to recognize that seniors are targets for all sorts of things, including financial fraud. Having a conversation about prevention and protection from investment fraud is a good idea.  Maybe even more than a just a good idea.

I should have told my parents that they were targets for scam artists. I should have explained that any request that they received to send money to anyone for anything should be looked at carefully. 

Because fraudsters dream up all kinds of clever ways to extract money from seniors – from lottery scams to illegitimate investments promising unrealistic returns. Seniors need to understand that they need to look at every sales pitch sceptically. They should ask for a second opinion before parting with their money.

If my parents were alive today, I would try to make them comfortable talking about money with me. So comfortable that they might even have asked for advice before writing the cheque.

I never did have that conversation.

To read previous posts on this and other topics, click on Let’s talk about investing.

BCSC is stepping up its campaign to stop affinity fraud in the BC church community.

Valley Chaplain Consultants (nicknamed God’s Fraud Squad) is organizing presentations in churches across BC entitled “Telling the Truth…Exposing Affinity Fraud.”
The first two are in the Fraser Valley:

• Thursday, June 10, St Luke’s Catholic Church, 20285 Dewdney Trunk Road, Maple Ridge 3:00 and 7:00 pm
• Wednesday, June 16, Trinity Lutheran Church, 3845 Gladwin Road, Abbotsford 10:30 am

We know from research and personal experience that investment fraud exploits relationships of trust and is devastating to families, friends and communities.  We want people to begin to protect themselves, particularly in churches, where trust is an important component of spiritual well being.

Don’t hesitate to contact us if you wish to have a presentation in your church or if you have any concerns that you wish to pass along to us.  1-800-373-6393 or email us at inquiries@bcsc.bc.ca.

To read previous posts on this and other topics, click on Let’s talk about investing.

I have spent the last couple of months writing about online internet scams called high yield investment programs (HYIPs) which are a type of Ponzi. These schemes are promoted online through social media – Facebook, YouTube, Twitter, chat rooms, and the myriad of HYIP websites that list and analyze these programs.

That’s one way of enticing people to send money through bank wires and payment processors (PayAlert, Liberty Reserve, Perfect Money). Take a look at the Globe and Mail’s HYIP Highlights: Buyer Beware.

But there are many other ways that these folks can lure you into an illegitimate scheme.  One of the worst is through friends, family and acquaintances.  Many of these illegitimate schemes either become successful by using middle people, who know that the investment scheme is not legitimate, or don’t know.  But what they do know, in return for convincing others to invest, is that they receive a commission, an incentive to get more people to send money to whatever scheme is being promoted.

We have been involved in many cases where the fraudsters used promoters or middle people to bring in more people.  A key component for one called Manna Ponzi scheme was the use of existing investors to bring in new investors.  They were called 'affiliates' or 'consultants'. They were paid one-time bonuses of between 10 and 15% of the amount invested by the new investor. They were also paid a monthly percentage of the amount invested by the new investors.

In the case of HYIPs, most offered what they called “referral” fees of 3, 5 or even 10%.  One offered a whopping 20% referral fee.

We at the BC Securities Commission are working hard to get the message across that religious communities are big targets for this type of fraud. Churches, mosques, temples - wherever people gather to worship and socialize - are ideal places for these middle people to find investors to help them earn a commission.

We have a program called God’s Fraud Squad that has been in existence for seven years.  This year, we are expanding it to try to prevent and disrupt this type of activity from happening across the Province. We need all the help we can get.  If you belong to a religious group and want to learn more about how to avoid this type of activity happening, contact BCSC Inquiries. 

To read previous posts on this and other topics, click on Let’s talk about investing.

The St Louis Dispatch Post reported on Saturday that over 40,000 investors in more than 120 countries lost $70 million in a Ponzi scheme. It appears that this is another one of those high yield investment programs (HYIPs) that Wikipedia calls a “type of Ponzi scheme.”

The Canadian man who is alleged to be behind the scheme, Nicholas A. Smirnow, faces 10 US federal felony charges, including mail and wire fraud, securities fraud and money laundering. He had many aliases including Nicolay Smirnow, Alexander Judizcev, Nicholas Kachura and Jeff  Prozorowiczm.

According to the article, this huge scheme began in Ontario in 2007, using a website based in the Netherlands and a company incorporated in the Turks and Caicos Islands of the Caribbean. The man had history of convictions, some dating back to 1979 including burglary, drug trafficking and possessing stolen property in Canada.

Just like all of the other HYIPs that I have been writing about, this one offered returns of 500 to 700 percent and commissions of about 10 percent to lure others into the scam.

As all good con artists know, you need to allay people’s concerns by claiming not to be what in fact you really are. In this case, his “Pathway-2-Prosperity” website warned investors to stay away from high yield investment programs because they offered unrealistic returns for little or no risk.  His scheme, known as “P-2-P”, claimed to have a strong 'moral foundation' which offered the 'common man' investment opportunities usually only available for the very rich.

The US Attorney for southern Illinois is handling this case.  Some of the charges carry up to 20 years in prison and $250,000 US in fines. Let’s hope that more of these HYIPs find their way into the courts.  Maybe some serious jail time will put a chill on the people behind HYIPs. The US investigators believe that the operator of the website alone received $500,000.

To read previous posts on this and other topics, click on Let’s talk about investing.

I continue to write about High Yield Investment Programs (HYIPs).  Today I googled the category and the first thing that popped up under Sponsored Links was “Need a good HYIP?”

It linked to CenTex Products -- Premier Oil & Gas Investment products.  As soon as you open the ad, a long and tedious video starts playing, describing the history and process of drilling for oil.  I am not sure how clever this promotional video is today when we are all reading about the effects of the disastrous oil spill offshore  along the US Gulf coast.

CenTex Products promises up to 77% annual return on investment with monthly dividends with headlines “low risk and high yield.” Really?

There is no information on who the principles are in this company or where it is situated, except to say that it is researches the best investments sectors in energy markets.  All you have to do is fill in the form on the right side of the page, and you will be connected to an investment consultant who specializes in international energy investments.

In small print, under click here for a Free Guide, it says “5,000 Euros minimum investment.”

It plays on the environmentally conscious individual by describing these as “green energy investments” and cleverly links it to ecomagination , which is a short ad about Plugging into the Smart Grid, sponsored by General Electric.  I wonder if General Electric knows that this HYIP (described by Wikipedia as a “type of Ponzi ) is using its good name.

I then looked at the website. It raises even more red flags.  The company is headquartered in Panama City.  There is no information about management, directors or corporate governance.  There is no research posted under research. 

Remember it is relatively easy to create a website, using content to make it look legitimate. The real purpose of the ad and website is to get your personal information.  Please don’t give it to them.

The answer to the question asked is no, there is no such thing as a good HYIP.

To read previous posts on this and other topics, click on Let’s Talk about Investing.

People are so inventive.  This is the eye-catching headline for Riding the Ponzi: The Ultimate HYIP Investment Guide .

“Discover How to Take Back the $1000’s You Lost In HYIP Investment by Mastering the Art of “Riding the Ponzi.”

I have been writing about HYIPs (high yield investment programs) for the last couple of weeks. As we’ve learned from the Genius Funds example, people all around the world are falling for these on-line schemes in droves. Promoted heavily on the internet, these high return programs are a type of Ponzi scheme.  

I believe that it is attracting the attention of young people who use the internet for just about everything, including investing online.   

Read the story of this person who fell for an HYIP …“It sounded like a legitimate opportunity with a very high return on my investment. ...The website looked professional and well polished.” Now we know why financial life skills training should be mandatory across the country.

This person, who supposedly lost serious change on an HYIP, turns adversity into opportunity by asking, “is there a legitimate way of making money off these scams?” He/she then creates a guide that shows you how to make money and “score big” with HYIPs. The manual gives step-by-step instructions on how to earn thousands by investing in Ponzis, HYIPs and Pyramid schemes. 

What the writer fails to mention is that in a Ponzi scheme, one person makes money at others’ expense. When these schemes collapse and they inevitably do, the people that still have money invested lose it all.  In my opinion, there is no legitimate way to make money with HYIPs.

To read previous posts on this and other topics, click on Let’s talk about investing.

Wouldn’t you be reluctant to send money to a website that has bad grammar and spelling mistakes? Take this site for example. It is called HYIPNEWS. 

On the left, you have a column entitled Don’t Investing that lists a number of companies that (I guess) you are not supposed to invest in.

Under Changes in Plans, forexica.com tells people “you can invest in them from yesterday with new percents…”

Under Exchange Feature, Truearn.com says, “I have another exciting news for you all.”

Then there are the rotating internet ads that offer 105% after one day, 290% after 25 days with 'DDOS protection'.  I tried to find out what DDOS protection is. Evidently, it stands for Distributed Denial of Service. What in heaven's name is that?

These HYIPs have invented new terms that sound a bit out of this world.

Wikipedia, the on-line encyclopaedia, describes HYIPs as a “type of Ponzi scheme”" I think that Charles Ponzi would be embarrassed by the use of these weird acronyms, typos and grammatical errors. It must be amateurs administering these funds, not professionals.

To read previous posts on this and other topics, click on Let’s talk about investing.

Look at these returns.
Ance Finance.com 
6% hourly for 21 hours, 135% after one day, 75% daily for 2 days, 175% after 2 days.

ChokoMoney 
135% after 7 days, $3,000 maximum deposit. Wow!

These high yield investment programs (HYIPs) are promising more than what you could make on a lucky day gambling in Vegas.  This Vegas Guide and Gaming Tips website suggests you can get about:

• 1.4% playing craps (drops to about .7% with odds bets)
• 1.5% playing blackjack
• 5.3% playing Roulette.

Some of those percentages are similar to the daily returns that some of the HYIP schemes promise.  Do you think you could beat the house in Vegas every day?  No?  Do you believe the HYIPs can beat the house every day?  Neither do I. The HYIPs promise unbelievable returns that are, in my opinion, complete fiction.  (HYIPs are according to Wikipedia, a “type of Ponzi scheme.)

What’s the difference between gambling in Vegas and investing in a HYIP scheme?  In Vegas, you know the odds are stacked against you, but at least you have the chance of winning and having some fun in Vegas.  With a Ponzi scheme, you stand to lose everything when the scheme collapses.  And that is not fun.

To read previous posts on this and other topics, click on Let’s talk about investing.

I have been looking at these high yield investment programs and wondering who actually invests in them. Wikipedia says that these investment schemes are a “type of Ponzi scheme”.

People tell me that setting up an account can be very complicated. Some HYIP funds insist on verifying bank wire transfers by demanding personal information (passport, driver’s license). I would hope that people would object to sending such sensitive information to these on-line investment schemes.

Others have no such requirements. However, red flags are raised when you learn that the money is wired to one country while the company is registered in another with a telephone number in a third country.

Many of these schemes use two payment systems – Liberty Reserve and Perfect Money. In the case of Liberty Reserve, you first have to put your money into an authorized exchanger account in order to transfer your money to Liberty. Eyebrows should be raised when you see that some of these exchangers are in located in Russia where it is believed that there are a lot of computer hackers. Some require the use of yet another level of exchanger to get money into the system. To make matters worse, many of these exchangers charge fees that can be a high as 30 to 50% of the amount being transferred.

If it is this hard to give them your money, how hard will it be to give it back.

In my opinion, the more difficult it is to follow the money, the more likely it is a scam. It also looks as if every step of the way someone, somewhere, is making money from your money.

I would love to hear from people investing in these schemes to find out what their experience is. 

To read previous posts on this and other topics, click on Let's talk about investing.

PanaMoney Technologies, Inc. is an on-line Panama-based investment scheme that appears on some of the top ten HYIP websites. Wikipedia, the free on-line encyclopaedia defines these funds as a “type of Ponzi scheme.” In my opinion, PanaMoney has all the markings of a Ponzi.

It continues to amaze me that so many of these funds are touted on the internet. Worrisome because someone, somewhere has to be making money on these schemes.

I looked at the home page of PanaMoney.  Here are just a few of the claims made and some questions to ask.

1. “2.8% daily for up to 180 days” How can these kinds of returns be sustained?
2. “No trading risk to your investment”  Doesn’t every investment have risk?
3. “String along with our high qualified and experienced staff in managed forex trading”  Are they qualified?  Have they taken commodity, option trading or future trading courses?
4. “Innovative technology automated forex trading system … uses no leverage along with unique technologies” What does that mean? Forex trading systems are all based on leverage.

I could go on. Using forex trading to deliver rates of return that are so high is a huge red flag.  Forex stands for foreign exchange. These markets are very volatile. It takes expert knowledge to understand how currency exchange rates work. 

PanaMoney claims to have a “Safety fund which provides the required insurance coverage”. In my opinion, this is just another ploy to convince people to send money. There are no warnings about potential losses, just a lot of confusing and poorly written information that just doesn’t make sense.  

Please tell your friends to stay away from these funds. Don’t wire any money from your bank account unless you want to lose it all.

To read previous posts on this and other topics, click on Let's talk about investing.

One of the worst aspects of HYIP’s is that many of these funds offer huge commissions to get people to convince friends and family to invest in them. It is perhaps the most odious part of a Ponzi scheme. According to Wikipedia, the on-line free encyclopaedia, these are all Ponzi schemes.

Referral fees or commissions are the incentive used to attract local promoters or “middlemen” to encourage others to send in their money. Cherry Shares for example offers a whopping 20% commission while Umba Fund, Investment-A and Golden Trust offer up to 10% commissions. Think about it.  A second tier of people are given an exceptional incentive to round up more people and convince them to invest in an outright Ponzi scheme.

We know that Ponzi schemes collapse eventually, and that’s when people lose their entire investment.  The consequences on those people can be very devastating.

We did a study a number of years ago that looked at the social impact of investment fraud and learned that it affected people’s emotional and physical health, it affected their relationships with their friends and family.  People are embarrassed, ashamed and don’t want to talk about it.  Frankly, the effect of this type of white-collar crime is as great on a person as it is with violent crime.

Talk to your friends. Tell them to be wary of anyone trying to sell them a fund in this category. Explain to them that these on-line investment schemes are all over the internet.  There are hundred and hundreds of them, promoted through social media.  Some translate their information into many languages.  All of them offer investors a rate of return so high it could not possibly be earned through legal methods.

To read previous posts on this and other topics, click on Let's talk about investing.

If I haven’t convinced you yet that HYIP’s (High Yield Investment Programs) are Ponzi schemes, then let me try again. The returns promised in these funds just aren’t possible.  Here is an example.

PanaMoney Technologies, Inc. claims to offer up to 2.8% per day for investments over $20,000US.  With this example, you would have $120,800US after 180 days and if you re-invested that amount, you would end up with about $730,000US according to the hyipinvestment.com calculator.

Even if you averaged 1% a day, a common promise of HYIP schemes, your $20,000US investment would be worth $156,800US after one year. The average house price in Vancouver is $500,000.  If you were to invest that $500,000 at 1% per day, you would end up with over $2.3 million after one year.  Who needs a 25-year mortgage?

Sounds incredible doesn’t it? Ask yourself this.  If such trading programs were legitimate, why wouldn’t we all be investing in HYIP’s instead of in mutual funds, stocks and bonds?  Or why wouldn’t other financial institutions be offering you competitive rates? Because it is impossible to deliver these returns on any kind of sustainable basis.

Here’s a guarantee you can believe in.  If money grew on trees the way HYIP programs suggests it does, I would not be sitting here writing this blog. Instead, I would be retired, living in a multi-million retirement home on an exotic island somewhere in the Pacific.

To read previous posts on this and other topics, click on Let's talk about investing.

Wikipedia, the free on-line encyclopaedia, says unequivocally that these on-line investment opportunities are a “type of Ponzi scheme.” There are hundreds of them offered on-line, coupled with other websites which rate and analyze their performance, including their ability to pay.

When the BC Securities Commission banned Genius Funds, a high yield investment program, from selling securities in British Columbia, we learned that many investors from all over the world were investing in this fund. Calls came in to our inquiry line and comments were sent to our InvestRight.org blog.  It told us that this whole category of funds merited some attention.  We needed to warn investors about the ramifications of sending your money to invest in these funds.

Take a look.  See what you can find out about who is managing these funds, where they are located and any explanation about how the money is being invested. Some  information may be given. Often there is no hint as to who manages the fund. You may find out that the company is based in the Seychelles, the British Virgin Islands or Panama.  Interesting to note that many companies are incorporated in countries with lax fraud laws to secure immunity from laws in other countries. 

You might also want to do some research on the internet payment systems: Liberty Reserve, Perfect Money to name two.  Read some of the words.  “Liberty Research is protected by an offshore Trust… incorporated under the laws of Panama”, for example. In short, do your homework.  And remember that all Ponzi schemes eventually collapse and investors lose all of the money that they have invested.

Click on Let's talk about investing to read other blogs on this topic and others.

For the past couple of months, I have been writing about Genius Funds, also known as Genius Investments, which was illegally selling securities through its website, offering investors a rate of return so high it could not possibly have been earned through legal methods.

Now Genius Funds seems to have disappeared, but it turns out there are hundreds more of these types of investment funds being offered to investors on-line.  They belong to a category called High Yield Investment Programs (HYIP’s). Wikipedia, the on-line free encyclopaedia, makes no bones about it.  These are all Ponzi schemes.

By now, people should have a much better understanding about what a Ponzi scheme is after two very high profile cases – one in the US (Bernie Madoff) and one in Canada (Earl Jones).  Both men are in jail, after having received maximum sentences, leaving many people without their life savings and little or no chance to recover the money.

So here we have with HYIP’s, in my opinion, hundred of funds being promoted on-line through a whole variety of websites doing just what Bernie Madoff and Earl Jones did.  Promising unsustainable returns by paying investors with the money invested by new investors.

Take this one fund called Forex Paid Me.  It is offering 5.5% hourly for 19 hours, 13% after one day, 70% after two days, 165% after two days.  Just do the math. Not legally possible. Ever.

I plan to write extensively about HYIP’s.  Why?  Because the barrier of entry is almost non-existent and if Genius Funds is any example, a lot of people are losing money to these types of schemes.  Another reason why I want to talk about HYIP’s is because many of these funds offer commissions to  individuals who convince friends and family to invest in it– thus causing harm to other people.

To read previous posts on this and other topics, click on Let's talk about investing.

I have written a great deal about Genius Funds since we issued a Notice of Hearing on February 12, 2010. The hearing took place in Vancouver and the Commission issued permanent orders again Genius Funds.  No one representing Genius Funds appeared on its behalf.

As I emphasized in my last blog, BCSC did not shut down the website. It did not prevent Genius Funds from sending funds to investors.  What it did do was confirm that Genius Funds is not registered to participate in BC’s securities industry and it permanently banned web-based Genius Funds, also known as Genius Investments, from selling securities and engaging in investor relations activities in British Columbia.

To read previous posts on this and other topics, click on Let's talk about investing.

It has been awhile since I last wrote my first blog, Genius Funds – Beyond Belief. Since then, a whole series of events have unfolded, beginning with our temporary order alleging that the Cyprus-based company had breached BC securities laws.  Since then, several Canadian provinces have issued investor alerts, the Alberta Securities Commission has cease traded it, and the Cyprus Securities and Exchange Commission warned that the company is not registered or regulated by the Commission.

Comments to us and on Facebook suggest that the Canadian government shut down the website. Someone posted a statement from a “Mark Stelvo” from Genius Funds saying “it is currently updating its website to comply with the ruling from the Canadian Judicial System.”

Simply not true.  While several Canadian provinces have issued warnings and temporary orders, they do not have jurisdiction to shut down the website.  If the website is indeed shut down, investors need to recognize that Genius Funds is, in my opinion, a classic example of a category of funds known as high-yield investment programs.  Plain and simple, they are nothing more than another name for a Ponzi scheme.

As stated in Wikipedia, a high-yield investment program (HYIP) is a type of Ponzi scheme, which is an investment scam that promises an unsustainably high return on investment by paying previous investors with the money invested by newcomers.

So please tell you friends to avoid HYIPs at all costs, no matter what the website looks like, no matter how easy it is to send money! In the end, they all collapse and investors are left wondering what happened to their investment.

To read previous posts on this and other topics, click on Let's talk about investing.

Recognize “unlocking” investment schemes

Generally, these schemes involve investing in the shares or units of a public or private company (sometimes through a private placement that the company sells to investors by way of an offering memorandum) or debt instruments of some kind, such as bonds, promissory notes and mortgages. However, the common feature of all of these schemes is the promise that you can immediately access a portion of the cash value of your RRSP, RRIF, LIRA, LRSP, or other locked-in retirement savings or income plan without paying taxes. In addition, these schemes sometimes promise excellent returns on the remaining investment or significant tax benefits.

Promoters, or their agents, may advise you to move your retirement funds into a self-directed account, in order to conceal the unlocking transfer from your financial institution or adviser. Once you are in a self-directed account, you have control over your funds and the promoter will provide you with instructions on what to buy.

Individuals or companies that promote these investment schemes package them in a variety of ways, but, in the end, they all have the same effect – you suffer significant investment losses, on top of serious tax and pension repercussions.

Watch out for these common characteristics

Investors should be wary about any advice to withdraw funds from their locked-in retirement savings accounts. These types of schemes often have one or all of these characteristics:

• offers of debt reduction through new sources of income (i.e., dividends, interest payments, etc.); 
• promises of immediate access to assets in locked-in RRSPs or RRIFs; 
• unrealistic returns on an investment, or frequent high interest or dividend payments; or, 
• aggressive advertising campaigns or promotional meetings that talk about investments that will help you unlock your locked-in retirement savings.

If you have been approached or know of an investment that fits the description above, do not invest and contact your provincial securities regulator.

Other common characteristics

The Canada Revenue Agency (CRA), B.C.’s Financial Institutions Commission (FICOM), and the Manitoba Pension Commission (MPC) have concerns about this issue. Some of the common characteristics these agencies point out are:

• a tax-free RRSP or RRIF withdrawal - promoters often promise to return part of the taxpayer’s investment by offshore debit or credit cards, offshore bank accounts, or loan-back arrangements; 
• additional incentives - you may be granted an investment “credit”, such as a loan-back arrangement, additional shares, or a preloaded debit or credit card to induce you to invest; 
• additional fees - you will likely be charged fees that may substantially erode your pension fund, RRSP or RRIF; 
• opinion letters - promoters often provide private letters from tax, legal or accounting professionals that give the impression the letter writer endorses the scheme; or, 
• vulnerable individuals - these schemes often target debt-burdened people who feel they need immediate access to their retirement funds.

Investigate before you invest

Before investing, check the registration status of the person selling the investment by searching the Canadian Securities Administrators National Registration Search at www.securities-administrators.ca.

If the person is not registered, contact your local securities commission immediately and ask questions about the individual and the investment. If they are registered, check with their employer or your provincial securities regulator to see if they can sell this type of investment.

Furthermore, you should have the investment reviewed by a financial or tax expert that is independent of the transaction. This person may alert you to the possible consequences of unlocking your retirement savings account, or the risk the investment may pose to your savings.

What if you think you have encountered an investment scam?

If you are a B.C. or Manitoba resident and you have questions or concerns about a financial adviser or investment, you can:

• contact the BCSC at 604-899-6854, 1-800-373-6393 or inquiries@bcsc.bc.ca  
• contact the MSC at 204-945-2548, 1-800-655-5244 or securities@gov.mb.ca  

Residents from other Canadian provinces can find contact information for their local securities regulator on the CSA website at www.securities-administrators.ca.

