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.
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.
In February 2013, IIROC released two decisions relating to BC residents as well as announcing that it withdrew allegations against one BC resident. The MFDA suspended a BC resident for failing to pay the fine and costs within the required time frame. The BCSC released no enforcement case documents in February. CSA Enforcement Report Last […]