April 23, 2009

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:

Mark Dickey Alberta Securities Commission 403-297-4481 Andrew Poon British Columbia Securities Commission 604-899-6880
Public Information:
ASC Public Inquiries 403-355-4151 Toll Free 1-877-355-4488 BCSC Public Inquiries 604-899-6854 Toll Free 1-800-373-6393

Suggested Reading

In your community this month - August 2011

5 Investing Traps to Watch out for in 2020

Online Dating and Romance Scams: Don’t Let Scammers Steal Your Heart

More Resources

Seniors and Adults Over 50: Check Before You Invest

Avoid scams that target older investors

BC Securities Enforcement Roundup – May 2013

  In May 2013, the BCSC released two settlement agreements and four notices of hearing. Neither IIROC nor the MFDA released any decisions in May 2013 relating to BC residents   Below is a summary of a few of the May 2013 enforcement cases.   BCSC Settlement Agreement – Scotia Securities Inc.   Scotia admitted […]