Authorities to contact regarding suspected pension or tax schemes

• If you are a B.C. resident or have a pension locked-in under B.C. legislation, contact FICOM. You will find its contact information at www.fic.gov.bc.ca.
• If you are a Manitoba resident, contact the MPC at www.gov.mb.ca/labour/pension  
• CRA investigates fraudulent unlocking scams under the Income Tax Act. For more information, visit its website at http://www.cra-arc.gc.ca or call 1-800-267-3100.
• The Royal Canadian Mounted Police (RCMP) tracks and profiles fraudulent schemes through this website: www.rcmp-grc.gc.ca/scams-fraudes/rep-sig-eng.htm. The website provides contact information for police services in your jurisdiction.

I have been blogging about this Cyprus-based company for some time. On February 12, we issued a temporary order against Genius Funds alleging that it had breached various securities laws.
 

Last week, the Alberta Securities Commission issued an interim cease trade order against the company alleging that they have engaged in illegal trading and distribution of funds.
 

This morning I was pleased to see that the Cyprus Securities and Exchange Commission issued a warning stating that Genius Funds “is not regulated by the Commission and the authorisation with the number CIF 087/07, which the above mentioned company alleged that it possesses, is fake.”
 

Last night, we received a comment which we have posted, blaming us for warning people about a possible Ponzi scheme.  Sadly, this is a predictable response from someone who thought that the offer of such high returns (1.9 percent daily on one fund and up to nine percent on a second fund) was possible. Clearly, Genius Funds investors failed to question why these funds can offer returns that are significantly higher than any bank or financial institution offers.
 

We don’t know how many people have wired money to this website. It could be in the thousands.  Remember the website promoted the funds in seven different languages. This fund was promoted extensively on-line, using social websites and classified on-line ads.

As we have seen in so many other cases, when these schemes fall apart, the first response by investors is to deny that it is happening and to blame the messenger. They are often angry and won’t accept advice that tells them that a particular scheme is not viable.

After reality sets in, the tone and response from investors is remarkably different.   At this point, they have to face the grim reality that they probably have lost most, if not all, of the money invested.

To read previous posts on this and other topics, click on Let's talk about investing.

One of the responses I received regarding Cyprus-based Genius Funds really puzzles me. In one of my blogs, I ask “is Genius registered with any securities commission or any other regulatory body?”

The comment back was “YES! If you had done your due diligence you would have been easily able to find out that they are licensed to operate as a Cypriot Investment Services firm since 2007.”

They may be incorporated as a company in Cyprus, but they are not registered with the regulator to trade securities. Check for yourself on the Cyprus Securities and Exchange Commission. 

We issued a temporary order against web-based Genius Funds on February 12. Since then other Canadian provinces have also issued warnings to investors not to do business with this Cyprus-based company. 

I have been writing about this for a week to question the very high returns Genius is offering to investors and to ask anyone interested in this fund to do their due diligence first before sending any money. 

Get a second opinion.  Ask your banker or accountant what they think of Genius’ offer of 1.2% daily or 9% weekly returns. 

Check out our program Protect Your Money – it will help you do your homework.

To read previous posts on this and other topics, click on Let's talk about investing.

I have received more surprising responses to my series on Genius Funds.  You will recall that we issued a temporary order against this Cyprus-based company citing its breach of various securities laws. Since then New Brunswick and Manitoba have both warned investors not to do business with this Cyprus-based investment fund.

One comment, in particular, interested me:  “… managed forex account opportunities if you know where to look that offer 25-40% returns.” This was in response to me saying “in my view, whopping returns of 1.9% daily and up to nine percent weekly are impossible to achieve.”  

So let’s talk about FOREX, which stands for foreign exchange, for a minute. The forex market is about changing currency for another by simultaneously buying one and selling another.  Profit and losses are dependent on the fluctuations in the exchange rate between two currencies.

Before you invest in the FOREX market be aware that:

1. The forex market is complex and volatile - it takes expert knowledge to track and understand the many variables that affect currency exchange rates.  Without this knowledge, you are likely to lose your money.
    
2. There are forex scams – the promise of high returns with low risk in the FOREX market is a red flag that the opportunity may be a scan.
    
3. Trading on borrowed money can increase your losses – the more money you borrow to invest in the FOREX market, the higher the risk of losing it.

It does not take a genius to question such high returns – returns that are higher than any bank or financial institution can offer.  It just takes common sense.

With the temporary order, Genius Funds cannot engage in any investor activities in the province of BC.  Nor can it trade in securities.  Tell your friends.  Do not do business with Genius Funds. Check out our program Protect Your Money it will help you do your homework.

To read previous posts on this and other topics, click on Let's talk about investing.

The Manitoba Securities Commission issued a warning to local investors not to do business with Cyprus-based Genius Funds because it may be operating illegally in the province. The Vancouver Sun also referred to Genius Funds in a recent article about investment fraud month. Last week, the BC Securities Commission issued a temporary order against Genius Funds for allegedly breaching various securities laws.

Genius Funds is offering high yield investment funds that supposedly give investors between six and nine percent returns per week. In my opinion, these returns are impossible to achieve without being a Ponzi scheme, where money from later investors is used to pay the promised return to earlier investors.

Genius Funds is offering people commissions to refer others to the fund to make an investment.  Genius Funds is being promoted on social media websites and in online classified ads in different Canadian provinces.

Please tell your friends and family not to invest in Genius Funds.  If you know anyone who has had dealings with Genius Funds, please file a complaint on our website or contact our inquiry line (1 800 373 6373) toll free across Canada.

To read previous posts on this and other topics, click on Let's talk about investing.

We issued a temporary order against web-based Genius Funds and the New Brunswick Securities Commission issued an Investment Alert against Genius Funds. Our temporary order alleges that the Cyprus-based company has breached various securities laws.

Genius funds offer whopping returns: 1.9% daily on one fund and up to nine percent weekly on a second fund.  In my view, these returns are impossible to achieve.

Some investors have noted that Genius has a “good track record” – and go on to say that “they never failed to pay me.”  This is from an investor of five months.

Is that reassuring?  Have we already forgotten the lessons learned from Bernie Madoff and Earl Jones – both of whom were in business for a long, long time before their schemes collapsed and investors lost millions?

Much more important are the questions that you need to ask to determine if it is a legitimate investment. 

Why not ask your bank manager or someone independent of the deal what he or she thinks about this investment?

Are there any restrictions on reselling or getting your money back?  Is Genius registered with any securities commission or any other regulatory body?

It does not take a genius to question why these funds can offer returns that are much higher than any bank or financial institution. It just takes common sense.

With the temporary order, Genius Funds cannot engage in any investor activities in the province of BC.  Nor can it trade in securities in BC. Tell your friends. Do not send any money to Genius Funds. Check out our program Protect Your Money – it will help you do your homework.

Click on Let's talk about investing to read other blogs on this topic and others.

I continue to write about this Cyprus-based company because people may be seeing their offers of 1.9 percent daily or nine percent weekly on social media websites where people are promoting Genius Funds. They may also be seeing the advertisements in on-line classified ads.

Last week, we issued a temporary order against Genius Funds alleging that the company had breached various securities laws. Yesterday’s blog talked about responses to my blog that were surprising to me. Comments like “any person can … make over 100% on their money.”  In my opinion, claims of high returns raise all sorts of red flags.

We are a securities regulator and unfortunately, we see all to often that people fall for the age-old offer of high returns with no or low risk. There is no such thing as high returns without risk.  Doesn’t exist.  Not possible in a legitimate investment.

Take Gold-Quest International for example. We issued an investor alert in March 2008 stating that we were investigating an investment that offers people unusually high annual returns – 87.5 percent – and commissions for bringing in new investors.  In this case, Canadian investors were approached to invest in a “family and friends private placement program” in which Gold-Quest International, an offshore company, would trade in foreign exchange markets (forex) on their behalf.

Persons supposedly representing Gold-Quest have told investors that they can earn money by referring new investors to the program. They were offered commissions of 10 percent of the amount the referred person invests.  These people were not registered to sell securities in British Columbia.

So please pay attention.  Don’t believe everything you read on the internet. Do your homework. With the temporary order, Genius Funds cannot engage in any investor activities in the province of BC.  Nor can it trade in securities in BC.

To read previous posts on this and other topics, click on Let's talk about investing.

I received two surprising responses to my blog last week about Genius Funds. In my blog, I said “If you can believe it (and I hope you don’t) Genius Funds is offering payments of up to 1.9 percent daily on one fund and up to nine percent weekly on a second fund.”  I reminded people of the old adage, if it is too good to be true…

The reason I was writing about this Cyprus-based company was because the BC Securities Commission issued a temporary order against Genius Funds, citing its breach of various securities laws.

Here’s what one correspondent said: “Any person can invest in Funds anywhere and make over 100% on their money.” Here’s what another one said: “Genius has a “lock in” period of capital for 9 months so they can actually work in stock market, futures and forex with your money for 9 months…they pay a very high interest, but they also diversificate in all the world.”

Let me take you back to a Ponzi scheme called Manna Trading Corp. In this case, Manna convinced investors to loan it money by promising significant monthly returns. Manna told them that their money would be managed by experienced traders with a history of producing exceptional returns through foreign currency trading. Manna was promising returns of not less than 20% a month. Sound familiar?

At the Manna hearing, Dr. Peter Klein, an expert in international banking and trading, gave an opinion about promised returns.  He concluded it was simply impossible to generate returns of even 5%, month after month, through any legal trading or investing in any financial markets. 800 investors lost $10m US in this scheme.

 From my experience, all Ponzi schemes offer high returns. That’s how they extract money from investors. 

So please pay attention. With the temporary order, Genius Funds cannot engage in any investor activities in the province. Nor can it trade in securities in BC. 

Click on Let's talk about investing to read other blogs on this topic and others.

Last week, we issued a temporary order against Genius Funds, alleging that the Cyprus-based company had breached various securities laws.

So let’s start with the name of the fund. I believe it was chosen to convince investors that these funds are special because the word genius means a person or body of work of surpassing excellence. A work of genius, when it truly is genius, will fundamentally alter the expectations of its audience.  However, in this case, Genius Funds is offering returns to investors that go beyond surpassing excellence – in my view they are impossible to achieve. 

If you can believe it (and I hope you don’t) Genius Funds is offering payments of up to 1.9 percent daily on one fund and up to nine percent weekly on a second fund. Remember the old adage if it is too good to be true…

There are social media websites where people are promoting Genius Funds. Additionally, Genius Funds advertisements appear in online classified ads in different Canadian provinces.

With the temporary order, Genius Funds cannot engage in any investor activities in the province. Nor can it trade in any securities in BC. 

So spread the word. Tell your friends. Do not send any money to Genius Funds.

To read previous posts on this and other topics, click on Let's talk about investing
 

The last couple of days of media coverage make you believe that maybe there is a Ponzi scheme epidemic going on in North America.  Take these three items. 

• Earl Jones sentenced to 11 years Globe and Mail 
• Pigeon Fever Morley Safer on 60 Minutes
• Mensch next door charged with Ponzi scheming: printer and master pianist suspected of $27 million fraud Globe and Mail

I urge you to watch Morley Safer and read the Globe and Mail piece. The well-worn phrase, truth is stranger than fiction, is definitely the case in the stories told here.

Even though most people now understand how a Ponzi scheme works, I am going to list five steps to running a Ponzi scheme:

1. Approach investors whose trust is easy to win over. Friends and families are less likely to ask questions and overlook red flags.
2. Create a highly lucrative investment strategy which promises high returns that are hard to turn down.
3. Provide a convincing paper trail – use letterhead of reputable banks, accountants and even regulators!
4. Ask the initial investors to bring in more friends and acquaintances.  This is the rob Peter to pay Paul aspect.
5. Make it feel like an exclusive offer.  It makes the investor feel special, one of a few who will make lots of money.

Earl Jones was sentenced to serve 11 years. Because his crime is considered non-violent by the courts, he might only serve one sixth of his sentence and be out of prison in 22 months – fall of 2011. Cold comfort to the victims who have lost their life savings.

Ponzi schemes will be with us for a long time, no matter how severe or light the penalties are.  Investors must learn to think twice before investing their money, especially if someone close to you makes the offer.  Don’t put your trust in close friends and family; put your trust in doing your homework and getting a second opinion.

Click on Let's talk about investing to read other blogs on this topic and others.

The saddest part about the 158 clients that Earl Jones defrauded out of $50 million, many of whom crowded into a Montreal courtroom Monday to hear him sentenced to 11 years in prison? It didn’t have to happen.

Jones held himself out as a legitimate financial advisor. But if his clients had checked to see if he was registered to provide the services he pretended to provide, they would have seen that he was not. Not finding Jones among the tens of thousands of registered investment advisors in Canada is the red flag that could have kept people from trusting him with their money.

Checking advisor registration is the first step to take when you start thinking about trusting someone with your investments. Even if you’re already working with an advisor, you owe it to yourself to check his or her registration. It’s easy to do using the new CSA National Registration Search. And what you learn by checking will make you a more involved and informed investor. This is especially true if you combine your registration search with other kinds of background checks, like looking up an advisor’s disciplinary history and searching his or her name on the internet.

Working with a registered advisor is the only way to ensure that the laws governing advisor conduct can protect you, if you need them. The InvestRight Guide to Investing  offers step-by-step directions for conducting background checks, including checking registration. Follow them and you could save yourself from being taken by the likes of Earl Jones.

To read previous posts on this and other topics, click on Let’s talk about investing.

On the eve of this city’s biggest undertaking, the anticipation for Canada to win lots of Olympic medals is palpable. Polls on news sites ask people to vote on whether Canada will win 20 or more medals. It’s as if there wasn’t enough pressure on the athletes already, so let’s pile it on.

Some sports enthusiasts are behaving just like aggressive financial promoters, promising you huge returns on our Olympic investment, but forgetting to mention the risks.

Who knows how well Canada will do in the 2010 Olympics. Just like investing, you can’t promise lots of gold medals without assessing the risks. Even men’s hockey is not a sure thing. 

I will however cheer our team on as they compete against the world’s best and hope, like my investments, that I get a reasonable return. What that means in Olympic terms is some exciting and unexpected wins over the next couple of weeks.

Click on Let's talk about investing to read other blogs on this topic and others.

In this week’s Macleans magazine, Jason Kirby talks about the myth that Canadians are cautious, prudent and play it safe when it involves their own money. To make his point, he describes how Canadians are piling on debt by taking on large mortgages at record low interest rates as the housing market heats up again.

But its not just mortgage debt that is the problem. The Credit Counselling Society of BC helps people resolve their debt woes.  Over the past two years, it has seen more people asking for help carrying more consumer debt than before.  Five years ago, it was common to see consumer debt loads of $40,000 for example. This year the Society is counselling people who are carrying debt loads over $200,000.
 
*Two surveys released this week confirm some troubling trends in BC: consumer confidence is on the rise in BC at the same time that 65% of British Columbians say that they are concerned about their current debt level. 

What’s going on here? We thought we were smarter than the Americans were. Not so, it seems. Which is why we need people to understand a fundamental principle:  If you don’t have enough money to buy something, don’t buy it!

Last year, we partnered with the Financial Consumer Agency of Canada to produce an on-line, interactive program that helps people learn how to handle their finances and avoid financial problems in the future. It is called The City. It has eleven modules covering everything from doing a lifestyle reality check to preparing a financial plan.

We need people of all ages to go to The City and learn how to avoid making costly mistakes – like falling deep in debt, choosing poor investments or even getting involved in financial frauds.

*RBC Canadian Consumer Outlook Index is based on an online survey of 1,018 Canadians conducted by Ipsos Reid between December 8 and December 11.  The Conference Board survey was based on 3,000 telephone interviews conducted between January 7 and 24.

Click on Let's talk about investing to read other blogs on this topic and others.

Research shows that just under half of Canadians have a financial advisor. If you rent your home, or have more debt than savings you’re less likely to have an investment advisor. By comparison, if you have a family, are female, or older than 65 then you’re more likely to have an advisor.
 

Being the government agency that registers advisors to buy and sell investment products, the BCSC thinks it’s important for investors to work with registered advisors. But the research also shows that 60% of the Canadians who have an advisor say they rely solely on that person’s advice, and that adds needless risk.
 

The risks connected with over-reliance on an advisor are fairly simple. You could end up with investments in your portfolio that you don’t understand or have higher fees than other products. You could also end up with investments that aren’t suitable for your risk tolerance or investment goals.
 

The new InvestRight Guide to Investing  can help you get more involved with your investments. We’d like to see you working with your advisor like you would with a business  partner, not putting them on a pedestal as an all-knowing authority.
 

Have a look at Chapter 4: Making investment decisions and the Worksheet for choosing an investment . These will help you define your risk tolerance, research public company investments, and ask the questions that will help you decide if something your advisor suggests is suitable for you.
 

To read previous posts on this and other topics, click on Let's talk about investing.

This week, the Canadian Securities Administrators issued their second annual Enforcement Report. If you are interested in finding out more about how we enforce securities regulations across Canada, it is a must read.
 

We put together this annual report because we want Canadians to understand the role we play in protecting investors.

We want them to know that we have many ways to protect investors. For example, the tools we use to disrupt and stop illegal activity. Take freeze orders. We use this power to disrupt a fraudulent activity by freezing the assets. Over the past four years, we have helped to return over $20 million previously frozen assets to investors and victims of fraud.

Cease trade orders. We can use these orders to protect investors by stopping a potentially illegal activity while an investigation is underway.

We issue halt trades to address suspicious market conditions by stopping trading. We issue reciprocal orders to protect BC investors from doing business with people who have carried out misconduct in other parts of Canada.

These are just some of the tools we use to disrupt and stop fraudulent activity. 

My main message is that we can’t use these tools if we don’t know there’s a problem.  Reporting to us, either through our inquiry line or online, is often the only way we find out. Sometimes it is easier for friends and family to report than the person directly involved in a suspicious investment.

In any event, we urge you to spread the word to talk to us even it you aren’t sure that something illegal is going on. It is better to be safe than sorry, to use that old cliché.

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Last year, we published a Guide to Investing.  Its purpose was to help people deal with many of the issues facing them as investors:  how to choose an investor; how to work with your advisor; and how to manage your investments going forward. Over 8,000 investors downloaded the Guide. 

This past week, we launched an updated and expanded Guide  that includes an important new chapter on Investing in Private Companies.  Please take a look. Two of the most important points in Chapter 5 are:

• Investing in private companies is a risky proposition. You potentially can lose all of the money you invest.
• Most have resale restrictions – meaning you may never be able to sell your shares and get your money back.

Even though people have to sign a Risk Acknowledgement Form , we find that people still don’t understand that they may be getting into an investment where the risks are very high and that they may lose all of their investment.

So why do we allow people to invest in these circumstances?  Well, this is what we call the “exempt” market. It is an important source of venture capital financing in our province.  But it’s not for everyone. Only certain types of investors are eligible to invest in private companies. 

Before you invest in this market, please take the time to read how it works. There are many questions that you should ask. The Guide has a worksheet for investing in private companies . Use it. It will help you make an informed decision.

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Rare is the investment advice that meets me where I am: an adult with financial responsibilities but only the sketchiest of financial education. So, while I can’t say I leapt at the chance to update and expand the InvestRight Guide to Investing  last year, I did approach it with a sober “this will be good for me” attitude. Now that it’s finished and ready for public consumption, it turns out that it was good for me. I learned the very things I most needed to know - how to think about making investment decisions and what questions to ask at every stage. And I’m dying to know how it works for you, too.

Here are 10 reasons why the new InvestRight Guide to Investing might just become your favourite investment resource for 2010:

1. Questions, questions, questions: The advice you get depends a lot on the questions you ask. Every chapter of the guide outlines the types of questions you should ask and every interactive worksheet expands on those questions to help you gather answers detailed enough to make informed investment decisions.

2. Encouragement: Only 25% of Canadians have a financial plan, even though more than 60% say it is important to have one.
Use Chapter 1: Getting Started to remind yourself why you even want a plan, then make short work of calculating your net worth with the interactive Worksheet for planning your investments .

3. How to talk to your advisor: It’s never a good idea to put an advisor on a pedestal as the all-knowing authority. Chapter 2: Choosing an Investment Advisor: the Interview shows you what you should know before you hire an advisor and what you should find out about the advisor you already have.

4. Advisor or planner: Know what you need. Investment advisors in Canada are registered by a securities regulator to provide certain services. Not so financial planners. Both serve an important role. Your job is to be sure you’re dealing with someone who is qualified to help you achieve your investment goals and you can read about it in 'Chapter 1: Getting Started.

5. Help with your homework: Chapter 2: Choosing an investment advisor walks you step-by-step through a simple due diligence process to find out if your advisor is registered to provide the services he or she offers or has ever been disciplined for bad practices.
Chapter 4: Making investment decisions points out some basic resources for researching companies you’re thinking of investing in. 

6. Don’t be duped: Wise investors always take the time to ask, "is this investment too good to be true?". Let the guide remind you that despite the vast majority of honest investment professionals there are also unscrupulous types whose goal is to enrich themselves ... and follow the protect your money link in Chapter 3 to find out more. 

7. Walk before you run: Anyone can learn to protect their financial interests by learning the basics: know your worth; set goals; ask questions; evaluate the answers; be sceptical; do a little research. And remember, it’s your money! The guide helps you do it all, and the Wise Investing Tip Sheet sums it all up.

8. Keep track: Go straight to Chapter 6: Worksheets to see how the guide’s five interactive worksheets make it easy for you to start a written financial plan, record your due diligence findings, and conduct intelligent conversations with your advisor or advisor to be. Chapter 3: Working with your investment advisor sets the groundwork for monitoring your investments so you can stay on track with your investment goals.

9. Invest in private companies: Well, maybe. But only after you’ve read Chapter 5: Investing in Private Companies and completed the worksheet that goes with it. Both will help you understand the risks and how to manage those risks if you decide to invest.

10. It’s free! Download it now  if you haven't already.
 

If ever there was a statement that must rankle the clients of Earl Jones, that one takes the cake. Responding to questions from the bankruptcy trustees, he says: “Its just me … my personality likes to help people … I knew most of my clients better than their kids knew them, and did more for them than their kids and their families.”

What kind of person can describe actions that destroyed people’s futures in that way when he goes on to admit that he used clients’ money for his benefit for over 25 years?

On January 15, in a Montreal courthouse, Jones pled guilty to several charges of defrauding Quebec pensioners of their life-savings in a complex Ponzi scheme. Even though it looks like he might receive an 11-year sentence, it is cold comfort to all of those people who trusted him with their money, estimated at $75 million.

One of the saddest parts of his testimony is the statement that he never used “cold calling.” In other words, he was able to get clients referring his services to their friends…and on and on it went.  Imagine how you would feel if you recommended using Earl Jones to a very close friend, only to find out years later that he was using the money to fund a very luxurious lifestyle. Terrible. That is one of the worst consequences of affinity fraud.

So the lessons learned here are clear. Don’t just take a friend’s recommendation at face value. Do your homework. See if the person is registered with the regulator. Earl Jones was not. Question guaranteed returns (8% in this case) from a special bank account. Not true. Not that any of this help Jones’ clients today, but it might prevent others from being caught in an illegal Ponzi scheme.

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We received a comment on a blog that I wrote last August that we cannot publish entirely because it violates our comment policy. But the commenter made some valid points that we think should be addressed.

In the blog I talked about how fast a Google post brought Earl Jones to the public and Quebec enforcement agencies’ attention. I also lamented that even though the word spread fast once the whistleblower put the information on the internet, it was too bad that it took so long for people to become suspicious.

