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.”

Report a Concern

If you have any concerns about a person or company offering an investment opportunity, please contact BCSC Inquiries at 604-899-6854 or 1-800-373-6393 or by e-mail at [email protected]. You can also file a complaint or submit a tip anonymously using the BCSC’s online complaint form.

InvestRight.org is the BCSC’s investor education website. Subscribe to receive email updates from BCSC InvestRight.

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