This comes from the whistleblower: “Although Earl Jones himself was not registered, legitimate banks like RBC and later BMO allowed Earl Jones to perpetuate his Ponzi scheme unchecked for nearly 30 years. Registered financial advisors transferred money to Earl Jones, often without proper authorization, because he was well known in their milieu .…”

I agree that we need to train banking personnel to help detect suspicious activities when dealing with clients’ money. We need more eyes and ears in the financial system overall aware so that such frauds can be prevented.  Two years ago, we developed an online fraud awareness program for front line staff working in BC credit unions. We also met with the Canadian Bankers’ Association urging the banks to train their staff in a similar fashion. I applaud the whistleblower for making this point.

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In a recent column in the Montreal Gazette, Pierre Montreuil, a recent financial fraud victim, calls for a single agency, with serious legislative teeth, to deal with what he calls a “pandemic,” citing the Norbourg and Earl Jones cases that involved many people.

While these particular frauds happened in Quebec, they are the type of fraud that can happen anywhere.

Unfortunately, but not untypically, Mr. Montreuil ended up trying to get some attention to the problem from a variety of sources – two law enforcement agencies and one regulator. He found it frustrating, to say the least, but finally did get some restitution from the regulator. 

For the average person, our system of enforcing securities’ law is complicated. Depending on the nature of the contravention and the jurisdiction of the regulator, the case can be dealt with by the regulator or by law enforcement agencies (RCMP, provincial or municipal police) if there is evidence of criminal activity.

We need to do more to help victims in these types of cases. In BC, we are working with the police and other agencies within the securities industry to try to coordinate a victim’s response to their problem, particularly in cases that involve alot of people. Recently we had a case involving members of the South Korean community. We quickly put together a page on our website, provided translation services for victims to call in with their information, and coordinated that information with the other agencies involved.

Mr. Montreuil rightly argues that more “proactive prevention” is required, rather than “the after-the-fact investigations” that are the norm. I couldn’t agree more. But being proactive is not easy. What would really help is for friends and families of the victims to report anything suspicious to the police and to the regulators. You can report online or with a phone call (anonymously if you wish) to BCSC Inquiries.

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In an article in globeinvestor.com, Dan Richards (Strategic Imperatives) makes the point that after last year’s market debacle, more people are doing their homework on how and where they should be investing their money. The net result is that they are asking tougher questions, requiring financial advisors to spend more time and effort responding with evidence and support for their advice.

That is good news. For too long, investors have been unprepared or not confident enough to play devil’s advocate with their advisor.  While it’s true that most of us have become much more comfortable questioning our doctors, it’s not true that we have been able to  question our financial advisors until very recently.

I would also suggest, as I have in a previous blog entitled What information must financial advisors give their clients, that financial advisors have to provide information to investors that is simple, easy to understand – and not just what is required by law. 

For example, everyone has to receive account statements every three months, unless the client asks for it on a monthly basis. It contains a lot of information – transactions, sales, purchases, transfers, the name and number of securities, the price and total value of the transaction. But, as Dan Richard rightly points out, people don’t want to read a lot of detailed information. Our attention span is short and most information that we receive, we don’t read because it doesn’t provide any value to us. 

So one of the vows you might consider making for 2010 is to request an annual or semi-annual chart that describes the value of your portfolio at the beginning and end of the year; the amount deposited into the portfolio and the amount withdrawn, including fees. This will give you a clear idea of what’s happened to your financial portfolio over a six to twelve month period.

If you are really on a roll, you also might want to ask you financial advisor to learn how to speak plainly and in a way that is easily understood, avoiding jargon and industry terms that you are not familiar with. Then, you can enter into a dialogue with your advisor that brings value to both parties.

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Ben C. commented on the InvestRight.org visitor survey saying he was looking for  information on mining stocks, in particular about reading technical reports and summaries of mineral reserves and resources. 

Early stage mining exploration companies—like many other early stage companies in other sectors—are risky investments. It can take five to 10 years and cost many millions to find out if a promising claim has mineral reserves. It can take many more years and tens, or hundreds, of millions to obtain permits and build a mine before the company starts generating positive cash flow. While the potential for substantial gain from mining investments exists, it comes with the high risk of failure. When mineral projects fail or are abandoned, investors may be left with securities that have little or no value.

It’s important to face the risk-reward factor squarely if you’re interested in mining stocks. And Ben is wise to seek help understanding the technical reports that Canadian regulators require from mining companies at key milestones. These reports are filed on SEDAR for public viewing at no cost, but there’s no denying they can be dense, highly complex, and may not be written with the average investor in mind.

At InvestRight, we caution investors to put money only into investments they can understand. If you're prepared to spend some time learning about mining with an eye to investment, dig into the following resources:

• The InvestRight primer for investing in mining sets out 10 questions to ask about a mining or mineral exploration company before you invest. 
• The Association for Mineral Exploration in British Columbia (AME/BC) offers many resources including useful links, publications, and courses. A publication called Mineral Explanation Explained, “a general outline and user friendly translation of the technical materials found in news releases and analysts reports” is listed as “coming soon.” Life Cycle of a Mine, a one-page flyer from AME/BC, puts the long time-frame for mining investments into perspective.
• The Northern Miner, a mining trade news source, sells the book Mining Explained, which is listed as a “popular layman’s guide to mining.”
• BC Institute of Technology part-time studies in mining technology offers courses in the spring and fall. Contact faculty and advisors for further information.

Have you found a book, website, or course about the technical aspects of mining that would be useful to investors? Please share it with us and other readers by leaving a comment.

As Patricia emphasized in her most recent blog – “2009 - The Year of the Ponzi” – this has been a tough year for investors.  The recession has hurt investors and virtually every Canadian to some degree. Signs indicate that we are crawling out of the economic malaise, and the recent Globe and Mail article headlined “Return of the highly confident investor”  suggests more positive times ahead for investors. But it’s not surprising, that this time around, battered investors are taking a more cautious approach to where and how they invest their money. They are also less optimistic about what they should expect in return.

The Globe piece talks about the need for a long-term perspective in investing and the importance of a well-balanced portfolio, the recognition of the role that risk plays in investing and the need for realistic expectations.

Similar points of view are reflected in the advice given by a panel of international and national experts during the BC Securities Commission’s annual industry forum in October. Have a look and listen to what else the panel has to say in the segment, “Advice for risk-adverse investors,”  just uploaded on YouTube.

The entire Capital Ideas conference has been posted as well.

2009 might well be dubbed the year of the Ponzi scheme. In March 2009, Bernie Madoff pleaded guilty to 11 felonies and admitted to turning his wealth management business into a massive Ponzi scheme that defrauded thousands of investors billions of dollars. On June 29, 2009, he was sentenced to 150 years in prison.

Late last spring, another alleged Ponzi scheme reared its ugly head in Montreal, namely the Earl Jones scandal. Jones was arrested on July 27, 2009 and was charged with four counts of fraud and four counts of theft. He was released on bail for $30,000. The case is in its preliminary stage with over 160 people claiming they have lost money. Police are investigating each claim, which may result in new charges.

These are two of the most famous cases, but there are more: Manna ($16 million) here in BC, Milowe Brost and Gary Allen Sorenson, ($100 million) in Alberta, for example.  You might want to look at the series we did highlighting the lessons learned from the Manna debacle on the InvestRight blog to understand how these types of frauds are marketed to the public.

Some of these frauds had been going on for a long time.  Here are a few reasons why they fell apart.  In general, investors start to try to withdraw their money at the same time that the perpetrators find it more and more difficult to bring in new investors, causing the scheme to collapse. This happens when people begin to get nervous or suspicious that the investment scheme is questionable. They try to get their money out before it falls apart. 

In other cases, people, short of cash for a variety of reasons including last year’s credit crunch, all of a sudden need money to look after their everyday living expenses. Too many people trying to withdraw money at the same time can cause huge problems for a Ponzi scheme. Other reasons could be that the perpetrator(s) think they are about to be caught, so they take the money and run as fast and far away as possible.

Here’s the point. Many investors invest their money in Ponzi schemes because of the generous returns promised. Often investors are convinced to join by friends, family and acquaintances, based on their initial experience with the investment.

Always question high returns promised with little or no risk and don’t take anyone’s word without doing your own homework. Check out our new program Protect Your Money before investing in a new investment.  Check out your advisor to see if he or she is registered. You might save yourself the heartache of losing money in a Ponzi scheme.

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Despite all of the attention paid to the dangers of fraudulent investment schemes, promoters are still out there using tried and true methods.

Last week, I was sitting at home, quietly reading a book. The phone rang and a loud, very commanding voice said, “Hi I am (and he gave me his name)”.  He then began an aggressive speech (which was clearly taped) that talked about the oil and gas sector and how successful it had been over the past year. He announced that he had a very good opportunity that would give an investor 70% return annually!  He then said that all you needed was to “be liquid for $12,000” (investor jargon) and the returns would begin after 90 days.  The voice then told me to “Press 1 if I was an investor.”

I believe that I received a similar call several months ago. I think this is an ongoing scheme.

I tried to imagine how others might react to such a call, particularly if they were vulnerable in some way. 70% returns would have a special appeal to people with financial needs.  Would they even stop and consider how ridiculous the offer was?

Clearly, the calls are random calls and the individuals behind it must be finding enough people to cough up the money to make it worth their while.

We put together a new program called Protect Your Money to help people do their research before making a commitment to a particular investment.

If you get a call like I did, use this program to find out what steps you can take to protect yourself. I also found another US website that highlights all of the different techniques used to lure you into a fraudulent scheme. Take a look at it as well.  Share this information with your friends and family, especially if you know that they might be vulnerable to a pitch like this.

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Lately the Vancouver Sun has been publishing a series of articles about a company, which privately raised more than $220 million from 3,375 investors over a 33-year period to finance the development of the Gallowai Bull River property in southeastern BC. Most of these individuals were able to invest under the “accredited investor” exemption.

The exempt market generally applies to the sales of securities to investors without a prospectus and the advice of a registered dealer.  Recently, investors in this project filed a petition in B.C. Supreme Court alleging that the president of the company, Ross Stanfield, has operated the project in a manner oppressive to minority shareholders.

It is obviously a long and difficult story, which I won’t go into today. Read the articles by David Baines in the Vancouver Sun where you will get more information.

Many of those investing in Gallowai Bull River did so under very different rules for the exempt market than are in place today.

Today the rules are highly harmonized among Canadian provinces.  In general, “accredited investors” must have an annual income of $200,000 for two years.  Their financial assets must be more than $1million (not including real estate) or $5 million overall.

Today, when investors buy through an offering memorandum, there is a very clear statement in the form of a “warning” given to investors in private companies. It prominently advises that these types of investments are risky and high returns are illiquid.

Investments offered by private companies are not required to give the same ongoing disclosure (financial statements, press releases or material change reports) as public companies do.  In this case, you are largely on your own, without the investor protections that are required with a public company.

The securities are usually not listed on any stock exchange, which means your ability to resell them to liquidate your investment are extremely limited, if not impossible.

Here is the most important piece of advice to give to people considering an investment in a private company: Read the offering memorandum’s risk disclosure. Then consult a person who is not participating in the deal, e.g. lawyer, banker accountant, financial adviser or someone with business acumen, before making any decision to participate in the investment.

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I was asked the other day what general disclosure advisors have to give to their clients regarding their accounts on an ongoing basis. Fiona Anderson of the Vancouver Sun wrote an article on the subject that is worth reading.

The answer is this.  Advisors are obligated to send account statements every three months, unless the client asks for it on a monthly basis.  It should contain basic information about dates of transactions, whether they are sales, purchases or transfers, the name and number of securities, the price and total value of the transaction. 

For many people, this information is often difficult to interpret and doesn’t provide a clear picture of just how your account is performing overall.  So you have every right to ask for information in a manner that paints a clear, simple picture of how your investments are doing. 

For example, you can ask your advisor to prepare a year-end chart that gives the following information:

• The value of my portfolio at the beginning and end of the year
• How much was deposited into my portfolio
• How much was withdrawn from my portfolio (including fees)

Then you should ask for a year-over-year comparison so that you can see how your account is doing over a longer period-of-time.  This is important information.

As well, look at our Guide to Investing worksheets that outline a whole range of questions to ask about your investments that will give you more useful information than what the monthly or quarterly statements provide.

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A recent study by Ipsos-Reid this summer (CSA 2009 Investor Index ) showed us that fraudsters are moving away from using the internet or cold calls as the way to approach people. Instead, they are going back to the old-fashioned personal approach. This is what we call 'affinity' fraud. There is no doubt that this type of financial fraud is probably one of the worst because it destroys trust and relationships between family, friends, neighbours and whole communities.

Recent examples that have received media attention highlight just how pervasive this type of fraud is – Bernie Madoff, Earl Jones, Sung Wan Kim. So while the study shows us that the numbers of people being approached hasn’t changed, the way they are being approach has.  (We saw in 2006, much higher numbers citing random, anonymous email and telemarketing.)

Another worrying trend is that the number of people repeatedly victimized has increased since the 2007 study. We don’t really understand why, but we are looking for reasons.

Finally, we see from a whole range of US and Canadian research that suggests there is no single characteristic that describes victims of fraud.  However, we do know that they are more likely to be experienced investors, confident and educated – those aged 55 or older and/or with post-graduate degrees.

The lesson here is that no one is immune to fraud. Clearly, fraudsters do target through groups (churches, book clubs, investment clubs) and pursue professionals who earn good money. Everyone needs to know what Red Flags to watch out for.

We recently put together a new program called Protect your money to help people avoid being defrauded. Please go and take a look – it helps you recognize it, report it and protect yourself.

If you want to read other blogs about this subject and others, please go to our InvestRight blog.

On October 13, 2009, the BCSC issued an Investor Alert telling the public that it was investigating Sung Wan (Sean) Kim who was president of Cirplus Futures Inc, an exchange contracts dealer, and a prominent member of the local Korean community.

In the Alert, BCSC urged investors to contact the BCSC inquiry line to provide information about Mr. Kim or dealings with him. It also advertised its inquiry line and translation services to “Kim” investors in the Korean media.

Over the past couple of weeks, there has been extensive Korean media coverage reporting millions of dollars of losses.

Mr. Kim was arrested in Korea by police on or about October 18, 2009 and is detained pending a pre-trial hearing. BCSC issued a temporary order and notice of hearing that will be held on November 3, 2009 at 10:00 am.

The RCMP Vancouver Integrated Market Enforcement Team (IMET) has initiated a criminal investigation in relation to the alleged multi-million dollar fraud scheme involving Cirplus Futures Inc.

Today we published a webpage on our InvestRight website to keep investors, the public, and media up-to-date on developments that can be made public in the Kim case.

This year Capital Ideas is very timely. Business leaders and regulators will discuss how regulators should respond to the international credit market crisis and its fallout on the broader capital markets.  The panellists have impressive backgrounds and a wealth of experience:

• Doug Hyndman, Chair and CEO of the Canadian Securities Transition Office, Vancouver, BC
• Dr. Malcolm K. Knight, Vice Chairman, Deutsche Bank, New York
• Greg Tanzer, Secretary General, International Organization of Securities Commission (IOSCO) Madrid, Spain
• And Dr. Patricia Walters, CFA, Clinical Associate Professor of Accounting, Fordham University President, Disclosure Analytics Inc. New York.

Ian Hanomansing, host of CBC’s News in Vancouver and sometime host of The National will moderate the panellists. Discussions will range from how to manage systemic risk, globally and locally, to identifying the needs of retail investors going forward.

If you are interested in listening to this dialogue, the BCSC website will post the webcast on its website after December 1st, 2009.

On October 13, 2009, BCSC issued an investor alert announcing that the BCSC is investigating Sun Wan 'Sean' Kim, the principal of Cirplus Futures Inc., a Vancouver-based exchange-contracts dealer.

Anyone who has had recent financial dealings with Kim or is a client of Cirplus to contact the BCSC. A Korean translator will be available through our inquiries line at 604 899-6854 or 1-800-373-6393.

RCMP received a complaint about Mr. Kim on Friday October 9, which was passed onto the BCSC. The BCSC’s enforcement group is currently working closely with the RCMP on this case. 

Some background.  Cirplus Futures is a five year old foreign exchange 'futures' trading firm based in downtown Vancouver. As of Friday, October 9, Cirplus is being wound down under BCSC supervision.  Mr. Sun Wan 'Sean' Kim has been a principle of the firm since November 2002.  We don’t know where he is at this time. 

BCSC is very concerned that both Cirplus clients and others have invested their money with Mr. Kim.

Anyone who has had recent financial dealings with Kim or is a client of Cirplus should contact the BCSC. Anyone who may have information about the whereabouts of Kim should also contact BCSC staff. A Korean translator will be available through our inquiries line at 604-899-6854 or 1-800-373-6393.

Investors should not send any funds to Kim during the investigation.

The BCSC is the independent provincial government agency responsible for regulating trading in securities within the province. If you have questions, contact Andrew Poon, media relations, 604-899-6880 or Ken Gracey, media relations, 604-899-6577.

It’s October but the chill people are feeling isn’t just from the temperature dropping outdoors as investors can’t help but shiver as they take stock of the financial mess from the past year. Add to this the stories of investment fraud victimizing people and it is no wonder that investors are feeling a bit left out in the cold. Where can people turn for help?

On the fraud avoidance front, we can help. As part of Investor Education month, we have launched an online, interactive tool entitled, Investment Scams: How to Protect Your Money. It focuses on some common methods that fraudsters use to approach potential victims – via friend and family or ‘affinity’, the Internet, seminars and advertisements.

Developed jointly by the BC Securities Commission and Alberta Securities Commission this online resource engages users with an opening quiz and testimonials to raise awareness of the ways fraudsters attract their victims. The testimonials are based on real cases depicting how people are drawn into scams.

The comprehensive tool provides information about how to recognize, research and prevent fraud. Offered as modules that can be easily accessed and shared, the resource provides investors with checklists and tips to help them evaluate and research investment opportunities for risks and potential fraud.  As well, there are features within the resource to help investors directly email questions to a person offering them an investment and submit a complaint to the securities regulators.

There’s even a YouTube video to support this tool.

We hope people will use to this new resource in the fight against financial fraud.

Back in 2006, the Canadian Securities Administrators (CSA) commissioned a major piece of research  that looked at Canadian investors’ skills and knowledge and the levels of investment fraud in Canada.  It was an illuminating study. We learned a great deal about our investing beliefs and our behaviour. For example, investors understood the importance of being informed investors, yet they fell short when it came to putting their knowledge into practice. The result was a more vulnerable investor to unsuitable or illegitimate investment opportunities.

This summer we conducted another investor index, surveying more than 6,000 Canadians. We found to our dismay that the number of Canadians with no savings at all had increased by 8% (from 28% to 35%).  On the good news front, the numbers of Canadians falling victim to investment fraud hadn’t changed. 

But here is where BC investors have to be alert. BC is way ahead of the pack (10% higher than the national average) when it comes being approached with an investment scam. Of further concern is the fact that British Columbians are the most likely to say they have an aggressive investment style, with 38% agreeing with this statement. This last point is consistent with our Eron Mortgage Study  where we learned that of those scammed, many were overconfident men in their 50’s. In the Eron Mortgage debacle, over 3,000 investors lost more than $180 million.

These are just a few of the findings in what is a very important piece of research. There is a lot to learn about Canadian investors.

Last week, BC and Manitoba issued an alert warning investors about a possible ‘recovery room’ scheme. Typically, these schemes involve companies that contact investors who may have lost money in a fraudulent or illiquid investment with an offer to buy their shares at an inflated price.

Once the investor agrees to sell their shares, a contract is drawn up, and they are asked to pay a fee to cover business costs. They are often told to wire a sum of money to an offshore bank account. The scammers take the money from this offshore account but do not repurchase the shares and the victim for a second time loses money.

The reason why we issue these investor alerts is to help investors avoid being scammed, in this case, twice.

Often investors do some homework to make sure that the company that they are considering investing in or doing business with is okay. A simple way is to Google the company by name.

By issuing these alerts, we hope that the information we have published about York-Rio Resources Inc. and Penn Capital Management Ltd. come up in online searches so that people avoid being targets of a ‘re-victimization’ scheme.

A colleague received an email a few days ago flogging the wonders of forex – trading in the foreign currency exchange market. Here’s part of the email: 

“You know, you can make forex traders work for you giving you around 1% per day. Professional company offers managed Forex trading accounts. It means: average returns of 1% per trading day; almost no time and no trading skills required; protection against trading losses; real-time Forex trading sessions; full control of your profits and many other features to take the most of managed Forex trading accounts .…” 

My colleague forwarded the email to me with her realization that the one per cent a day return boasted about equates to roughly 30 per cent a month. As she puts it, “Talk about too good to be true!” 

Now, I am not saying that this is never possible but is it likely that such returns are commonplace? I highly doubt it.

Before you get involved in the forex market, you should know the risks. We explain how complex and volatile this type of trading is and also warn people about forex scams. 

Foreign currency trading is a favourite ruse of fraudsters to make claims and promises about exorbitant investment returns. Just recently, an Oregon woman was sentenced to five years in jail for bilking $2-million US from 20 investors by promising them that she would generate profits for them in the forex market. It turned out she was running a Ponzi scheme for the most part. Closer to home, the Manna Ponzi scheme also enticed investors with the promise of using FOREX as a method to generate “double-digit monthly returns.” 

A few final notes about the email my colleague received: First, it was unsolicited. Second, there’s a mistake in the message. 

“…many other features to take the most of managed forex trading accounts .…” Shouldn’t that be make?

Both are signs that it may be part of a spam campaign. Be careful.
 

Background

Manitoba, British Columbia, Alberta, Saskatchewan and Ontario Securities Commissions have issued orders to cease trade York-Rio Resources Inc.

This scheme is commonly known as “recovery room" or “re-up". Victims of investment schemes are offered inflated prices for their shares. Once the investor agrees to sell their shares a contract is drawn up and they are instructed to wire a sum of money to an offshore bank account to cover business costs. The perpetrators withdraw the money that is sent to this offshore account and the victim for a second time loses money.

The Manitoba Securities Commission is a special operating agency of the Government of Manitoba that protects investors through educational programming and promotes fair and efficient capital markets throughout the province.

The B.C. Securities Commission is the independent provincial government agency responsible for regulating trading in securities within the province.

Inquiries

Len Terlinski, Investigator
Manitoba Securities Commission
204-945-2556
1-800-655-5244

Paul Bansal, Investigator
British Columbia Securities Commission
604-899-6611
1-800-373-6393

When I read the story about Anwar Badshah in the Surrey North Delta Leader, some obvious red flags leap out at me. Last June, he pleaded guilty to three counts of fraud over $5,000 and was sentenced to 18 months of house arrest by a provincial court judge in Port Coquitlam. BCSC investigators described the Badshah promotion as a Ponzi scheme.

This was a serious crime. Documents on our website show that at least 150 people had invested more than $2.2 million with Badshah Communications Group Ltd. by the time the investigation was initiated.  The effect on these investors’ lives was devastating as voiced in the impact statements provided to the court.

One of the most obvious red flags in this particular investment scheme was the promise of very high returns - 100 per cent return within months of investing the money.

Another important red flag was the fact that the company was not registered with BCSC, a legal requirement for selling promissory notes to investors. 

Finally, there was another hint that there might be something suspicious about this scheme. Mr. Badshah targeted members of the Fijian Muslim community, the community in which he was born and raised. This technique is called affinity fraud. It exploits the trust and friendships that exist in groups of people who have something in common.  Many affinity scams involve Ponzi schemes, making this a classic case of investment fraud. 

If you hear about or have been approached with a investment scheme that just doesn’t sound right, don’t hesitate to contact us by email or phone for a second opinion.

Today, the media are abuzz about Milowe Brost and the estimated $400 million losses from thousands of investors in Canada and the United States. The RCMP arrested Mr. Brost this week. They are now looking for his partner, Gary Sorenson, also from Alberta, who is believed to be somewhere in Honduras, presumably hiding from Canadian authorities. Both men were charged with fraud over $5,000 and theft over $5,000, following a three and a half-year investigation.

Unfortunately, all of the characteristics of a Ponzi scheme are in this one. Here are the five characteristics of a Ponzi scheme:

1. Charming, manipulative leaders/promoters skilled at extracting money from investors.  Investors noted that Mr. Brost was “very smart and could rattle off information on a wide variety of financial subjects.” He was successful in keeping his investors away from the regulators and the police by continuing to promise his investors that this was a legitimate project.
2. High Returns. In the case of Alberta, the offer was for 35 – 40% returns – way higher than what markets and banks can provide.
3. Pyramid/Affinity characteristics. In order for a Ponzi scheme to be successful, it must continue to bring in new investors.  Sometimes there are financial incentives to encourage investors to bring in people and often that means friends and family. The result can be devastating because friends and family also lose their money, and can ultimately blame the person who recommended it to them.
4. Promises of tax-free or tax advantages. Clearly this is attractive to many people because it implies you can avoid paying taxes.  As we all know, you can defer paying taxes, but you cannot avoid paying taxes altogether!
5. Confidentiality. As was the case of the Manna Ponzi scheme, described in a previous blog post, investors are encouraged, sometimes even made, to sign non-disclosure agreements. 

Share this blog with your friends. If anyone knows of a suspicious investment scheme, the first thing to do is report it. Sadly, we find out about these schemes when it is too late and all of the money is gone.  Reporting early can result in disruption or stopping the scheme altogether.

There is no such thing folks! We at the BCSC get very frustrated when we see so many cases where people fall for this promise.

Recently we settled with two individuals who admitted to contravening various securities laws when they solicited funds for a failed investment scheme that raised about $9.6 million from 863 investors. Get this. These investors were told that their funds would be used to buy and sell distressed merchandise, and that they could expect between 100 per cent (their initial investment) and 300 per cent return within 90 days. 

That is a huge red flag. 100 per cent return – not possible in a legitimate investment. How do we get the message through to people that these types of promises could lead to losing all of their investment?

With all of the media attention to the Madoff case (promised up to 46% annually) in the US, surely people will become more cautious, checking to see if their advisor is registered and getting a second opinion of promised returns that are suspiciously high. Earl Jones allegedly promised higher returns than the bank.

Have you seen any examples of promises too good to be true? If so please report them to the BCSC’s Inquiries.

Every fall we hold a half-day conference, Capital Ideas, for the securities industry and interested members of the public. CBC news anchor Ian Hanomansing moderates the panel and handles questions from the audience. Last year we tried to get into the minds of the 21st century investor. We spent the morning with business leaders and investors analysing original research on the challenges facing investors today.

The year before we brought together a group of business leaders and enforcement professionals to discuss securities enforcement – one of the key tools that regulators have to protect Canadian investors.

This year we are bringing to Vancouver a distinguished panel of experts, including the head of the International Organization of Securities Commissions (IOSCO) and Doug Hyndman, who leads the transition office for Canada’s proposed national securities regulator. Capital Ideas 2009 will focus on how regulators should respond to the international credit market crisis and its fallout on the broader capital markets.

We picked this year’s topic because we think it is important for everyone in the industry to understand what happened during last year’s credit crunch in order to prevent it from happening again. The panel will bring a wealth of knowledge and experience to a range of topics -- from how better to manage systemic risk globally and locally, to the challenges of advising today’s conservative, risk-adverse investors.

If you are interested in registering for the conference go to our website. There are a limited number of seats available at a reduced rate of $50.00 for students. 

Call Dawn Barden at 604 899-6677 to purchase seats at this reduced rate.

What next.  Here is a horrible example of just how clever a con artist can be. Defrauding women through an internet dating service. This isn’t the first time we have heard of such tactics.

Just imagine. You are single and looking for a suitable mate. The woman used an online dating site, plentyoffish.com. The next thing you know, you have been convinced by a potential partner to part with some or all of your savings. In this case, the person portrayed himself as a labour lawyer who had connections in the Canada Revenue Agency that could help resolve a tax issue involving the woman’s business.

It could just as easily been someone claiming to be an advisor offering an investment opportunity – usually one claiming to have high returns with little or no risk.

What’s the lesson here? Well, it means that career con people will find any avenue to prey on individuals and steal money from them.  Just when you least expect it.

What should you do?  Before writing the cheque on a potential investment opportunity, see if he or she is a registered investment advisor. Check to see if he/she is on the disciplined persons list. Google their name to see if there is any prior history that makes you suspicious.

Get a second opinion.

If you are remotely suspicious, contact BCSC Inquiries report it.
 

It’s back to school, as thousands of students begin another year of studies. Here in BC, our high school students are one step ahead of the rest of Canada. Why? Because five years ago, the BC Ministry of Education introduced a course teaching financial life skills for its new Planning 10 program.

To support the program, we took the initiative to design a comprehensive teacher resource called The City: Financial Life Skills for Planning 10. Working with teachers, students, curriculum writers and financial experts across the province, we quickly discovered that one of the biggest challenges was how to make financial education interesting and relevant to 14 and 15 year olds.

The result is an interactive, activity-based resource using eight fictional lifestage characters whose stories represented a wide range of financial experiences. As part of our program, we provide free webinar training to teachers, usually twice a year. This is an important component because we know that many teachers find the subject matter quite daunting to teach.

Last year, the Canadian government identified financial literacy for Canadian youth as a priority. To support this important goal, we agreed to license The City to the Financial Consumer Agency of Canada so that an on-line, interactive program in English and French could be made available to all Canadians.

So if your children are starting Grade 10, tell them about this program. Explain to them how important it is to learn how to manage money. Tell them it is an important life skill, as important as learning Math, English or History. 

Understanding important financial concepts like budgeting and saving, credit and debt, insurance, taxes and investing will arm students with the basic tools they need to navigate through the financial realities of adulthood.

It is always important to examine fraud schemes to find out just how they successfully entice so many investors into a loosing proposition. Here’s another significant aspect of the Manna ponzi scheme that is worth knowing about.

We always tell people in our InvestRight seminars that any promise of high returns with low or no risk is a false promise. There is no such thing. 

Lesson #3 In this case, Manna convinced investors to loan it money by promising significant monthly returns. Manna told them that their funds would be placed with experienced traders who had a long history of producing double-digit monthly returns through foreign currency trading.  Manna said it had an "annualized trading history of profit returns not less than 20% per month (240% a year)." Because of these high returns, Manna would pay consistently high returns back to its investors, as high as 125.5% per year.

The promise was 7% monthly returns, later reduced to 5%!

At the Manna hearing, the BC Securities Commission asked Dr. Peter Klein, an expert in international banking and trading, to give an opinion about the promised returns. His testimony reviewed the principles of financial theory and empirical studies. Dr. Klein concluded that it was simply impossible to generate returns of 5%, month after month, through any legal trading or investing in any financial markets.

So here’s the thing. All ponzi schemes offer high returns.  That’s how they extract money from investors. Obviously, people who fall for these schemes don’t do their homework to see if the size of returns being offered is actually possible. And here’s another piece of information for you: returns are never consistent month after month.  That was one of the red flags in the Bernie Madoff case.  The markets fluctuate, up and down. 

So watch out for excessively high returns promised consistently month over month. If that’s the promise, then mark my words, it is a scam.

This is the second in a series about the lessons we learned from the Manna ponzi scheme which resulted in over $10 million US losses from more than 800 investors.

Lesson #2: A key component of this fraudulent scheme was the use of existing investors to bring in new investors. They were called 'affiliates' or 'consultants', and were paid one-time bonuses of between 10 and 15% of the amount invested by the new investor, as well as a monthly percentage of the amount invested by the new investors and, for a short period of time, on the amount invested by any investor brought in by the new investor. 

This pyramid structure of a ponzi scheme is an essential component to any successful ponzi scheme. Another consequence of the pyramid structure is that often the person brings in friends and family, unwittingly including them in a fraudulent scheme, which ultimately results in devastating financial losses for them. At the Manna hearing, one witness testified that he felt he had betrayed the trust of two friends and that he had been robbed by a 'collection of thieves'.

Recent research tells us that the first casualty of fraud is the victims’ trust in other people, investments and financial markets. Not surprisingly, Canadians agree that the impact of investment fraud can be just as serious as the impact of crimes like robbery and assault.

The lesson learned here is if you are involved in an investment scheme that gives you a financial incentive to invite more investors to participate, think twice. It has all the earmarks of a ponzi scheme. You should walk away from it as quickly as possible. Tell friends and family to do the same.
 

A BC Securities Commission panel recently issued its decision regarding a BC based ponzi scheme that resulted in over $10 million US losses from more than 800 investors.

The 'Manna scheme' was a fraud into which the investors deposited about $16 million, but received as little as $3 million, not more than $5.6 million, back. There is no apparent hope of recovering the rest.

There are many lessons to be learned from this particular ponzi scheme, which I plan to outline in a series of blogs.  You can go to our site and read the entire decision, which will give you a lot of information about how the scheme was created and carried out successfully. 

Lesson #1: One of the key tactics employed was confidentiality. Investors had to sign five-year non-disclosure agreements before they could attend any presentations or meetings or receive any of the promotional material.  Clearly, the intent here was to discourage investors from seeking advice about the investment from anyone – even family friends or members – because it was prohibited by the agreement.

In the hearing, investors testified that these confidentiality agreements were an important part of the package presented to investors.  Manna representatives drew their attention specifically to the obligations in the agreement and emphasized the importance of confidentiality.

The lesson learned here is that while investors might mistake the use of confidentiality for an opportunity to be an insider for a lucrative investment, they need to be fully aware that confidentiality is frequently used by fraud artists to protect their own interests and to prevent the regulators from finding out about the fraud.

In future, if someone presents you with an investment that requires you to sign confidentiality agreement, ask yourself, who is the confidentiality agreement really protecting, you or them?

Think twice. Don’t sign it. Consult a financial professional, or a lawyer, instead.

It seems like we have a Red Flag that isn’t on our list. Time and time again, we find out that a financial advisor who has been caught red handed doing a ponzi scheme has been  living a lavish lifestyle.

Remember Ian Thow. He had a huge house, an airplane, and donated generously to charities on Vancouver Island. Bernie Madoff lived high on the hog too… a lovely apartment on Upper East Side in New York worth about $5 million, a 55.5 foot yacht named Bull, and a Palm Beach mansion worth about $10 million.

Probably better to ask yourself some questions about how this lavish lifestyle came to be.  Hopefully, it is not with your money. Always pay attention to your instincts, do your homework when you choose an advisor and if he or she shows up at your house driving a Mazerati, then it might be a good reason to move onto to a financial advisor who drives a Honda.

Living the Life of Riley might be a big hint that he or she is up to no good.

There is a story in the Montreal Gazette which talks about how fast a Google post brought Earl Jones to the public and Quebec enforcement agencies’ attention. Six days after Christina Ross made a comment on a Google map site, many of his alleged victims were meeting to discuss what they should do.

We at the BCSC are fascinated by the viral potential of the internet. It continues to be an important tool for the public to find key information about something that is not right.

According to the media reports, the whistleblower experienced months of cancelled meetings, a forged document and three bounced checks. These are all Red Flags and should be immediately reported to the authorities.

Clearly, people are doing a lot of their research on the internet about investments and about individuals.  But here’s the real aha of the story.  Individuals don’t always report suspicious activities to the authorities.

Maybe it wouldn’t have changed the outcome, but maybe it would have. Securities regulators can move swiftly, freeze bank accounts, perhaps disrupt a ponzi scheme before all of the money disappears. In this case, the regulator (Authorite des marches financiers) did act swiftly once it was notified on July 9th.

So if you are suspicious about what is happening to your money or investments, please report it to the regulator and to law enforcement agencies. You just might save yourself, or someone else from the terrible fate that befell Earl Jones’ clients.

I am getting closer to retirement, and like many, suffered losses in the market crash last fall. Now I need to rebuild that nest egg. But compared to five years ago, my appetite for risk is somewhat diminished. 

Recently I asked a very astute player, who has held senior positions in the financial world in Canada and internationally, what advice he had for someone who is a conservative, risk-adverse investor trying to establish a long-term investment strategy.

He told me what I already knew, but it’s worth mentioning again and again.

Number 1:  Never invest in a product you don’t understand .This maxim is worth repeating because new investment products are becoming more complex and we often forget to ask basic questions to find out the underlying reasons as to why it is a good investment. If you don’t understand the answers to these types of basic questions, then you should not make the investment.  It is that simple.

Number 2:  Hold a diversified portfolio or the “don’t put all of your eggs in one basket” strategy.
If you diversify your portfolio into cash, bonds and stock over the long term, you reduce your risk. Why? Because no single type of investment performs best in all economic conditions.

While these two simple pieces of advice seem obvious, it is surprising to us at the BC Securities Commission how often we see investors fail to follow this advice. In cases like Eron Mortgage where BC investors lost millions of dollars, we often heard that people had put their entire life savings into this one investment. They failed on both counts. They didn’t understand the product they were investing in and they certainly didn’t diversify!

Several years ago, we issued an Investor Alert that talked about the fact that income trusts were, in fact, not fixed income investments. At that time, we were concerned that too many retirees were investing in income trusts because they thought that these products would provide ongoing income.

Recently, we decided to issue information regarding exchange-traded funds (ETFs). In this case, we were concerned that people didn’t understand that this term is used to describe a whole category of products, some very risky, some not so risky. We pointed out that investors should determine what type of ETF they are considering and if it was a 'leveraged' or 'inverse' ETF, they should think twice.  Both of these products are better suited to professional investors rather than retail investors. Professional traders use these short-term trading vehicles to speculate or to hedge other positions they hold.

If you know about products that are being introduced to retail investors that require a better understanding of its risk, please don’t hesitate to respond to this blog or to email us with that information. We’ll take a look at the product in question, and if we also have concerns, we’ll issue information outlining the risks and outlining key information that will help an investor make an informed decision.

Last week, the BCSC issued a panel decision finding four BC residents had perpetrated a “deliberate and well-organized” fraud in a Ponzi scheme that resulted in the loss of over US$10 million by more than 800 investors in BC and elsewhere.

Media, CTV in particular, researched the case and found several victims who were willing to talk about their experience. They spoke out in order to warn people not to make the same mistakes that they did. They cautioned people to be wary about falling for the promise of big returns.

It is hard for victims to talk to the public about what happened to them because, in one sense, they want to forget the whole ordeal.  We think it is important to applaud those who are willing to talk about what happened to them. In this case, the Ponzi scheme started as an 'investment club'. Investors were promised seven per cent return, resulting in compounded returns of more than 100 percent. 

The lesson here is that high returns always present high risk and in an illegal ponzi scheme, it usually means that the investors will lose all of their investment.

Check out our Red Flags. If you, your family or friends are approached to invest in one that has any of these characteristics, please report it to BCSC Inquiries by phone, or online.

Amid the tales of financial despair stemming from Montreal’s Earl Jones saga, investors everywhere are becoming more aware of what they can do to protect their money when investing.

Checking whether an investment advisor is registered with a securities regulator and what they are allowed to do on your behalf is certainly an important step. The Globe’s Rob Carrick outlines this quite well in a recent piece.

And, as we pointed out in an earlier blog, there’s an initiative afoot that the BCSC is leading to simplify checking registration across Canada.

But, as the Globe piece notes, there’s more that you can do to check on the background of those you are dealing with when it comes to investing. For some time now, we have made available a Background Research Toolkit. The toolkit allows you to check not only the registration of an advisor but also whether they have been disciplined in the past. It allows you to check on a company’s history and news reports about it as well as helpful links to other search tools. Really, it provides a useful starting point for any background check.

(For those who are interested, there is a similar toolkit for investment industry folks or professional researchers that highlight more paid sources.)

And, as always you can always email or call the BCSC Inquiries Group (604-899-6854 or toll-free 1-800-373-6393) to speak to a staff trained to help with your questions.

We’re in the midst of assessing the InvestRight website and are looking for feedback from InvestRight users. Complete our quick survey to let us know what you think of the site.

We’re also inviting people to participate in InvestRight website strategy sessions that will take place in downtown Vancouver over the first two weeks of August. Just provide your name and email address at the end of the survey and we’ll contact you to set up the session.

What’s in it for you? The chance to give us incredibly valuable feedback on the InvestRight website and help us improve the site to ensure it meets your needs and the needs of other investors. If you participate in one of the InvestRight strategy sessions you’ll also receive an honorarium in appreciation of your time.

If you don’t feel like taking the survey, but want to give us some feedback on InvestRight, you can add your comments to this post.
 

The term exchange traded funds is used to describe a category of products, some very risky, some not so risky.

Before making a decision to invest in an ETF, you need to find out what kind of ETF is being proposed. If you are considering a “leveraged” or “inverse” ETF, make sure you understand just how risky that might be.  There are 15 leveraged ETFs and 19 inverse¹ ETFs trading in Canada today.

Leveraged and inverse ETF products are better suited to professional investors than they are to retail investors. Professional traders use these short-term trading vehicles to speculate, or to hedge other positions they hold.

Leveraged ETFs promise the possibility of double or triple the returns of an index or a commodity on a daily basis. An index is simply a basket of investment products.  Inverse products promise the reverse of the return of an index on a daily basis.  Some inverse ETFs promise double or triple the reverse of the return of an index.  If prices on the market go up and down over time, you will lose money on these products whether you buy a leveraged or inverse ETF, if you hold it for any length of time.

Conventional index ETFs are set up to replicate an index.  Retail investors who wish to hold a diversified portfolio for a long time may choose to use these ETFs for longer term investing.  Index ETFs may track a broad market index like the Standard and Poors 500 or narrower indices focused on various sectors, commodities or countries.

What you should do before investing in leveraged or inverse ETFs?

Before investing in leveraged or inverse ETFs, you need to do some research to understand where the ETF derives value from and how it invests to earn a return.  Remember that borrowing or using other leverage can make a safe investment risky and a risky investment dangerous. 

Understanding these facts can help you identify some of the risks in investing in leveraged and inverse ETFs.  Knowing the risks of an investment before you buy it is the key to making an informed investment decision.

To learn more about a particular ETF you are considering, go to www.sedar.com and go to Company Profiles, then go to Investment Fund Groups.  Once you find the name of your fund company, you will get a list of all their funds.  When you choose the fund you are considering, you get access to all publicly filed disclosure documents by clicking on the link called “View This Investment Fund’s Documents”.  These documents include the prospectus, financial statements and reports.  Focus primarily on risk factors in the prospectus.

Background

An ETF, or exchange-traded fund, is a basket of underlying investments, whose shares trade on an exchange like the Toronto Stock Exchange (TSX). 

What should I know about leveraged and inverse ETFs?

1. What is a leveraged ETF?  A leveraged ETF is designed to return a multiple of the daily performance of the underlying index.  The manager of the ETF forms a fund based on an underlying index and then borrows against securities in the fund or uses derivatives to enhance the return of the index.  If the underlying index goes up by 2% one day, a leveraged ETF aiming for two times the return of the index should go up 4% that day.
2. What is an inverse ETF?  An inverse ETF aims to achieve the opposite of the daily performance of the underlying benchmark.  The managers use various derivatives to profit from a decline in the value of an underlying benchmark. Inverse-leveraged ETFs aim to return a multiple of the opposite of the daily performance.  If the underlying index goes up by 2% one day, an inverse ETF should go down by 2% that day.  An inverse-leveraged ETF aiming for two times the reverse of return of the index should down 4% that day.
3. What is the effect of daily re-balancing and compounding?  Both leveraged and inverse ETFs re-balance and compound daily.  As a result, returns over periods of longer than one day, especially in periods of market volatility, may be completely unrelated to the return on the underlying index for the same period and may even move in the opposite direction to the underlying index.  If there is significant market volatility, these leveraged and inverse products can lose money no matter which way the market moves over time.

Two real life examples show how the daily focus of these funds combined with a volatile underlying index can yield surprising results:

• A leveraged fund that aimed to return 2 times the daily return on the U.S. Oil and Gas Index, lost 6% during a year when the index itself rose 2%.  
• An inverse fund that aimed to return 2 times the inverse of the return on the U.S. Oil and Gas Index, lost 26% (not 4%) during the same year. 

What are the risks of leveraged and inverse ETFs? 

There are a number of risks associated with investments in leveraged and inverse ETFs.

• Leverage risk – Both leveraged and inverse ETFs borrow directly against investments in the fund or use derivatives to accomplish their objectives.  Using leverage either directly through borrowing or by trading in derivatives can cause magnified losses during adverse market conditions.
• Price volatility risk – The prices of leveraged and inverse ETFs fluctuate much more widely than prices of conventional index ETFs, because of the use of leverage and daily re-balancing and compounding. 
• Counterparty risk – When leveraged and inverse ETFs use derivatives, they are exposed to risk that the person providing the derivative may default.  If that person fails to perform the obligations under the derivative contract, the value of the investment may decline, no matter what the underlying index has done.
• Transparency risk – Unlike a conventional index ETF where the securities making up the index are always known by looking at the underlying index, leveraged and inverse ETFs are not so transparent.  The use of derivatives can make the composition of these ETFs very unclear.
• Fee risk  - Leverage and inverse ETFs have much higher management expense ratios (MERs) than other ETFs because they are not just following an index but actively managing a variety of investments, including derivatives.  The MER on an ETF based on the TSX-60, for example, is 0.17%.   The MER on a leveraged ETF may be 1.15%, almost 7 times as much.  MERs have a huge impact on your return over time.

¹ The 19 inverse ETFs are comprised of 4 ETFs that offer the opposite of the daily performance of an underlying benchmark and 15 ETFs that offer two-times the opposite of the daily performance of an underlying benchmark.

Interesting piece in the weekend edition of Montreal’s The Gazette about Carlo Ponzi (sometimes referred to as Charles Ponzi) and his connection to the Quebec city.

By now – thanks to Bernie Madoff – how a Ponzi scheme works is well known: It takes money from new investors to pay existing investors. There’s no real investment to generate returns. It’s a fraud that works only as long as new money keeps flowing in, but sooner or later it is doomed to fail or be revealed as redemptions or payouts outstrip new investments.

Well, it appears that Ponzi moved from Boston to Montreal as a young man and it was here that he was introduced to the swindle that would later bear his name. On the heels of Canada Day, it s not a Canadian connection to take pride in.
 

150 years. That’s the jail time that convicted fraudster Bernard Madoff was sentenced to today in a packed New York courthouse.

In handing out the maximum sentence to Madoff, U.S. District Judge Denny Chin said,

“Objectively speaking, the fraud here was massive,” he said. “Here the message must be sent that Mr. Madoff's crimes were extraordinarily evil and that this kind of manipulation of the system is not just a bloodless crime that takes place on paper, but one instead that takes a staggering toll.”

We have publicized the “staggering toll” investment fraud exerts on victims as part of the investor education we conduct to help people understand the size and scope of this problem and to prevent them from becoming victims themselves.

The research that we helped conduct in 2007 shows that it is not a “bloodless crime that takes place on paper” but causes very real health and social problems for its victims and their families. The victims that stepped forward to tell their stories of ruin today unfortunately give further proof to those findings.

Don’t fall victim yourself, take the proper steps to help prevent against falling victim to investment fraud. Get educated about the risks and how to properly research investments. You can do this on our InvestRight website and while you are here, take the Madoff test.
 

This is my final post as an InvestRight blogger. I am packing up and moving to Ottawa, our Nation’s capital. Thank you to our readers, supporters, and critics for making my experience as a blogger for InvestRight such a worthwhile endeavor. I look forward to watching the community grow and evolve. Before I sign off, I want to share just one more thought.

Last week I read an article in the Financial Post: Small investors flock to forex. It raised a concern that investors looking for higher returns may turn to the forex market without first being aware of the risks and even worse, the forex market may provide a breeding ground for frauds and scams. If you are considering the forex market, do your research to understand the risks and spot the scams. As a starting place, you can read our investor watch: Investing in forex.

Adieu and best wishes.

- Anthony 

The Shorty & Evans radio campaign winds up today on the TEAM 1040, bringing to a close 8 weeks of talking investing and hockey to a very specific target audience—over-confident men, 45+ , who love sports and listen faithfully to sports talk radio.

If you’re an investor in that age and gender group, you may not think of yourself as being over-confident. But research shows it’s not neophytes but experienced investors who fall most often for investment scams, and we thought that one of the best places to find you was on sports talk radio.

People said all kinds of nice things about the Shorty & Evans commercials we ran, mostly of the “hey that’s cool” variety. The 30- and 60-second spots featured excerpts from a longer conversation on investing that John Shorthouse had with Lang Evans this spring, and invited listeners to tune in to the full podcast on the InvestRight blog. The spots did their job of increasing visits (blog visits doubled while the spots ran), but I admit that we were expecting more people to take the next step and watch the podcasts on Shorty & Evans YouTube Playlist.

I’d love to know why listeners didn’t link to YouTube. If you have any ideas, please leave a comment. In the meantime, the podcasts are on the InvestRight YouTube channel 24/7 and you can listen to them any time you want by going there, or clicking on the player below.

If you’re a hockey nut, I think you’ll enjoy the hockey references. If not, you’ll still find useful answers to important questions about risk and reward, the red flags of investment fraud, and wise investment plays. We’ll be back with new podcasts in September. For now, listen away and, please, share this first batch with your family and friends.

To read the top takeaways from all the Shorty & Evans podcasts, follow the links below:

Risk & Reward
Red Flags
Wise Investing Plays
Investment Fraud 

Do you find the podcasts and takeaways useful? It's easy to leave a comment, and we can do a better job of posting content you really want and need if we hear from you directly.

If you’ve used our Guide to Investing on how to work with your investment advisor, you know how important it is to check your advisor’s registration. And if you’ve checked your advisor’s registration, you’ve probably used the registration database on the CSA website or contacted our inquiries group.

If you have checked the registration of your advisor or the advisor’s firm… how did that go? Did you find what you were looking for? We’re looking for feedback on the current process of finding registration information in BC and across the country and would love to hear from you via a survey.

There’s a proposal afoot to combine the registration searches from securities commissions across Canada (with the exception of Ontario) into one national search on the Canadian Securities Administrators website. BCSC is leading the project to determine what this national search will look like and we’re in the beginning stages of figuring out what users want and need. We’ve created a survey to learn about how you currently find registration information, what you’re looking for, and how you use it … and we want your opinions.

Please complete the survey  and help us make the proposed national registration search as easy and useful as possible.

We also welcome your feedback on finding registration information (or anything else!) through comments on this post.

I spent some of the Victoria Day holiday weekend spring cleaning, which got me wondering if I shouldn’t look as critically at my investment portfolio as I had behind the stove.

I’ve got this nagging feeling that something’s not right:

• Am I on track to meet my investment goal?
• An opinion I heard at a recent economic outlook conference keeps coming back to me: not to hold on to stocks that I wouldn’t buy today. 
• Family income is down: what does this change in my personal circumstances mean to my investment strategy?

Also, I’d really like to know what I’d be worth if I cashed out today.

Given my investment goal to maximize retirement savings in the next 10 years, my real worry is that I won’t be able to recover from the losses dealt out by the economic downturn. Having stood by quietly as my portfolio eroded, shouldn’t I be doing something to build it back up, especially now that the market is rallying?

This worry makes me a very vulnerable investor, I know. It’s never a good idea to base investment decisions on emotion. And when feelings are running high, with excitement or anxiety, that’s the best time to look over the plan with a cool head. Besides, the decline in my portfolio is history: this is the time to take in the lesson and move on.

So, I took some time this week to download the InvestRight Guide to Investing  and use it to prep myself for a conversation with my broker using the Annual Check worksheet on page 29.

I’ll be offline for the next couple of weeks, but will report what I learned (and decided) from that conversation when I return. In the meantime, why don't you join me by downloading the Guide and asking these questions about your own situation: 

• Am I on track with my investment goals?
• Is my portfolio properly diversified?
• What can I do to minimize the effect of a change in family income (or any other significant change that might impact your investment strategy)?
• What does my portfolio performance look like compared to the market?
• If I cashed out today, how much could I withdraw for myself?

When John Shorthouse and Lang Evans sat down in the TEAM 1040 studio to talk about investing, they covered more than we could use in one campaign. Here’s an outtake that looks at how scammers exploit investors' worries over their investment losses.

Shorty & Evans talk investment fraud: audio podcast

Top takeaways from this audio podcast:

1. People are more vulnerable to fraud when they have lost money and are anxious about making it back. Never make an investment decision based on fear, or any other emotion, but only on a cold, hard analysis of what’s in front of you.

2. In today’s market, many scammers are playing to investors’ desire for safety. Remember: their goal is your money and they’ll work hard to keep you from thinking objectively about your financial situation.

3. There’s a scam for everyone.

Listen to other Shorty & Evans podcasts on YouTube 

Read top takeaways from previous Shorty & Evans podcasts:

• Risk & Reward 
• Red Flags 
• Wise Investing Plays 

If you listened to last month’s Shorty & Evans podcasts, you’ll know we had men in mind, especially the ones who love hockey and the Vancouver Canucks. So, women, this post is for us.

Whatever your interests, age, income, debt-to-savings ratio, relationship status, size (or lack) of investment portfolio, ladies, the research makes it clear that we have work to do if we want a comfortable lifestyle now, and down the road in retirement.

Canada-wide research carried out in the past few years by the Canadian Securities Administrators, and the BCSC InvestRight’s own 2008 national survey into The 21st Century Investor have turned up telling differences in the investment knowledge, attitudes, and behaviours of Canadian women and men.

In general, women are more risk averse. This is good. The research shows that we are less likely than men to hold beliefs that make us vulnerable to investment fraud. As a result, we are less likely to be defrauded.

But being risk averse and generally conservative seems to stem from the fact that we have limited investment knowledge. That might be okay if limited knowledge didn’t correlate so strongly with lower income, higher debt, less confidence and, ultimately, less opportunity to make the most of our money and financial opportunities.

Happily, there’s a younger generation of women who want it all (sound familiar?) and are figuring out practical ways to afford it.

Case in point: BC’s own Smart Cookies. These five, 30-something women all got into financial trouble ($40,000 of consumer debt) in their 20s. Inspired by an Oprah episode on personal finance, they formed a money group to help each other move past being clueless, careless, and passive about money management. Since then, they have paid off all their debts, been on Oprah themselves, written a book to share their success tips, and launched themselves on a collective new career as finance and investment educators. 

We think the Smart Cookies are a great example of how women can become financially savvy. In fact, they impressed the BCSC so much with their “get out of debt, make more dough, spend smarter, and live a richer life” philosophy that we now partner with them to teach financial life skills to BC teenagers and university students.

In addition to their website, you can find the Smart Cookies on CBC Radio One, Tuesdays at 4:30, on the W Network, Monday evenings at 10:30.

Help us start a conversation about women and investing. What steps are you taking to improve your financial life skills and become financially savvy? Do you have a favourite tool or resource to share with other women? We look forward to your comments.

In this third of three investing podcasts, John Shorthouse and Lang Evans talk about wise investing—what to do if you have a chunk of money to invest, why you have to pay extra attention when investing in a private deal, and how to do your research. Have a listen:

Top 3 take aways from wise investing plays 
1. If you have a chunk of money to invest, don’t invest it just because it will save you taxes, or just because you like real estate. Look at the whole deal. Evaluate the risks and make the smart play.

Get the facts before investing in real estate-based securities.

2. If it’s a private deal, you’re really on your own and you need to ask the questions that regulators ask. For example:

• Who’s behind it?
• Have they ever been in trouble?
• Are they licensed?
• Where’s the money going?
• How’s the money coming back?
• What’s the liquidity?

Find out more about Investing in private companies.

3. Your research should involve at least the following steps:

• Find out how to pick an advisor and how to pick an investment with the InvestRight Guide to Investing 
• Check your advisor’s registration  
• Check the disciplined persons list  
• Google  the company and the names of its principals
• Get as much documentation as you can from the company. Good deals usually come with a prospectus or offering memorandum. If the company won’t give you detailed information, don’t give them your money.

Listen to the full podcast on YouTube, and share it with your friends and family.

Check out our other Shorty & Evans posts:

• Shorty & Evans talk risk & reward 
• Shorty & Evans ralk red flags 

Was this information useful to you? Let us know how! We welcome your comments.

Vancouver/Calgary – With the recent increase in public inquiries regarding investments in real estate securities, the Alberta Securities Commission (ASC) and the British Columbia Securities Commission (BCSC) are urging people who are considering this type of investment to do their homework before investing.

“Many of these investment opportunities are offered by private companies selling real estate securities in the exempt market,” advises ASC Executive Director, David Linder. Private companies are not required to give the same ongoing disclosure (financial statements, press releases or material change reports) as public companies do.

“If investors are considering investing in these opportunities, it’s important to understand that in the exempt market, you are largely on your own without many of the investor protection provisions that are mandated when investing in a public company,” says Linder.

The exempt market generally applies to the sale of securities to investors without a prospectus and the advice of a registered dealer. Some securities are sold under the offering memorandum (OM) exemption. OMs provide varying levels of information about the investment and, unlike prospectuses, they are not subject to a review by securities regulators.
 
These exemptions allow the sale of securities to investors who meet certain criteria – for example, investors who have a relationship with the company or principals and therefore have direct access to information about the investment, or investors who have sufficient financial resources to withstand a loss.

“Investors need to remember that these types of investments are often risky, and high returns are not guaranteed,” says BCSC Executive Director, Brenda Leong. “Sometimes the potential returns described are based on past history, not current market conditions. The securities are usually not listed on any stock exchange, which means your ability to resell them to liquidate your investment is extremely limited, if not impossible.”

Concludes Linder:  “The most important piece of advice to give to people considering an investment described by an OM is to read the ‘risk disclosure’ in the OM.  Then they should consult with a person who is not participating in the deal, such as a lawyer, banker, accountant, financial adviser or someone else with business acumen, before making any decision to participate in the investment.”

To protect yourself, you should:

• Make sure the investment is suitable for your risk tolerance and investment goals.
• Be clear about the terms and jargon used to sell the investment. If you don’t understand something, get clarification in writing.
• Seek independent advice from a lawyer or financial adviser.
• Be aware that you may not have the same legal rights as you would with an investment issued under a prospectus.
• Understand that reselling private company securities can be difficult due to resale restrictions or lack of market.

The “For Investors” section of the ASC website (www.albertasecurities.com) gives investors the information and tools they need to “Check First” before investing. This includes a “How do I check out a real estate investment opportunity?” section with tools for conducting background checks, gauging your risk tolerance and looking up a company’s record with the ASC.  The site also provides an investor alert that explains real estate investment seminars and the “red flags” of investing.

InvestRight is the BCSC’s one-stop resource for investors to educate themselves on how to make informed investment decisions. Its comprehensive website at www.InvestRight.org provides a wide range of tools to help investors develop critical thinking skills they need to protect themselves – information such as how to do background checks, investment products, a scam meter and video clips from victims of investment fraud. Read the Investor Watch on Private Companies. 

The ASC is the regulatory agency responsible for administering Alberta’s securities laws.
The BCSC is the independent provincial government agency responsible for regulating trading in securities within British Columbia. Both agencies are entrusted to foster fair and efficient capital markets in their provinces and to protect investors. 

Media Inquiries:

In Part 2 of the Shorty & Evans investing coaching session, Canucks play-by-play announcer, John Shorthouse, learned about the red flags of investment fraud from BCSC enforcement director, Lang Evans. Shorty called it "a conversation worth listening to". Here’s the podcast:

What Shorty learned from Lang about the 5 red flags of investment fraud:

• High returns, no risk—There is no such thing!
• Insider tips—A real lose-lose situation. It’s against the law if the offer is real and it’s a fraud if it isn’t.
• Offshore investments—Send your money “offshore” and there’s every chance it’s not coming back.
• Profit like the experts—Often the “expert” is good only at taking your money, not giving it back.
• Your friends can’t be wrong—It's called “affinity fraud” and whether it’s a religious group or your hockey team, the scammer sells to one person and uses that person to sell to the rest of the group. Always do your homework, no matter who offers you the deal.

Listen to the whole podcast on YouTube. We hope you'll share it with your friends and family. And we'd love to know if the information was useful to you. Just leave a comment to let us know.

Check out our other Shorty & Evans posts:

• Shorty & Evans Talk Risk & Reward 
• Shorty & Evans Talk Wise Investing Plays 

Today we launch a radio campaign on TEAM 1040. It features Canucks play-by-play announcer, John 'Shorty' Shorthouse, and BCSC director of enforcement, Lang Evans. John sat down recently with Lang for a coaching session on investing. In this podcast, Shorty & Evans talk about the risks and rewards of investing.

Top 3 take-aways from risk & reward podcast 

1. Be patient. Make the play on your terms. When you're presented with a deal, always step back: any good deal that's there today will the there tomorrow. Look for opportunities and return, but also look at balancing your risk. Don't hesitate to pass the deal to someone with expertise in the field for a second opinion.

2. Most common investing mistakes:

• Buying an investment you don't understand
• Putting too much money in one deal
• Using borrowed money to invest

3. No matter how bad the news in your investment statements, you're better off knowing. When you get something in the mail from your advisor, open it, read it, ask questions, and understand it.

Listen to the whole podcast on YouTube  

Check out our other Shorty & Evans posts:

• Shorty & Evans Talk Red Flags of Investing 
• Shorty & Evans Talk Wise Investing Plays 

My gym buddy and I are about the same age and have our eyes on retirement in the next 10 years. We both have jobs we love and are fortunate to have a defined benefit (instead of a defined contribution) pension plan. She’s divorced. I’m married. We each have one child. We’re healthy. Life is good, and the future looks rosy. 

What’s bothering my friend is that retiring alone seems scary. She’s not sure she knows what she needs to know and she’s not sure who to ask. 

You can imagine how quick I was to tell her all about InvestRight.org and how our Guide to Investing  could help her start asking the right questions—of herself, her advisor, and her investments.

Then I got to thinking: my retirement doesn’t seem scary because the rosy future I envision involves two people, hubby and me. According to a BMO report  published in January, statistics tell another story. 

Whether alone through divorce or by outliving one’s spouse, “If you are part of a couple now, there’s a strong likelihood that you will find yourself single at some point during retirement.” Turns out my friend and I have more in common than the quest for strong bones and firm arms. 

The report spells out simple steps we can take today to prepare for retirement. Three of them focus on the financial side of life:

Plan for retirement as soon as possible.  Canadian singles—male and female—are less likely to be informed about their financial well-being in retirement. When asked if they had gathered retirement information during the past five years, 60% of pre-retirees who knew their retirement date told surveyors “no”.

Build and sustain wealth. Hard as it is to picture oneself 10+ years in the future, it is sobering indeed to learn that odds are that one will have much less income at age 80 than at age 67. (Note to self: the decline is sharpest for the “suddenly single”.) And, 71% of the suddenly single say they didn’t have a plan to deal with their new life, and felt the pinch. 

Understand income and expenses.  98% of a single person’s income goes to household expenses, compared to 81% for couples. It’s easy to dip into savings to meet spending demands during the earning years. Singles and future singles who manage their income and expenses today are less likely to outlive their money by drawing down their savings too quickly in retirement.

Here are three things you can do this week to get your head around retiring and improve your odds of retiring comfortably, alone or not.

1. Calculate your retirement needs. Your bank and many financial websites have retirement income calculators. Here’s one from globeinvestor.com that uses your financial input to calculate how much you will have at retirement and how long it will last. (Note to self: You may need to save more!)

2. Read a book. One that came across my desk this year is The New Rules of Retirement by Warren MacKenzie and Ken Hawkins. It includes 38 rules, from Throw away the old retirement myths to Learn the seven steps to a perfect portfolio. With a list of “what you can do now” and a “bottom line” summary at the end of each rule. 

3. Make an appointment with your investment advisor. And before you have it, spend some time with Worksheet for monitoring your investments  in the InvestRight Guide to Investing .

Are you single and thinking about retirement? There are millions of Canadians like my friend from the gym who would love to hear how you’re approaching it. Let us know! 

Are businesses’ profits down because employees are stressing about money? Can increased employee financial literacy increase employer profits? If you ask the Personal Finance Employee Education Foundation (PFEEF), the answer is a definite YES.

According to PFEEF, raising income levels will not address the problem. I guess someone who is irresponsible with $1 will be the same with $1,000,000, though they may have more fun with the latter. All joking aside, I think the PFEEF makes some very interesting arguments for why employers should offer financial education for their employees. Though it’s a U.S. organization and some of the references and research are not relevant to Canada, the basic concepts certainly seem applicable to Canadian employers as well.

The PFEEF is a not-for-profit private foundation established in 2006 for the scientific purposes of serving the public interest for non-commercial purposes by educating employers on the bottom-line benefits of workplace financial education that improves financial literacy and personal financial behaviors (read more). The organization attempts to identify the best work place financial programs and help employers understand the benefits of employee financial education. You can watch a six minute video Employers Profit When They Care About Financial Literacy to better understand their position.

 

The top 3 messages I took away from the video were:

1. A financially stressed employee can cost an employer $450-$2100 annually.
2. 1 in 4 employees are financially stressed.
3. For every $1 spent by employers on financial education, they gain a return of $3 or more.

One point I question is whether an employee who spends work time stressing about financial matters would simply spend it stressing about something else if you took away their financial concerns. That said, in this recession employers are looking for ways to cut costs and improve profits. Perhaps a workplace financial literacy program could help do both.

Do you participate in a financial education program at work? If so, I would love to hear your stories, tips, and suggestions based on your experience.

Are you interested in having a work place financial education program? The PFEEF site provides materials to help you convince an employer to implement one. If you make a pitch, please let us and our readers know how it went by leaving a comment or sending me an email.

I need to give credit to the Pre-retiree investor education outreach project group from the North American Securities Administrators Association. The group members introduced me to PFEEF during a strategy meeting a couple of weeks ago. The project group is a hardworking team of individuals dedicated to helping investors become more financially literate.

New York investment banker Bernard Madoff charged this week with 11 counts of fraud amounting to $65 billion. Texas banker Allen Stanford alleged to have bilked investors out of $8 billion. Vancouver Island mutual fund salesperson Ian Thow swindled 26 clients out of $6 million—a deception the BC Securities Commission called “one of the most callous and audacious frauds” this province has seen.

Clearly, there’s investment fraud in our markets. If you learn to spot a scam before it grabs you, you can avoid losing your money. Here are five tools to help you guard yourself against fraud.

• Tales from the Bureau: Case of the Fraud Victim, from the Competition Bureau Canada. A page from the annals of hardboiled detective comic book fiction. Tests your assumptions about fraud, with additional information whether you’re right or wrong.
• Scam Sensor, from the Alberta Securities Commission. Similar to the InvestRight scam meter, but with Alberta fraud statistics and links to tools and information for Alberta investors.
• FINRA Scam Meter, from the US-based Financial Industry Regulatory Authority. Select the features of an investment you’re looking at, then see how many red flags it has, if any.
• Name That Fraud, from the Canadian Securities Administrators. Designed to help you recognize different types of investment fraud, ending with a chart to show how well you did compared to others and a personalized certificate with your score.

We want to know what works best for investors. Which tool do you like best, and why?

A few weeks ago, Celebrity Calamity went live. It's an online financial literacy game aimed at young women between 18-35. It's catchy. In fact, my wife, who is within the target market, played it for an hour straight with mutterings here and there including “she can’t afford that!” when her star Celeb suddenly bought a private jet. There's a short write-up on it over at Fast Company.

Funnily enough, I happened upon Celebrity Calamity just after talking with a friend over coffee about the possibilities for creating a personal finance game. Not an online game, but an in-depth one made specifically for gaming consoles.

Given the popularity of games such as Wii fit, which focuses on physical fitness and brain games such as Brain Challenge, Brain Age and BUZZ!, which exercise and test brain skills, we wondered if financial fitness could be the next evolution in personal health themed games. Gaming consoles are starting to appeal to audiences beyond the youth market such as the family entertainment sector and even seniors - in Toronto 10 retirement homes competed for gold in a self-organized gaming Olympics!

Now I realize there is a lot involved in producing a full-on video game, so my friend and I also pondered the questions: Where does one start? Who does a non-profit partner with?

Any suggestions? Do you think this is a worthwhile pursuit or are we just gaming ourselves?

Links to other financial literacy games:

• Visa Practical Money Games  
• Cyber Budget (in French only)  
• FSI: Fraud Scene Investigator  
• Lemonade Stand  

Are there any financial literacy games that you like? Add to the list by adding a comment.

You pick up the phone. Hello? Hello? Hello! Nothing at the other end but empty space. It could be: 

o Your mother
o A charity canvasser
o Your local political candidate
o A licensed investment advisor
o A pollster
o A boiler room shyster

That empty space at the end of the line probably means the call is being connected to a call centre. It could be at the other end of the country, or it could be half-way around the world. If you don’t hang up, then you’re on your way to talking to someone who wants to sell you something. If that someone is a boiler room shyster, he probably has a golden tongue, a sham investment, and only one thing in mind: separating you from your hard-earned savings as quickly as possible.

March being Fraud Prevention Month in Canada, we want you to know the rules of engagement for avoiding boiler room scams.

Rule 1: Hang up. If you’ve walked a fair ground midway or attended a fund-raising lunch, you know that once you start listening, your hand is already on your wallet.

Rule 2:  If you don’t hang up, ask questions:

o Are you registered to sell ___ in Canada? To sell investments to you in Canada, a person must be registered by your local securities regulator, either directly or through the Investment Industry Regulatory Organization of Canada. A caller offering a real estate investment would have to be registered with a provincial real estate regulator or council.

o What is your name and the name of your firm? If you can’t get this information, hang up. No need to be polite. But if the caller gives it to you, you can look him or her up.

o What is your phone number? Tell the caller it’s your policy to do your own due diligence before buying any investment and that, if you’re interested, you will call him back after looking up his name/firm. If you can’t get this information—you guessed it—hang up!

Rule 3: If you think you’ve been called by a boiler room operation, report it. You may think that nothing will come of your effort, or that with nothing lost there’s nothing to gain by reporting. But boiler room operations are huge international businesses, and your tip could set off an investigation that could save thousands of others from losing their life savings.

Find out more about boiler room scams:
Boiler room scams: Could you be vulnerable? How they work, what to watch for, what you can do to protect yourself. New from the Canadian Securities Administrators.

Lifting the lid on “boiler room” scams, The Guardian. Former boiler room employee tells it like it is.

Experienced investors are most common boiler room victims. Investor alert from the UK’s Financial Services Authority, includes first-person story by a boiler room victim

Boiler Room - the movie. Live the pain of being scammed without getting hurt by watching this cautionary tale.

Securities commissions across North America have been doing investor education for a long time. Until recently, it was regarded as a nice thing to do, but not a necessary thing to do.

In British Columbia, we have been ramping up our education work at an accelerating rate over the past decade. We see it as an important and integral part of regulation.

Today, with the credit crunch and resulting financial meltdown, investor education, and financial life skills training, have become a hot topic with policy wonks, educators, governments and the media. Now there is chorus of voices from around the world that are calling for more effective programs to help investors protect themselves by asking critical questions of their advisors and learning how to protect themselves from fraud.  As well, there is a call for programs to teach young people financial life skills so that they grow up more equipped to manage their money. 

I have been invited to talk about these issues as a panellist at the joint investor education conference of the International Forum for Investor Education (IFIE) and the International Organization of Securities Commissions (IOSCO) next week in Washington DC. I am on two panels—one about target marketing investor education programs (I am going to talk about our school program in BC which we have been marketing for five years) and the other is about moving investor education into the 21st century (I will talk about using social media together with traditional media in one integrated program.) 

If you have any thoughts, ideas or comments on these subjects, I would be delighted to hear them.  I will also be twittering my observations on the conference: @SPBowles
 

In January, The Wall Street Journal published an article Six Lessons for Investors by John C. Bogle. Even though the article is over a month old, the content is still timely-especially given the recent release of an annual poll by TD Waterhouse that shows Canadians are losing confidence in their investment savvy. The six lessons won’t magically bring back investor confidence, but it’s not a bad foundation to build on.

The six lessons for investors discussed in the article are:

1. Beware of market forecasts, even by experts
2. Never underrate the importance of asset allocation
3. Mutual funds with superior performance records often falter
4. Owning the market remains the strategy of choice
5. Look before you leap into alternative asset classes
6. Beware of financial innovation

Of  course, how these lessons apply to you will depend on your personal situation.
 

There are guidelines for making RRSP contributions and we all need to follow them to benefit fully from this time-honoured tax-deduction vehicle. But the one thing you don't need to know by the contribution deadline on March 2 is the final form of your investment. Don't let yourself feel pressured by the RRSP investment advertising that's in full swing this month. What you "do" is up to you. If you aren’t ready to decide what type of investment to make, you can still make your RRSP contribution and leave it in cash, in the form of a deposit or cash balance at a financial institution or registered securities firm. Then, when you’re ready, you can choose the type of investment that fits your investment strategy.

Canada  Revenue Agency sets your contribution limit for 2008 based on your 2007 and previous years’ returns. You can find how much unused contribution room you have on your 2007 Notice of Assessment, or through CRA’s Tax Information Phone Service. To see what your 2008 contribution will put back in your pocket this year, just plug your gross income, contribution amount, and the province where you live into Morningstar Canada’s RRSP calculator.

Well, we have a challenge for them that requires mental, not physical, work. Why not see if you can get your kids (15 - 21 years old) to take some time away from Facebook—with the carrot of a possible $750 scholarship—to test their financial life skills?

Students have to answer a set of multiple-choice questions using financial situations they might face as young adults. The website also offers worksheets and a resource guide for teachers and parents.

The Financial Fitness Challenge is sponsored by the Canadian Securities Administrators. 
Also available in French.
 

Have you read the December 17, 2008 report on product suitability by the Joint Standing Committee on retail investor issues? Three questions were put to participants:

1. What information about an investment does your advisor give you before and after you buy it? Is there any other information you would like?
2. Should specific investment products be prohibited from sale to the public, or should all products be available to investors and investors be allowed to make their own choice?
3. Should regulators focus on regulating specific products or on regulating how products are sold and distributed?

It’s a great idea to reach out to retail investors to get their feedback and I hope that more people participate in future consultations. It seems that the focus of the report is how can regulation help ensure that investors are presented with suitable investments.

There is no doubt that regulation is necessary to protect investors. However, as with other important social issues such as recycling and drunk driving, change requires both regulation and education. As investor education is my line of work, and the topic of this blog, I kept approaching the report from the context of how can education help investors decide if an investment is suitable.

Here’s a summary of the questions and ideas that came to me as I read the report:

Investment information Having the right information about an investment is key to ensuring it’s suitable for your needs. If you know what information you want, are you getting it? If not, why not? Can any of our existing investor education tools such as the worksheets in our Guide to investing  help you get the information?

Would interviews with advisors about their investment review processes and about how to best get answers to your questions help? How about step-by-step tutorials on due diligence, background checks, and how to read investment documents such as annual reports?

If you’re unsure what information you want, then where do you look for help? Does the information we provide on particular investments such as mutual funds or principal protected notes (PPNs) provide a good starting point for such products?

Back to basics, but in a different way Perhaps we need to delve deeper into the basic concept of suitability. Should we develop more material or tools to show you what suitability really means to you and how you can apply it? How about a program or application to help you better understand and apply the concepts of investment objectives and risk tolerance?

An investing step you can take now As regulation and education evolve to address investor’s needs, remember there is one action you can take right now to better protect yourself—Don’t buy an investment unless you truly understand how it works. Insist that your advisor provides you with investments you understand and that fit your investment profile.

Making time to invest right If you think you don’t have time to learn about investing or to review each investment opportunity, you might want to look at how you allocate your time. Dale summed it up nicely in his comment to Affinity at the heart of Madoff mayhem:

It amazes me that people can spend days pouring over a TV purchase, agonizing over every detail and grinding for a $100 savings, yet throw $20,000 - $30,000 into stocks or mutual funds on a quick phone call. 

Also, you can be sure that the time and energy you would have to spend on trying to make up for losses due to an unsuitable investment would be much more than the extra time you need to check it out before you invest.

Thoughts? Suggestions? Questions? Leave a comment.

Eyes around the world were on Washington, DC this week for the Barack Obama inauguration. The 44th president of the United States is a man whom America’s favourite billionaire Warren Buffett says is the “absolute right commander in chief” to guide his country through a financial crisis that Buffet defines as an “economic Pearl Harbour”.

Last year, Obama’s rallying cry—yes we can!—resounded on both sides of the border, calling people to believe in themselves, have hope for the future, and take responsibility by committing to small, doable steps. In his inaugural address this week, he recognized that the “greed and irresponsibility of some” had led to a weakened US economy, but he also pointed to “our collective failure” to make hard choices.

Even at the other end of the continent, I couldn’t help feeling part of that collective failure. Obama got me wondering: Had I really tried to understand the economic indicators as they gathered like storm clouds over 2008? Did I understand my own investments well enough to react appropriately as “market volatility” became a household phrase? How much time did I actually spend reading to increase my investment knowledge? And, honestly now—did I have the habit of making hard financial choices in order to secure a more comfortable retirement?

Maybe not. It's just possible that I didn't take full responsiblity for my investing activity or, as Dale commented on last week's post, Affinity at the heart of Madoff mayhem turn my brain on fully. Luckily, my retirement is still about a decade away, so there’s time to make up for last year’s losses. But next time an economic tsunami threatens, I intend to be better prepared. And to that end, I’m taking small steps now. Here are three at the top of the list. (We offer the links FYI, but the BCSC does not endorse the outside sites or content.)

1. Buy a book about investing (or take one from the library) and read it! Here’s a list of some Canadian titles worth checking out.

2. Find yourself a new blog that resonates with what you know and want to learn, and subscribe. The Canadian Capitalist blog has a list of Canadian financial blogs to get you started.

3. Read your monthly investment statement, make a list of questions, then call your advisor for an appointment to discuss your portfolio. The  InvestRight Guide to Investing  has a nifty Worksheet for monitoring your investments  with questions you can add to your own.

Have you figured out yet what the market turmoil has done to your investment / retirement goals? What steps are you taking in response?

Anthony’s Take the Madoff Test asked us whether we would have been strong enough or smart enough to recognize Madoff’s Ponzi  scheme for what it was, in the absence of really obvious red flags. But which is more surprising to you: that Madoff was able to dupe knowledgeable, high-profile investors, or that he took money from members of his own extended family?

It's a hard one to call. You’d think sophisticated investors would have the smarts and tools to look out for themselves. But then we all want to trust the family and close friends we count on to watch out for our best interests. Really, it's not so surprising that Madoff's family and trusted friends fell for his pyramid scheme but that the investment mogul had the nerve to offer it to them.

Turns out just about anyone can be a vitim of investment fraud, as the Canadian Securities Administrators discovered in their 2007 Investor Study: Understanding the Social Impact of Investment Fraud. 

This study found that of the million or so Canadians who had at some point in their lives been a victim of investment fraud, more than half were introduced to the fraud by a friend, neighbour, co-worker, or family member. There’s a name for this—affinity fraud—and it involves any group of people well known to each other through connections like religion, ethnicity, work or social bonds and, yes, family. The way Madoff worked his Jewish connections through prestigious clubs, businesses, charities, educational institutions, and investment firms in New York and Florida is classic affinity fraud. 

Think it could never happen to you? Have a look on the InvestRight YouTube channel at our 3-part video documentary about affinity fraud in religious congregations, Preying on Those Who Pray.

The key to affinity fraud seems to be that we lower our guard with people we trust. Even when we know the red flags of investment fraud, we tend to miss them or turn a blind eye when someone close to us waves them in our face. Sometimes the person close to us isn’t the scammer at all, but someone who is innocently promoting a scammer’s “opportunity” not knowing what it is. When you’re on the receiving end, it may seem rude to be suspicious and it can be awkward saying "no". But think what being scammed would do to the relationship.

How do you handle your guard with family and friends? Do you have a way of sniffing out bad stuff with them that’s different from how you protect yourself with people you know less well? Has a family member or close friend ever approached you with an investment opportunity? What happened then?

BTW:  It you ever do come across an investment opportunity that doesn’t seem quite right, report it to the BC Securities Commission online, or call 604-899-6854 or 1-800-373-6393 (toll-free across Canada). The BCSC and other regulators rely on reports to help identify suspicious and illegal market activity. Your report can help them go after scammers and keep other unsuspecting investors from becoming victims.

The author suggests that the best defence when investing for retirement is to take your day-to-day feelings about the market out of the picture altogether and provides these 5 steps to help you do that:

1. Keep your eye on the prize and remember retirement saving is about the goal not the journey.
2. Figure in risk(sort of)—when you want to retire is the main thing that should dictate your asset allocation, not your fear of loss. 
3. Make a statement by putting your goals and strategy in writing. (see One simple step can make your goals more attainable to learn how writing it down can make it more real).
4. Shut your eyes and arrange for automatic investment payments to limit the risk that you will make emotion-based investment decisions.
5. Consult a third party to help you remain clear and objective. The third party should be qualified to provide financial advice and have no interest in the investments you buy and sell.

How do you handle your market fears while investing for retirement?

You are probably hearing a lot about the Bernie Madoff ponzi scheme. Madoff, a very prominent person in the finance world, confessed to running one of the largest investment scams in history—$50 billion. For thirty years, Madoff paid returns to his existing investors with money he received from new ones. We don’t know yet whether Madoff even put the investors’ money into any real business or investment.

The Madoff test 

Sit down in a quiet place by yourself. Close the door if there is one. No one has to know you are taking the test. There is no need to share your answer with anyone. All I ask is that you be 100% honest with yourself.

Okay, now that you’re ready, here’s the test:

If you have the opportunity to invest in something that:

• your trusted friends tell you it has been paying returns of 10-17% per year and show you the statements to prove it
• highly paid financial advisors recommend to wealthy, socially elite clients  
• has been in business for a long time 
• is by invitation only 
• is run by a prominent Wall Street financier who is very professional, well spoken, and friendly with a clean record

Are you inclined to invest?    _____YES      _____NO

If you answered yes, then read on. If you answered no, then you can stop here and perhaps share some of your insights in a comment.

Traditional advice about how to avoid a Madoff scam 

What is unique about the Madoff case is that it wasn’t just small investors that were scammed. Highly paid “qualified advisors”, large non-profits, and wealthy clientele lost their money to Madoff - people with the money and connections to hire independent professionals such as lawyers and accountants to review investment opportunities.

The news is now flush with stories of how to avoid Madoff type investment scams. How to avoid Madoff Mayhem  , The Madoff red flags were there all along , The Madoff red flags, should we have known? , and 5 ways to avoid a Ponzi scheme: Madoff edition. The advice in these articles is the same as provided by most investor education advocates, including us. Do your due diligence, be aware of the red flags, ask the company and your advisor hard questions, and don’t invest in anything you don’t understand.

While some did follow these rules, many did not. Why didn’t they see the red flags and stop? Did they not learn about red flags? Almost everyone seems to know the most common one If it’s too good to be true, it probably is. In fact, it’s so well known that it’s become a cliché. Perhaps the current thinking on how to avoid scams relies too heavily on investors being rational when they are really driven by emotions and assumptions. A comment in the Business Week Story: How to Make a Madoff story summed it up nicely: When everyone else is on the train who wants to be left behind? No matter, there is nobody brave enough to ask where the train is really headed.

The missing first step to avoiding investment scams 

Maybe it is unrealistic to ask investors to be rational and unemotional from the get go. Maybe it’s too uncomfortable for investors to ask others tough questions right off the bat. Perhaps, we need a new first step to help us move from an emotional state towards a more rational mindset when investing.

I suggest the first step be self-examination to understand our real motivations for investing in a particular opportunity. In other words, be honest with yourself. For example, do you want to invest in this new hedge fund opportunity because:

• it says it’s safe and guaranteed?
   
• the wealthy are supposedly making money from it?
   
• you are afraid of being left behind while your friends and family make money from it?
   
• you don’t want to look ignorant by asking questions?
   
• you don’t have time to investigate it because you assume that someone else has?
   
• you want to make loads of cash, no questions asked?

If you answer yes to any of these questions, then beware. Such fears, assumptions and desires tell us nothing about the merits of an investment or if it even exits. Are we now ready for a more rational approach? If so, then take a look at our Guide to Investing and use the worksheets to help you ask the right questions.

This is just a rough outline for a different approach. How can investors change their behaviour to look at investing opportunities from a more rational perspective?

By the way, if you’re thinking – as long as I get out before the Ponzi scheme collapses I can make a profit - think again. In the Madoff case, investors who did cash out early may have to pay it back.
 

What were your goals this holiday season? Did you set yourself a gift budget? A calorie budget? An exercise schedule, or maybe a list of the people you really wanted to see before 2008 wraps up? If so, did you write it down?

Writing things down helps us remember, but it also seems to stiffen our resolve to stick with something even when we can’t see how it’s going to end. A study of Harvard students, ten years after graduation, showed that those who had specific goals made salaries three times greater than the salary of the average Harvard graduate. Those with written goals made ten times the average.

Imagine the same impact on your investment goals. The economic downturn we’re embroiled in now won’t last for ever. Things will turn around. While you’re waiting, why not get serious about where you want to be 5, 10, 15 years from today? Are you just starting out, or getting ready to retire? 

Whether you decide to set yourself SMART goals - goals that are Specific, Measureable, Achievable, Relevant, and Time-bound—or reach for the sky with the lesser known DUMB model - Dangerously Unattainable, Monstrously Big goals—start by stealing a bit of time for yourself this holiday week to look ahead, imagine what you want to achieve, and write it down. In another post, we’ll look at using those goals as the foundation for an investment plan.

What’s your experience setting investment goals? Has writing them down made any difference to the way you handle your investments decisions?

PS: Just a reminder that we provide links to other sites for information only and don’t endorse or recommend these sites.

December 22, 2008 

The British Columbia Securities Commission  is publishing an Investment Caution List  to warn investors about unregistered companies that have contacted B.C. residents to open brokerage accounts, or buy unqualified investments that may not comply with securities laws.

“The BCSC helps protect investors from unsuitable and potentially fraudulent investments through investor education and warnings,” said Brenda Leong, BCSC executive director. “Investors should always know who they are dealing with and research an investment, before they invest. We encourage investors to immediately report any suspicious investment activity to the BCSC.”

Investors need to be particularly careful when dealing with companies located in offshore jurisdictions. Investigating offshore companies can be complicated and can delay enforcement action. In addition, when money is sent offshore, recovery of investor funds is often difficult or impossible.

The Investment Caution List does not identify all unregistered activity or unqualified securities being promoted in the province. In compiling the Investment Caution List, the BCSC relies on information it receives from the public or other agencies.

Investors are also encouraged to visit www.InvestRight.org, the BCSC’s investor education website, before making an investment decision. The InvestRight website is a one-stop resource that provides a wide range of tools that helps investors develop critical thinking skills they need to protect themselves. If you have questions or problems with an investment or a financial advisor, please call 604-899-6854 or 1-800-373-6393.

Check out the InvestRight Blog and join the conversation about investor education.

A comment to our post Welcome to the InvestRight Blog! asked if we had information about websites that offer antivirus tools but, once there, actually offer investments using links to investment sites of dubious origin.  

I checked with our inquiries group. We haven’t received any other information about this type of promotion, but it made me think of the common traits this practice shares with investment scams. The most common one is using a person’s fears and desires to get them to bite: WARNING! You have a computer virus! Click here to fix it now for FREE! 

We have a Red Flags program to help investors spot the most common pitch lines used by con artists to exploit investors’ fears and desires. We developed them by researching both perpetrators and victims of investment fraud and reviewing fraud cases over the last few years. However, the comment to our first post made me wonder: Are there common investment scams that our research missed or are new investment scams becoming more prevalent? If so, what are those scams?  

So, my questions to you are: 

1. What do you think of our Red Flags program? Does it cover the most common investment scams? Is it helpful to you? 

2. What pitch lines for dubious investments are you coming across these days, online and offline? 

Remember the story about Jacques Demers, the Montreal Canadiens’ hockey coach who “came out” as an illiterate adult in 2005?  He had carefully organized his life so that other people took care of anything that involved the ability to read and write.

I was a bit like Mr. Demers, only in terms of financial life skills. For years, I made do with the most basic financial literacy and was content to delegate my finances to someone else.

Sure, I kept a budget. I eventually took the time to understand what a stock is, and a bond, and a mutual fund.  These days, I’m saving for retirement, and I meet with my financial advisor every year to evaluate my progress. I even have a financial plan (in my head). But it’s surprising how easy it is to skim the surface, not quite understanding what the advisor is saying, going along with  recommendations without asking basic questions—like, what’s this going to cost me in fees? and, is there something else that’s cheaper, or has less risk? 

It turns out I’m not alone. According to BCSC research published in October 2008 called The 21st Century Investor , Canadian investors know the basics—stocks, bonds, mutual funds—but their knowledge drops off sharply when the topic shifts to more complex products  like Exchange Traded Funds, known as ETFs.

It is also clear from the research that while Canadians often understand what they should be doing, their behaviour tells a different story.  For example, almost 90% of Canadians believe that having a financial plan is important, but over half (58%) don’t have one.  Most (92%) agreed on the importance of conducting independent research before investing.  But almost half did not personally research their most recent investment. 

So if you’re ready to start increasing your financial life skills by applying those skills to better manage your money, here are some basic resources to get you started.

2 from BC Securities Commission investor education 

• The City / La Zone The BCSC developed this online financial life skills program in partnership with the 
  Financial Consumer Agency of Canada (FCAC). It targets young adults, but just about anyone starting out should find it helpful, engaging, and easy to do.
• Guide to Investing: How to make informed investment decisions Part one of the InvestRight Guide to Investing shows how to make the most of your relationship with your financial advisor, complete with definitions, important questions to ask, and worksheets.

3 from the Canadian Securities Administrators  (CSA) 

• Investing Basics You know you should be more involved, but where to start? This guide can help.
• Investments at a Glance Learn about different kinds of investments and what to keep in mind when considering them.
• Understanding Mutual Funds A plain language primer on the investment type most Canadians hold either in their own portfolios or through their pension plans.  

Other stuff 

• InvestRight Scam Meter Wondering if the investment you’re considering is legitimate?
• RRSP calculator  Many banks and other finance sites have them. This one is offered by Morningstar Canada . Working out what you need to accumulate to retire can be sobering exercise.
• Investment Fraud Awareness Quiz  Test your fraud awareness IQ with this quiz from the 
  North American Securities Administrators Association .

How are your financial life skills? If you're already on your way, do you have any great sites or books to recommend? If you’re just starting out, how can we help?

Who we are
You might be wondering “what the heck is InvestRight?". InvestRight is the BC Securities Commission investor education program. Its purpose is to help investors protect themselves against investment scams and take steps to choose investments that are right for them. Our programs include live seminars, high school class resources, a website with online tools and information, and partnerships with community leaders.

We, Brenda Lea and Anthony, are the initial bloggers. We both work with the Commission's investor education team to help create programs for InvestRight and we are co-writing this welcome post right now.

Why a blogThe short answer:
To share experiences, ideas, programs, research findings, and feedback so that we can build programs and tools that best serve you in becoming an aware and capable investor.

The long answer:As our programs evolve, we continually ask ourselves these three basic questions:
1. Are we reaching investors?
2. Are we giving them what they need?
3. Are we helping them avoid scams and choose suitable investments?

In the early days, we travelled around BC meeting people face-to-face in seminars about how to spot and avoid scams. Typical for the times, we asked people to complete satisfaction surveys, where we usually found out that they were happy we’d come. What we didn’t learn was whether investors were getting what they really needed to become more aware and confident. Were we making a difference? If so, what kind of difference? Did they feel more capable? Less vulnerable? Did we actually help them avoid an investment scam?

So we launched research projects to find out more about investors—what they know and their experience with investment scams. We created InvestRight. Now we had a better grasp on the needs of Canadian investors, but we didn't know what worked best for individual investors. We still needed to understand what would help an investor become more aware and capable.

We think that the best way to answer this question is a ongoing dialogue with you—a conversation to share experiences and ideas with the goal of making better investor education tools. This is why we are blogging.

Posting, comments, and updates
To start off, we aim to post every Thursday. We hope that you will comment on the posts, download the tools, answer the polls, read the research, watch the podcasts, share it with family and friends, and give us feedback. We especially hope that you will help us understand who you are and what you’re looking for on the road to becoming a better investor.

We will review all comments before publishing and post those that don’t fall outside our comment policy. The reason for our comment policy is to ensure that the blog remains on topic and is a productive, open, safe, and respectful forum for discussion and sharing.

Subscribe to the InvestRight Blog to receive updates via email or an RSS reader. That way, you won’t have to keep checking back here for the new stuff. Then again, if you prefer checking in when you want, just bookmark the blog so we're easy to find.

Now, let’s talk about investing.

Vancouver - The British Columbia Securities Commission and the Alberta Securities Commission have reports about a scheme being offered at free, public seminars at which people are introduced to a way to participate in extraordinary investment returns with references to money moving offshore and Canadian tax avoidance - some of the Red Flags that regulators typically warn investors about.

Seminar attendees are told that they can join an organization for a fee that then allows them to learn about and access a system to become 'portfolio account managers' and restructure their assets through a variety of methods including opportunities in the precious metals industry, consumer debt or capital markets, environmental projects and international mutual funds.

According to reports, under this scheme a fee is paid and members are given a one-year probation period with the organization to restructure their own assets, refer other people into the organization, or introduce a new business opportunity to the group.

Reports say the seminar presenters are careful to stress that they are only selling memberships into their organization and not securities - admitting to audiences that they do not want to run afoul of regulators.

However, regulators are concerned because, according to reports, during the one-year probationary period, members are almost always required to purchase securities. People are told that they can move funds offshore with repeated references to tax avoidance. The regulators want people to be aware that they increase their risk when money is moved offshore because it usually makes efforts to reclaim their money more difficult, if not impossible, should their investments go awry.

The BCSC learned about Kelowna-area residents looking to withdraw money from their RRSP accounts and other retirement savings to invest in the scheme after a seminar was held at a hotel in Kelowna last summer.

Similarly, the ASC has reports indicating investors are being targeted in western Canada and the United States and a seminar is supposedly slated for this month in southern Alberta.  But to date, neither a time nor location for this seminar has been confirmed.

"The BCSC and the ASC hope this alert will encourage investors to stop and think twice before making what could be an unsuitable investment," says ASC Executive Director David Linder.

"We have concerns about this type of scheme because it displays many of the 'red flags' that we warn people about when investing their money," says BCSC Executive Director Brenda Leong.

While the BCSC and ASC are not in a position to reveal the names of those behind this scheme yet, the regulators strongly encourage investors to be cautious about schemes that bear these Red Flags:

• Promise of unreasonably high annual rates of return
• Investment set-up is difficult to understand
• Investors are encouraged to put all of their assets into the deal
• Money is moved offshore
• Numerous references to tax avoidance
• Secrecy - an insider (membership) opportunity

If the public has any information regarding the investment scheme described in this alert, they should report or forward this information to the BCSC immediately.

September 29, 2008 

The uncertainty in today's financial markets is on the minds of many investors who are worried about their savings. With international media outlets covering the political and economic situation in the United States on a minute-by-minute basis, you may also be anxious about your investments and financial future. 

No matter how you are feeling, acting on emotion or hype is a bad idea. It is important to make well-informed investment decisions in order to ensure you meet your long-term financial goals. Before you make an investment decision, you may want to talk to a financial adviser because sudden moves based on media stories or unsound advice can have devastating consequences on your savings.

It is also important to remember that fraud artists follow the news too. These people use current events to design no-risk, high-return investment pitches to separate you from your hard-earned savings. Remember, if an investment sounds too good to be true, you need to stop and evaluate the offer and investigate the person selling it to you. Also, keep an eye out for the five red flags to investment scams. They can help you spot a possible fraudulent investment scheme.

Don't let fear or worry pressure you into a unsuitable investment. Before investing, do your homework. Thoroughly evaluate each investment opportunity, and report suspicious investments to the British Columbia Securities Commission.

The North American Securities Administrators Association published a similar warning to American investors: NASAA Cautions Main Street Investors Against Making Uninformed, Sudden Decisions Amid Wall Street Crisis . Give it a read.

Stay informed. Pass this information along to family and friends. Help them avoid scams. Remember, investment fraud not only hurts individual victims, but also their family, friends, and communities.

The BCSC is the independent provincial government agency responsible for regulating trading in securities within the province. If you have questions or concerns about an investment or individual, contact the BCSC inquiries group by calling 604-899-6854 or 1-800-373-6393 (toll free in BC & Alberta). You can also send and e-mail to inquiries@bcsc.bc.ca.

August 3, 2008                                         
Vancouver - Investment fraud has a greater impact on a victim's health and trust of others than she may realize according to friends and families interviewed in nation-wide research conducted by Canada's securities regulators. 

The British Columbia Securities Commission (BCSC) took a further look at Canadian Securities Administrators (CSA) research conducted in 2006 and 2007 and found that fraud victims do not agree with their friends and family when it comes to rating the magnitude a fraud has on a person's health, social life and trust of others.

Both victims and those close to them said that investment fraud had reduced their trust in others and created higher stress levels in their lives. However, 81 per cent of friends and family of fraud victims said the person affected by the fraud was less willing to trust others, compared to 68 per cent reported by the victims. This was also the case when it came to stress levels, with 68 per cent of friends and family saying victims had higher stress levels, and only 36 per cent of victims reporting a rise in stress. 

"Victims of fraud certainly feel the impact of fraud but it's their family and friends who really see just how seriously it has affected the victim," says Patricia Bowles, BCSC director, communications and education. "What's more, the research reveals that in some cases victims withdraw from their friends, family and the broader community."

The CSA commissioned Innovative Research Group Inc., a national public opinion research firm, to conduct the 2007 CSA Investor Study: Understanding the Social Impact of Investment Fraud and the 2006 CSA Investor Index. 

The research is based on two national online surveys of more than 5,000 Canadians, 18 years of age or older, in both 2006 and 2007. The margin-of-error for each survey (5,568 and 5,868 interviews respectively) is considered accurate within ±1.3 per cent, 19 times out of 20.

InvestRight is the BCSC's one-stop resource for investors to educate themselves on how to make informed investment decisions. Its comprehensive website at investright.org provides a wide range of tools to help investors develop critical thinking skills they need to protect themselves. If you have questions or problems with an investment or a financial adviser, please call 604-899-6854 or 1-800-373-6393 (toll-free in BC & Alberta).

The BCSC is the independent provincial government agency responsible for regulating trading in securities within the province. If you have questions, contact Ken Gracey, media relations, 604-899-6577.

June 13, 2008

Men who are over-confident about their investing knowledge run the risk of falling victim to an investment fraud, according to recent data collected by Canadian securities regulators and research into a multi-million dollar investment scheme.

The British Columbia Securities Commission (BCSC) took a further look at research conducted by the Canadian Securities Administrators (CSA) in 2006 and 2007 and found that men are far more confident than women when it comes to making investment decisions (scoring  a net investment confidence rating of plus-36 per cent compared to minus-14 per cent for women). 

The fact that men - particularly affluent, middle-aged men - are confident investors reaffirms findings from the 2005 Eron Mortgage Study, an analysis of an investment fraud that raised over $240-million from investors. The Eron study found that middle-aged, affluent men are prone to taking economic risks, making them a group that is susceptible to investment fraud. Furthermore, the CSA research found that men are more likely than women to believe investing is a gamble and that it is okay to bend the rules.

"It is important to be confident when investing, but over-confidence may get you into trouble," says Patricia Bowles, BCSC director, communications and education. "Those who described themselves as highly knowledgeable investors - often cocky, affluent men in their 50s - were hit hard by the Eron scheme. These people lost more than twice as much as the other Eron investors."

The 2007 CSA study also found that 46 per cent of men reported someone approached them with a fraudulent investment, compared with 36 per cent of women. Of those approached, 15 per cent of men were defrauded compared to 10 per cent of women. In fact, men who have fallen victim to an investment scam are more likely to have been defrauded more than once - 32 per cent compared to 20 per cent for women.

Although men may be more at risk of falling victim to a fraud than women, the CSA research shows that men tend to be more familiar than women with their most recent investment and the risk associated with it. Men are also more likely to conduct independent research and are less likely to invest "as soon as they heard" about an investment opportunity.

"It is good to see men exhibiting the knowledge and habits that lead to making sound investment decisions," says Bowles. "However, everyone needs to understand that bending the rules and taking chances on something that sounds 'too good to be true' may cost them more than just money."

In the 2007 CSA study, victims of investment fraud reported negative impacts to their health, their personal relationships, and their trust in others.

The CSA commissioned Innovative Research Group Inc., a national public opinion research firm, to conduct the 2007 CSA Investor Study: Understanding the Social Impact of Investment Fraud and the 2006 CSA Investor Index. 

The research is based on two national online surveys of more than 5,000 Canadians, 18 years of age or older, in both 2006 and 2007. The margin-of-error for each survey (5,568 and 5,868 interviews respectively) is considered accurate within ±1.3 per cent, 19 times out of 20.

InvestRight is the BCSC's one-stop resource for investors to educate themselves on how to make informed investment decisions. Its comprehensive website at www.InvestRight.org provides a wide range of tools to help investors develop critical thinking skills they need to protect themselves. If you have questions or problems with an investment or a financial adviser, please call 604-899-6854 or
1-800-373-6393 (toll-free in BC & Alberta).

The BCSC is the independent provincial government agency responsible for regulating trading in securities within the province. If you have questions, contact Ken Gracey, media relations, 604-899-6577.
 

June 5, 2008

What is a private company investment?

If you invest in a business, including private companies and limited partnerships, which depends on others to make it successful, you are purchasing a security - commonly referred to as a share or stock.

Securities of private companies do not trade on a regulated stock exchange or quotation service. Investing in a friend or family member's business is one example of an investment in a private business.

What should I know about investing in private companies?

1. Private companies sell securities without filing a prospectus - A prospectus  provides investors with key information about an investment. Without one, it is more difficult for an investor to determine the investment and business risks.
2. Private companies provide less disclosure to investors - Investing in private companies will not give you access to the same level of continuous disclosure (such as financial statements, press releases or material change reports) as you would get if you invested in public companies trading on a regulated stock exchange.
3. Private companies can sell their shares directly to investors - This means you will not get the investment advice that you would get if you purchased the securities from a registered full-service dealer or adviser.
4. Reselling the securities of a private company is difficult - There are resale restrictions attached to private company securities. You may not be able to cash out your investment when you want or need the money. 

Understanding the investment and business risks before you invest is key to making an informed investment decision.

Private companies sell securities without filing a prospectus

Private companies selling securities generally do not have to file a prospectus with securities regulators (the British Columbia Securities Commission (BCSC) is the province's regulator).

A prospectus is a document that a company files with the BCSC before it can sell securities to the public and trade on a stock exchange. It provides investors with material facts and financial information about the investment opportunity and its underlying business.

The BCSC administers the Securities Act . Under the Act, companies or businesses offering securities to B.C. residents must provide a prospectus to the purchaser or rely on an exemption. There are a number of exemptions from filing a prospectus. Companies must meet all the conditions of an exemption  to rely on it.

Some private companies, referred to by securities regulators as non-reporting issuers, offer their securities under an offering memorandum (OM) . An OM must adhere to certain disclosure requirements, and the company must file it with the BCSC. An OM does not give investors the same level of disclosure as a prospectus, and BCSC staff does not review an OM before a company can use it to sell securities. Before investing, you may want to have a qualified adviser - a lawyer, an accountant or someone registered under the Act review the OM. 

Private companies provide less disclosure to investors

Before you purchase shares in a private company, be aware that:

• You may not have the same legal rights (such as the right to sue for misrepresentation) as a purchaser that you do under a prospectus
• Your shareholder rights and remedies are contained in the Business Corporation Act. 
• You may not get any mandated disclosure
• You may not get any meaningful ongoing disclosure to monitor your investment
• An OM does not provide the same level of information as a prospectus

Private companies selling securities under an exemption are not required to provide investors with the same level of continuous disclosure as public companies trading on a regulated stock exchange.

Get information about the investment in writing. Read the documentation, understand the risks and do your due diligence before you invest. It is illegal for anyone to tell you a company's securities will increase in value.

In addition, be careful of people who say you will get your money back. Unless it is part of the written terms of the security or you can prove you have a verbal contract, there is no obligation for anyone to refund or repurchase your investment.

Private companies can sell their shares directly to investors

Many private companies raise money by selling their shares directly to investors.  Private companies selling directly to investors are not required to use an underwriter to investigate the company and its management. Registered underwriters conduct detailed investigations into the company's operations, financial position and background of management.

Potential investors should be aware that any person offering an investment in a private company must rely on an exemption from the Act, or they must be registered under the Act. Unregistered salespeople can provide you with information about an investment opportunity, but it is illegal for them to recommend the investment.

Registered salespersons have an obligation to ensure the investment is suitable for you, it meets your investment objectives, and it meets your risk profile.   

Reselling the securities of a private company is difficult

If a company uses a prospectus to sell securities and obtains a listing on a stock exchange, the purchaser will immediately be able to resell the securities. Private companies sell securities under an exemption. These securities are not listed on stock exchanges, and are subject to significant to resale restrictions. It will very be difficult to resell securities of a private company.

Take these steps before investing in a private company:

• Read the InvestRight Guide to Investing, chapter five, Investing in Private Companies and fill in the Worksheet for making a private company investments
• Investigate the people selling the investment and the directors and officers of the company. Read our section on How to conduct a background check.
• Conduct an Internet search for background and company information - a simple Google search may turn up important information that will help you with your decision.
• Obtain as much information as you can on the investment and the company selling it. Ask for financial statements or if there is an OM. Visit the company's website, and look for media coverage about the company or its management team.
• Make sure you understand the investment and business risks.
• Speak to the company, your legal counsel or your financial adviser about the restrictions on resale before you buy, and ask what kind of information the company will provide you in the future.

More information about how to choose a financial adviser is available at www.InvestRight.org.

Learn to recognize the Red Flags of an investment scam, such as:

• Guaranteed high returns - no risk! There is no such thing. The higher the potential returns, the higher the risks.
• Insider tips - get in now! Scam artists use this tactic to pressure you into making a quick decision.
• Offshore tax-free investment! If your money is going offshore, it will be more difficult to get in back.
• Profit like the experts! Beware of exclusive opportunities that are only available to the rich.
• Great investment opportunity - your friends and family can't be wrong! This scam preys on your trust of family, friends or community leaders.

If you have doubts, do not invest. If you feel pressured or are suspicious about an investment, stay away from it and report it.

You can report a potential scam by calling our inquiries group at the numbers listed below.You can also use the InvestRight website to report a scam anonymously.

If you have questions, contact the BCSC inquiries group:

Telephone: 604-899-6854 or 1-800-373-6393 (toll free in B.C. & Alberta)
E-mail: inquiries@bcsc.bc.ca
Hours: 8:00 a.m. to 4:30 p.m., Monday to Friday.

The BCSC is the independent provincial government agency responsible for regulating trading in securities within the province. The BCSC sets the rules for securities trading in B.C., makes sure people comply with those rules, and takes enforcement action when necessary. The BCSC also educates investors to help them protect themselves from investment fraud and unsuitable investments.

April 24, 2008 

To get ready to retire it is important to think about how you will finance your retirement life. Knowing how much income you can expect once you retire is an essential part to any retirement plan.

One common source of retirement income is a pension plan.  A pension plan is an arrangement between you and your employer or union to help provide you with income during your retirement years. Two common types of pensions are Defined Benefit Plans, Defined Contribution Plans. In addition, many employers offer Group RRSPs retirement plans. If you are unsure which plan you have, simply ask your employer to tell you.

Defined Benefit Plans

A defined benefit plan is one where your employer or plan provider guarantees that you will receive a specific amount of retirement income. The amount is often based on three factors:  how long you are employed, your income, and often the best five years of your employment history. A pre-determined ratio predicts how much of your salary you will get as a pension.

Because it is a fixed amount of income, defined benefit plans make it easier for you to plan for retirement. Typically, only big companies and governments still offer defined benefit plans. One possible reason is that such plans place the responsibility on the employer to ensure its employees receive the fixed amount of retirement income. You should be aware that as a result more and more companies, big and small, are shifting that responsibility to the employee.
 
Even if you are fortunate enough to have a defined benefit plan, you still need to ask some questions. How is your plan protected if your employer goes out of business? It is possible that over time the pension fund can become under-funded and require an injection of money to make it viable. Where will this money come from?  Do the payments under your plan remain at a certain level or rise with the cost of living? Does your plan affect payments from the Canadian Pension Plan? The answers to these questions can change your income projections for retirement.

Defined Contribution Plans

A defined contribution plan is one where your employer or plan provider guarantees to contribute a specific amount to your retirement plan. For employers, these plans have fewer liabilities for them, are easy to administer, and cost less than defined benefit plans. Under the defined contribution plan, the actual amount of retirement income you will receive is somewhat unknown. The income depends on how much money you and your employer put into the plan and how well it is invested. Often employees choose their own investments, which mean they bear the market risk.  Generally, employees who leave the company can take their portion as well as the employer portion with them if they have a certain number of years with the company, usually 2 to 5 years.

Group RRSPs

Although group RRSPs are not pension plans, they are the most popular form of retirement benefit offered by employers.  It is no different than contributing to a personal RRSP except it is done through your pay cheque, creating in effect, forced savings. For an employer, group RRSPs are the easiest plan to put in place and offer a lot of flexibility to employer and employee.

With defined contribution plans and group RRSPs, calculating your retirement income is a little trickier than with a defined benefit plan. You need to take more responsibility to make certain that you have the right advisor and investments in place to ensure you receive adequate retirement income. To do this, here are three basic steps to get you started:

1. Know your yourself - understand your risk tolerance and set proper investment goals.
2. Work with an advisor - choose an advisor wisely to ensure they can help you achieve your investment goals.
3. Know your investments - understand the basic types of investments and the risks and benefits of each one before you make a purchase to ensure they match your investment profile and goals.

Make sure you thoroughly understand the type of pension you have so that you can accurately predict your retirement income and safely plan for your retirement years. Pass this information along to family and friends. Help them be prepared for retirement and gain peace of mind.

The BCSC is the independent provincial government agency responsible for regulating trading in securities within the province. If you have questions, contact our inquiries line at 604-899-6854 or 1-800-373-6393.
 

March 5, 2008

Vancouver - The British Columbia Securities Commission and the Manitoba Securities Commission are investigating an investment that offers people an unusually high annual return - 87.5 per cent - and commissions for bringing in new investors.

The regulators have reports that residents of British Columbia and Manitoba (as well as elsewhere in Canada) have been approached to invest in a 'family and friends private placement program' in which Gold-Quest International, an offshore company, would trade in foreign exchange markets (forex) on their behalf.

In addition, persons purporting to represent Gold-Quest have told investors they can also earn money by referring new investors to the program. They are offered an immediate commission of 10 per cent of the amount a referred person invests and an ongoing monthly commission of four per cent for 12 months. These promoters are not licenced or registered to sell securities in either British Columbia or Manitoba.

Investors send their money - reportedly as low as $500 US - to California banks and receive information and documents back from Nevada-based operations. Investments can be made through online payment systems. Typically, promoters of the investment recruit investors through newspaper advertisements, word-of-mouth and special meetings.

Concerned investors or members of the public who have been approached or have information about this investment are urged to contact the BCSC or MSC, or their local securities regulator. The BCSC and MSC are actively investigating this matter.

The BCSC and MSC strongly encourage investors to be cautious about any investment that bears the following Red Flags:

• Unreasonable or guaranteed high annual returns (with little or no risk)
• Insider tip/membership opportunity or secrecy (usually with an urgency to act quickly)
• Money is moved offshore (references to tax avoidance)
• Profit like the 'experts'
• Great investment opportunity ('your friends can't be wrong')

B.C. investors can report a suspicious investment or inquire about any investment or a financial adviser, by contacting the BCSC at 604-899-6854 or 1-800-373-6393 (toll-free in BC & Alberta). Manitoba investors can contact the MSC at 204-945-2548 or toll-free at 1-800-655-5244 about any suspicious investment opportunity to find out what they can do.

The B.C. Securities Commission is the independent provincial government agency responsible for regulating trading in securities within the province.

The Manitoba Securities Commission is an independent agency of the Government of Manitoba that protects investors and promotes fair and efficient capital markets throughout the province.

Media contacts: 

Ken Gracey
British Columbia Securities Commission
604-899-6577

Ainsley Cunningham
Manitoba Securities Commission
204-945-4733
 

February 19, 2008 

The news is overflowing with stories about how volatile the markets are these days and that investors will earn less as a result. Fraud artists are always out there. But in times like these, people may be more susceptible to fraudulent promises like 'guaranteed high returns at no risk'. These sales pitches are created to appeal to an investor's fear of volatile markets and the desire to make quick high returns without any risk. There are no such investments. Remember, if it sounds too good to be true, it probably is. So keep an eye out for the Red Flags to investment scams.  Do not let your fears pressure you into a new investment. Before you invest, do your homework. Thoroughly evaluate each investment opportunity. Make sure it is legitimate. Avoid scams.

These are similar alerts published by other securities regulators:

• NASAA - State Securities Regulators Remind Investors That Scams Often Hide Behind the Headlines 
   
• Nova Scotia Securities Commission - Dealing with volatile markets  

Give them a read. Be informed. Pass the information along to family and friends. Help them avoid scams. Remember, scams not only hurt the individual victims, but also their family, friends, and communities.
 

The BCSC is the independent provincial government agency responsible for regulating trading in securities within the province. If you have questions, contact Ken Gracey, Media Relations, 604-899-6577.

February 14, 2008

The reasons for this crisis are varied and complex, posing a critical challenge for governments, businesses, and investors.  The crisis originated in the US over subprime loans or mortgages that began in the fall of 2006 and became a global financial crisis during 2007 and 2008. These loans are risky for creditors because borrowers have been defaulting on loan payments at historic rates and with falling property values, some loans may exceed the market price of the assets lenders have access to.

The subprime mortgage resale business was created when the lenders figured out they could bundle higher-risk mortgages together and spread the risk to different buyers, some taking a higher-risk equity position while others taking lower returns for a safer investment.

Canada

In Canada, we have not had the same problem with subprime mortgages because lending practices were stricter in Canada and housing prices have not declined.  However, because of the widespread dispersion of credit risk through collateralized debt obligations and asset-backed commercial paper, it has had a large, negative impact on some Canadian banks and financial institutions.

How does it affect you?

Tight credit conditions have implications for investors in the stock market, who are facing greater uncertainty, greater volatility, and lower earnings than in the recent past. Mortgage lenders and home builders have been hit very hard, but so have other companies such as metals and mining companies.

Non-bank asset-backed commercial paper could be held as part of your investments if you have a pension fund or own a mutual fund. Here is some research you should do to understand your personal exposure:

1. Check to see if your pension fund invested in ABCP by contacting your plan administrator. (Pensions run through BC Investment Management Corp. have no ABCP exposure.)
    
2. Check to see if any bank stocks or mutual funds you hold have ABCP exposure. This information will be disclosed in quarterly financial statements.

Get some advice from a financial advisor before you decide to make changes to your investments based on the current uncertainty in financial markets.  

The BCSC is the independent provincial government agency responsible for regulating trading in securities within the province. If you have questions, contact Ken Gracey, Media Relations, 604-899-6577.
 

January 31, 2008

Vancouver - The British Columbia Securities Commission is warning the public to look out for possible affinity frauds when using social networking websites that facilitate or advertise meetings related to investment products and seminars. 

Websites, like Meetup.com and Craigslist.org, allow people to create groups around investing strategies or advertise seminars for new investment products.

"We are concerned scam artists are using social networking websites to lure people to meetings that may promote fraudulent or unsuitable investment products," says BCSC Executive Director Brenda Leong. "Investors need to do their own research before making an investment and should not simply rely on 'expert' advice given at a seminar or meeting."

Social networking websites create an environment ripe for affinity fraud. Fraudsters can take advantage of the fact people can share information with both their real and "virtual" friends by posting it to their profile, joining a group or simply forwarding the information to others with their approval. Communication tools provided by some social networking websites make it easy to advertise and promote investment scams to a wide audience for free.

"People need to be cautious when acting on or passing investment information to others. Victims of affinity frauds are often family, friends or community members who tell each other about the fictitious investment scheme," says Leong. "Fraudsters can exploit social networking websites to reach people's contacts that may include past friends, associates or even people they've met randomly over time, and create a larger network of potential victims."

Fraudulent investment schemes usually exhibit one or more of the following red flags:

• Promise of high returns
• Great investment opportunity - your friends can't be wrong
• Secrecy - an insider opportunity
• Tax-free investment or use of a structure to evade taxes
• Lack of receipts or documentation about the investment

Leong is warning investors approached about an investment with these characteristics to make sure they do their research before investing. Part of this research is to examine thoroughly the backgrounds of the principals behind the investment deal or the seminar. 

"Investors should be checking to see whether the people selling or promoting the investment are registered to sell securities. Do they have a regulatory history, or have they ever run into financial troubles such as bankruptcy? Also, investors should visit the offices of the business to ensure they are operational and not simply a mailbox," Leong says.

For resources on how to conduct background checks or what to watch out for to prevent falling victim to investment fraud or making an unsuitable investment, visit the BCSC's InvestRight.org website.

"Our research tells us few people are reporting investment fraud to the proper authorities," says Leong. "The BCSC is urging people to report suspicious activity. This information can help us act more quickly to disrupt and stop the activity, and prevent investors from being victimized." 

People are encouraged to report suspicious investment activities, problems with investment or concerns about an adviser to the BCSC's inquiries line at 604-899-6854 or 1-800-373-6393 (toll-free in BC & Alberta).

InvestRight is the BCSC's one-stop resource for investors to educate themselves on how to make informed investment decisions. Its comprehensive website at www.InvestRight.org provides a wide range of tools to help investors develop critical thinking skills they need to protect themselves - information such as how to do background checks, investment products, a scam meter and video clips from victims of investment fraud. The BCSC's RED-FLAGS communications campaign alerts investors to common sales pitches used by scam artists along with a province wide seminar program.

The BCSC is the independent provincial government agency responsible for regulating trading in securities within the province. If you have questions, contact Ken Gracey, Media Relations, 604-899-6577.

May 18, 2007

Vancouver - People with inboxes crammed with unsolicited emails touting penny stocks can now help the British Columbia Securities Commission in its fight against spam by forwarding the unwelcome emails.

The BCSC issued today an investor alert about an over-the-counter quoted company as part of a new program that features halting the trading of securities of companies that are the subject of a stock spam campaign.

BCSC staff has temporarily halted trading of the securities of Compliance Systems Corp. (COPI.OB), a company with shares quoted on the US Over-the-Counter-Bulletin Board. The order bars any trading of the company's shares in BC for three business days.

This new initiative - 'SpamWatch' - alerts investors about and helps prevent the trading in BC of company shares that are the subject of stock spam campaigns.

"With the huge amount of spam circulating that can cause improper or unfair trading, we are stepping up our public warnings by issuing alerts and taking immediate action with temporary halts," says BCSC Executive Director Brenda Leong.

Unsolicited emails or spam can cause unfair trading in securities that can be harmful to investors and can tarnish the reputation of BC's capital markets. By halting trading early in the spam campaign, BCSC staff hope to prevent BC investors from being victimized.

The BCSC is focusing on companies that do not have to disclose financial information to Canadian regulators and are not listed on a Canadian exchange. This is because spam campaigners usually target issuers with securities quoted on the US OTCBB or Pink Sheets.

As part of SpamWatch, BCSC staff are tracking and monitoring stock spam and have dedicated an email address - stockspam@investright.org - for the public to forward unsolicited emails touting stocks.

Not only are investors encouraged to forward stock spam to the BCSC, they can also go to the InvestRight.org website to see a list of companies that have been the subject of spam campaigns along with the companies whose shares the BCSC has halted.

"This list gives investors another reference tool for doing their due diligence when deciding whether to invest," Leong says.

InvestRight is the British Columbia Securities Commission's one-stop resource for investors to educate themselves on how to make informed investment decisions. Its comprehensive website at www.InvestRight.org provides a wide range of tools to help investors develop critical thinking skills they need to protect themselves - information such as how to do background checks, investment products, a scam meter and video clips from victims of investment fraud.

The BCSC is the independent provincial government agency responsible for regulating trading in securities within the province. If you have questions, contact Andrew Poon, Media Relations, 604-899-6880.

FOREX stands for Foreign Exchange. The forex market, also referred to as the currency or FX market, is basically the changing of one currency for another by simultaneously buying one and selling another. Your profits and losses depend on the fluctuations in the exchange rate between the two currencies. 

What should I know about forex?

Before you invest in the forex market be aware that:

1. The forex market is complex and volatile. It takes expert knowledge to track and understand the many variables that affect currency exchange rates. Without this knowledge you are likely to lose your money.
2. There are forex scams. The promise of high returns with low risk in the FOREX market is a red flag that the opportunity may be a scam.
3. Trading on borrowed money can increase your losses. The more money you borrow to invest in the FOREX market, the higher the risk of losing your investment and possibly more.

Understanding these facts can help you identify some of the risks of investing in the FOREX market. Knowing the risks of an investment before you buy is key to making an informed investment decision.

 Learn more about investing in forex 

December 7, 2006

What is spam email?

Spam is unsolicited email that usually advertises a product, service, business, scheme, or strategy. It is typically sent to large numbers of email addresses at a time, by people paid to promote a scheme. A growing proportion of spam email is related to stocks, where someone who doesn’t know you tries to get you to buy stock in a certain company.

What should I be concerned about?

Be wary of unsolicited emails that promote specific investments. Many of these emails promote microcap companies, smaller companies that often have limited assets. Microcap stocks often trade on over-the-counter (OTC) markets that have fewer regulations than the major stock exchanges. These OTC markets include the United States OTC Bulletin Board (OTCBB) and the Pink Sheets.

The OTCBB is a US. electronic quotation system that displays real-time quotes, sale prices and trading information for stocks. Companies listed on the OTCBB must file financial reports with the United States Securities and Exchange Commission (SEC), but do not have to meet the listing requirements of the major exchanges. The Pink Sheets are listings of price quotes for companies that trade in the OTC market. The Pink Sheets are not regulated by Canadian securities regulators or the SEC.

While all investments have some risk, microcap stocks are considered high risk because many of these companies are new and have few assets or business operations. In addition, there is little public information available about them. By contrast, larger public companies that trade on recognized exchanges like the Toronto Stock Exchange (TSX) must meet minimum listing requirements. They must also file financial statements and other reports with securities regulators, which any investor can get for free on such websites as www.sedar.com .

When should I investigate further?

The Canadian Securities Administrators (CSA) urge investors to protect themselves by researching all investment opportunities before investing. Investors should be particularly careful of spam email touting microcap investments, as by their nature these can be very risky investments. While no investment is without risk, up-front research may reduce the risk of investors falling victim to a scam or committing to an unsuitable investment opportunity.

What should I watch out for? 

• Unsolicited recommendations. You do not know the motives of the person sending the email, and they do not know you, your financial objectives or risk tolerance. They are not in a position to give you investment advice.
   
• Wordy disclaimers and liberal use of jargon. Some spam emails have lengthy disclaimers that are at odds with other information in the e-mail. If you read the fine print, you may find that the people sending you the email are being paid to promote the investment. They also may benefit from an increase in the value of the stock they’re encouraging you to buy. They may also use sophisticated scientific or financial jargon to convince you that the people behind the opportunity are professional, knowledgeable and experienced. Don’t take it at face value.
   
• High-pressure sales tactics. Spammers urge you to act with statements like "this one is ready to explode!" and “We have a runner – opportunities like this don’t knock on the door every day.” If they are trying to manipulate the market for the stock, it’s in their interest to get you to act fast.

What should I do if I receive spam? 

• Don’t reply. Even if you just reply to ask the sender to remove you from their mailing list, that tells them that they have a legitimate e-mail address and you may get more spam.
   
• Delete the e-mail. Block further email from that sender. Some web-based email systems also allow you to report the email as 'junk' email. This helps to increase the effectiveness of junk mail filters, and can reduce the amount of spam you receive in the future.

Where should I go for more information?

If you have a question or concern about an email that promotes an investment opportunity, contact the BC Securities Commission or your provincial or territorial securities regulator.

November 21, 2006

Vancouver - The British Columbia Securities Commission is warning people to be on the lookout for a suspicious investment scheme expanding throughout Greater Vancouver that promises investors extraordinary returns and commissions for bringing in new investors.

BCSC staff have received reports that people are being recruited by friends or acquaintances to attend exclusive meetings at which they are pitched a high-return investment requiring potential investors to sign non-disclosure agreements.

"We are concerned that this may be a Ponzi scheme - a scam that pays out current investors with money from new investors," says BCSC Executive Director Brenda Leong. "If it is, then it is only a matter of time before this scheme falls apart with investors losing their money."

While BCSC staff cannot reveal names or specifics yet, says Leong, they have learned that people can only invest with cash, money orders, or bank drafts.

"This cash-only investment criteria is a tell-tale sign that this could be a scam because typically this is used to avoid any incriminating documentation or provide a paper trail," says Leong.

Leong says that the scheme exhibits many of the red flags that signal the investment is too good to be true:

• Promise of high returns
• Great investment opportunity - your friends can't be wrong
• Secrecy - an insider opportunity
• Tax-free investment or use of a structure to evade taxes
• Lack of receipts or documentation about the investment

Leong is warning investors approached about an investment with these characteristics to make sure they do their research before investing. Part of this research is to examine thoroughly the backgrounds of the principals behind the investment deal. 

"Investors should be checking to see whether the people selling the investment are registered to sell securities. Do they have a regulatory history, or have they ever run into financial troubles such as bankruptcy? Also, investors should visit the offices of the business to ensure they are operational and not simply a mailbox," Leong says.

For resources on how to conduct background checks or what to watch out for to prevent falling victim to investment fraud or making an unsuitable investment, visit the BCSC's new InvestRight.org website.

"This is the second InvestRight Investor Alert we have issued since announcing in October that we would be stepping up our efforts to intervene as quickly as possible to disrupt, stop and or prevent fraud from happening in BC communities," Leong says.

"These alerts will help us to raise public awareness about suspicious investment activity. We are urging more people to report these activities to us earlier."

November 6, 2006

Vancouver - British Columbians should be careful if they are approached about investing in nations with rapid economic development such as India, warns the province's securities regulator.

"We are warning people to be wary about being solicited to invest in real estate or infrastructure projects in India with promises of substantial returns," says Brenda Leong, BC Securities Commission executive director. "This is the first InvestRight RED ALERT that we are issuing as part of our efforts to disrupt, stop and or prevent fraud from happening in BC communities."

While BCSC staff cannot reveal names or specifics yet, says Leong, they have seen suspicious investment ploys in which small companies solicit money from Indo-Canadian investors, primarily in the Lower Mainland. Investors are told that India is undergoing rapid economic development and requires massive capital investment over the coming few decades. They are told that some of this investment will come from outside of the country, through Foreign Direct Investment (often abbreviated as FDI). Investors are also told that the Indian government is especially encouraging investments from persons of Indian ancestry living abroad. Typically, investors learn about the investment through friends or business associates.

Leong says people should be careful if they are approached to invest in foreign countries. To protect themselves, investors should:

• Ask questions, do their own research, and make sure they understand the investment they are considering and the risks involved
• Ask for financial statements and check on the veracity of this information
• Make sure they understand clearly how the money is being spent on a project
• Not rely solely on newsletters or company materials for information about a project or status of investments
• Check out the background of the people selling the investment and assess their claims about business connections and their experience in doing business with the foreign country
• Check into a company's claims about leading large real estate or infrastructure projects overseas - especially if the claim is being made by an outfit that seems too small to lead such large ventures

Consider it a Red Flag if those selling the investment promise that the investor can save or escape Canadian taxes, or that the opportunity is a secret deal that investors should keep to themselves. For resources on how to conduct background checks or what to watch out for to prevent falling victim to investment fraud or making an unsuitable investment, visit the BCSC's InvestRight.org website.

In early October, the BCSC announced plans to give people early alert or warning about activity that bear the hallmarks of a fraud.

"Too often when people finally complain or report a scam to us, it is too late for them to get their money back," says Leong. "These InvestRight Investor Alerts will help us to raise public awareness about suspicious activity. We also hope that more people will step forward and report these types of activities to us earlier."

October 17, 2006  

What type of advertisements should I be concerned about?    

Of main concern are paid advertisements placed by those who may not be properly registered to trade in securities. As well, certain ads may provide misleading information to the public regarding potential investments.  These may appear across various types of media, including newspapers, magazines, television, radio, newsletters and the Internet.  

In many cases, investments described in the advertisements may look or sound authentic, but unless investors verify this first with an objective source such as their provincial or territorial securities regulator, they could risk committing their money to a misleading or illegitimate opportunity. Once money changes hands, it’s often difficult or impossible for investors to get their money back.  

When should I investigate further?    

Regardless of the source, the CSA are urging investors to protect themselves by researching any and all investment opportunities before investing. While no investment is without risk, investors can research opportunities to lessen the risk of falling victim to a scam.Investors shouldn’t assume an opportunity is authentic based on where it appears or how it is presented.  

What should I watch out for? 

Promises of high-return, low-risk investment opportunities.Ads may promote quick and above-average growth and  “guaranteed security”. Refer to current bank rates. Above-average growth involving little risk on your part should ALWAYS be questioned.   

• Liberal use of financial jargon.  Sometimes, ads use sophisticated language to convince investors that the people behind the opportunity are professional, knowledgeable and experienced. Anyone can use financial lingo to sound convincing, so don’t take it at face value. 

• Free seminars and workshops.   In addition to promoting free registration, the ad may offer the public additional incentives, like free food, gifts, etc. for participating. Be cautious if you attend one of these sessions. The session may focus on investing or tax-savings strategies, or it may end up promoting a specific investment. Don’t commit until you’ve checked into the person or firm offering the opportunity. 

• High-pressure sales tactics.The ad may urge you to act now and invest while the opportunity’s hot. A sales tactic like this doesn’t necessarily mean you’re a target of a scam. The point is you should NEVER feel pressured to invest. If it’s a good opportunity, it WILL be there long enough for you to check into it first to make sure it’s legitimate. 

• Company’s purported ‘track record’. Many ads promote the fact that the company or person offering the opportunity has been in business a long time, are backed by a large conglomerate, and/or have achieved high performance in years past. A company’s track record should never be the deciding factor when making an investment decision. Research the company’s history and track record but also take other factors, such as your investment objectives, into account before committing. 

• Requests for personal information.  Ads may send you to a toll-free line, website or a free seminar so you can request more information or fill out an application form. Check to ensure the investment opportunity is legitimate before submitting information. If it is a potential scam, your personal information could be shared, sold or held for use in future scams. 

• Tax-savings or tax-shelter incentives.Be wary of paid ads that promote tax-saving incentives, especially leading into RRSP season and tax time. A toll-free number, website or free seminar may be promoted to explain how the tax savings work.  Promoters that tell investors that a tax shelter identification number means the shelter has been approved by Canada Revenue Agency (CRA) are misleading investors. In actual fact, the identification number is for identification purposes only. It does not in any way confirm the entitlement of an investor to claim any tax benefits associated with the tax shelter. 

The CRA also notes that Canadians should be cautious when a promoter tries to sell an investment using charitable donations that promises a tax receipt for more than the amount you paid. The CRA regularly audits these schemes and often reassesses investors for most or all of the receipt value of the donation. The CRA has previously issued the following alert and fact sheets to advise investors of the potential risks and problems associated with some shelters:  

• Tax shelter donation arrangements - Fact Sheet (2003) 
• Tax shelter donation arrangements - Fact Sheet (2004)  
• Potential investors reminded to exercise caution with respect to certain donation arrangements -Taxpayer Alert (2005) 

Where should investors go for more information?     

• CSA Website 
• CRA Website  

This advisory is intended to alert clients with online accounts at Investment Dealers Association of Canada (IDA) Member firms of a potential security risk to these accounts 

August 24, 2006 (Toronto, Ontario) - The IDA’s Enforcement Department has received information from several sources that unauthorized persons have gained access to clients’ online trading accounts. Specifically how this is accomplished is not yet known. We believe this could be done through one of several methods.

One theory is that the client’s personal access information is being discovered through a computer virus on the client’s home computers. The suspected virus monitors the client’s keystrokes and forwards the information on to individuals who then use the information or pass it on to others.

The other theory is that access information is being obtained from the client through a process known as 'phishing'. Most phishing is accomplished by an e-mail purported to be from the firm asking for the client to assist with a security issue by providing their name, account number, password and other information necessary to access the accounts. The phishing emails usually adopt or rely upon corporate logos and information derived from the Member firm’s website.

An alternative to phishing emails are pirate websites that are set up to appear similar to the Member firm’s own website. In rare instances, the corporate website is compromised and clients moved sideways to the pirate site. When clients attempt to login, the information is captured on the pirate site and as result the client unknowingly gives up their information. The client may never know that they are no longer on the legitimate website.

At this point in time, there is no confirmation as to the method used to obtain client access information. There is also no suggestion that the security of Member firms’ on-line systems has been compromised. It appears that clients may have inadvertently given up the information to the persons who subsequently hijack the individuals’ accounts.

Once the clients’ personal identities and passwords are compromised, the perpetrators are able to access the clients’ accounts and execute trading instructions. In the instances reported to the IDA, client portfolios were sold out. The credit was then used to place buy orders for specific securities listed on the OTC Bulletin Board or NASDAQ pink sheets. It appears the purpose of such activity was to manipulate the price of shares in the issuer.

In some instances, the trades were settled before the clients were even aware that there had been an on-line breach of their account. Firms are now receiving client complaints concerning these unauthorized activities. 

Investors who have online accounts should be aware of this risk. Clients should contact their firm regarding any unusual activities in their account. A list of IDA Member firms is available at www.ida.ca  

The IDA is the national self-regulatory organization of the securities industry. The IDA's mission is to protect investors, foster market integrity and enhance the efficiency and competitiveness of the Canadian capital markets. The IDA enforces rules and regulations regarding the sales, business and financial practices of its member firms and their approved persons. Investigating complaints and disciplining Members and approved persons is part of the IDA's regulatory role.

July 7, 2006

What are PPNs?

A principal protected note, or PPN, is an investment product that consists of two parts. One part is an investment that promises to return to you the original amount you invest in the PPN, usually after a six to ten year period. A third party, called the guarantor, guarantees the amount you will receive. The second part of the PPN is a market-based investment, usually linked to a market index, a fund, or another investment product that offers the potential – but not a guarantee – of a profit on your investment.  

PPNs are marketed under various names such as 'linked notes' or 'return notes' with different terms and conditions. Sellers of PPNs attract investors by promising that they can have the principal amount of their investment guaranteed and still have the prospect of earning a rate of return above what might be provided by a GIC or other investment providing a fixed return. 

What should I know about PPNs?

Before you buy a PPN, you should know that with some PPNs:  

Understanding these facts can help you identify some of the risks of investing in PPNs. Knowing the risks of an investment before you buy it is one of the key elements to making an informed investment decision.   

Some PPNs lock up your money for several years and, if you take your money out early, you can lose the guarantee on your principal and be charged a fee.

How does this kind of PPN guarantee my principal?
Using the example of a $100 investment, the majority of your money, say $70, is used by the PPN manager to buy an investment that is guaranteed to be repaid, with interest, after a period of time (for example 10 years). A bank or insurance company will often provide the guarantee on the investment. By the end of the guarantee period, the $70 will have grown to $100 because of interest earned on it. This is how the PPN managers guarantee that they will repay you at least as much money as you originally invested.

What are the risks with this type of guarantee?
Once again, using the example of a $100 investment and a 10-year guarantee period:

If you take any of your money out before the 10-year guarantee period expires, you can lose the guarantee on your principal. The PPN managers will typically also charge you a fee for removing your money early.
The guarantee is only as good as the guarantor providing it and the security backing the guarantee. If the guarantor goes out of business or the security provided is inadequate, then the guarantee on your principal may be worthless. Even though PPNs are sometimes referred to as deposits, PPNs are often not insured by the Canada Deposit Insurance Corporation or the Régie de l’assurance- dépôts du Québec.
What can I do about these risks?

You need to assess if the value of the guarantee is appropriate for you. To help you do this you should at least understand the answers to these questions:

• Can you afford to lock up your money until the end of the guarantee period?
• How reliable is the guarantor providing the guarantee to the PPN managers and the investors?
• Is the security backing the guarantee adequate?
• Is the PPN insured by the Canadian Deposit Insurance Corporation or the Régie de l’assurance -dépôts du Québec? 

With some PPNs, you might receive little or no profit on your investment.

How does a PPN make a profit for its investors?
Using the same example of a $100 investment and a 10-year guarantee period, the PPN manager will use $70 of your money to buy a guaranteed investment that provides at least $100 after 10 years. That leaves $30 (minus any sales commission) to generate the profit for your entire $100 investment. The PPN manager will attempt to invest the $30 in products that will generate a high enough return that is satisfactory to you when calculated as a return on your entire $100 investment.

What is the risk of this strategy?
Using the previous example, some PPN managers take a higher risk on your $30 to try to obtain the desired returns. Generally, a higher return is accompanied by a higher risk that you will not make a profit on your investment.

This may mean that, in the worst case scenario, you still get back your $100. However, you should consider the fact that you will have to wait 10 years to get your principal back with the possibility of no profit having been earned on your investment at all. This can have a negative impact on the growth of your retirement fund.

What can I do about this risk?
To understand the risks associated with a particular PPN you should at least know and understand the answers to these questions:

What are the risks associated with the investments in which the PPN manager will invest your $30?
Based on your investment goals and assets, how much risk are you comfortable taking with your investment?
Are the risks associated with the investments chosen by the PPN manager acceptable to you?

The various fees associated with PPNs can make it harder for you to earn a profit on your investment.

What fees do PPNs charge?
PPN managers decide the amount and kind of fees to charge. Types of fees that some PPN managers charge are:

• Selling commissions
• Management fees
• Performance fees Structuring fees
• Operating fees
• Trailer fees
• Early redemption fees
• Swap arrangement fees

It is more important to understand how much of your money is used to pay fees than it is to understand what each fee means.

What is the risk of having these fees?  

The payment of these fees can decrease the return on your investment. If the total fees on your investment are substantial, you risk making less on your investment than expected.

What can I do about this risk?
You need to decide whether you will receive a satisfactory return on your PPN investment after all of the fees are paid. To help you do this, you should at least know and understand the answers to these questions:

- What is the total amount of PPN fees you will have to pay?
- What rate of return can you expect from the PPN?
- After taking into account the cost of the fees, is that rate of return satisfactory to you?

Helping you find answers to your questions

Is there someone who can help me answer all of these questions?
Yes. You can talk with a registered advisor. He or she can help you assess your financial needs and goals to determine if a particular PPN investment is right for you. A registered advisor can help you:

- Assess whether the conditions of the guarantee are adequate for your investment needs. For example, does the guarantee require you to lock up your money for a period of time that does not suit your investment objectives? Can you afford the penalties if you withdraw your money before the guarantee period expires?
- Review the credentials of the guarantor that is providing the guarantee of your principal to ensure that it is reliable.
- Review the security backing the guarantee to ensure it is adequate.
- Determine if the PPN is insured by the Canadian Deposit Insurance Corporation or the Régie de l’assurance- dépôts du Québec.
- Identify the risks of the investment strategies of the PPN managers to see if they match your investing profile and risk tolerance.
- Evaluate the estimated return on the PPN and assess whether it is realistic. If it is not realistic then establish a reasonable estimate.
- Calculate the total amount of fees associated with a particular PPN investment and assess how that will affect your return on investment.

Your advisor may need to do research to identify the risks, to determine a realistic estimate of your return on investment, and to calculate the total fees. The investment strategy of the PPN manager and the PPN’s fee structure may be very complicated. At present, there are few rules that dictate what PPN managers must tell investors about the investment.

If you are interested in the concept of PPNs, but wary of the risks, you can ask your registered advisor whether other investment strategies would be more suitable for you. For example, you can ask whether proper diversification using other investment products suits your investment profile and can achieve your investment goals on a less restrictive and less risky basis than the PPN you are considering.

Registered advisors have an obligation to ensure that they recommend only investments that are suitable for their clients. Providing your advisor with accurate information and asking the questions outlined in this investor watch can help your advisor fulfil his or her duty when considering if PPNs are an appropriate investment for you. 

What should I know about income trusts?

If income trusts are a bit of a mystery to you, but you want to invest because you have heard great things about them, then at the very least know these three facts: 

Understanding these facts can help you identify some of the risks of investing in income trusts. Knowing the risks of an investment before investing is one of the key elements to making an informed investment decision.