Common Investment Scams

The BCSC is warning investors about companies claiming to have products or services that will prevent, detect, or cure the coronavirus (COVID-19) infection.

Fraudsters take advantage of global events and breaking news to lure potential investors with the expectations of significant returns. At this time, it’s especially important to be vigilant and know how to identify, reject, and report investment fraud.

The BCSC and the Canadian Securities Administrators (CSA) are alerting the public about COVID-19-related fraudulent activity through Investor Alerts. You can also visit this page to stay up to date on COVID-19-related investments scams, and to access fraud awareness resources.

What is Investment Fraud via Social Media?

Social media gives us plentiful opportunities to connect to others and share content worldwide with ease. Con artists use these same social perks to promote fraudulent investment opportunities. Social media provides them with access to personal information to target potential investors and even create the illusion of a shared common interest.

How Does Investment Fraud via Social Media Work?

Using social media, fraudsters can contact many different people at a relatively low cost – they can create fake accounts, email addresses, and link their posts to a website, videos, or photos that make the investment look legitimate.

The potential of anonymity on social media can also make it difficult to identify or find fraudsters using this medium to promote a scheme.

If a scheme catches on in social media, people who think the investment is legitimate may encourage others in their network to invest. This can result in affinity fraud where friends, family members, and colleagues invest in and then promote an unsuitable or fraudulent investment. If the investment fails or is fraudulent, money is lost and personal relationships are affected.

Watch out for one or more of these characteristics of investment fraud via social media:

• Unsolicited offers to invest.
• Offers of independent, unbiased recommendations.
• Claims of guaranteed high returns with no risk.

What is a Gold Scam?

The benefits of a precious metal like gold is its tangibility and security, as well as the fact that its value often increases during market downturns. This makes gold appealing to investors, especially during times of economic uncertainty. Fraudsters play on this and use tactics to entice unsuspecting people into investing in suspect financial products.

How Does a Gold Scam Work?

Sometimes, it’s as simple as fraudsters 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. Other times, the pitched investment opportunity may involve an aggressive stock promotion or “pump and dump” scheme, which focuses on a public company involved in gold production or mining.

A gold scam could also involve fraudsters offering to sell gold bullion and then keep it for you in a “secure” vault with the promise to sell it as it gains value. Usually, the gold bullion doesn’t even exist.

Watch out for one or more of these characteristics of gold scams:

• An over-representation of the amount of gold found within a mine.
• Over-estimated claims of the share price of gold mining companies, or speculative claims about the value of a mine based on its proximity to a proven reserve.
• Pressure campaigns involving email, social media posts, phone calls, or direct mail that include speculative claims about the future price or value of a stock or a gold company.
• An invitation to visit a property, but only during set times and under careful supervision.
• High-end brochures, a slick website, or pictures used to demonstrate a mine or an investment’s value, with little other evidence provided.
• Fraudsters may allude to so-called “specialty” markets that only they can access.
• A plan to recover sunken gold from the ocean floor or buried treasure from a secret location.
• Under the guise of buying gold, investors pay a fee and are paid to recruit others who pay a fee.

What are Crypto Assets?

Crypto assets include cryptocurrencies, blockchain companies, cryptocurrency funds, initial coin offerings (ICOs), Initial Token Offerings (ITOs), and Initial Exchange Offerings (IEOs). Learn more about these products and the associated risks.

In recent years, certain crypto assets have generated interest from investors and the financial media. These products are considered high-risk because of their speculative nature. When a person is speculating on a crypto asset, they are generally focused on trying to profit from changes in the crypto asset’s market value.

Not all crypto assets are securities. The BCSC only regulates crypto assets that are considered securities under B.C. laws. It’s also important to keep in mind that the BCSC and many Canadian securities regulators urge caution when buying crypto assets through trading platforms. That’s because no crypto asset trading platforms are recognized as an exchange or otherwise authorized as a marketplace or dealer in Canada.

How Does a Crypto Asset-Related Scam Work?

• A fraudster may claim to place an investor’s money in a proprietary crypto asset trading platform, while promising high, guaranteed returns with little or no risk.
• Once the investor invests, often by using a digital currency, the fraudster may stop communicating with the investor. The fraudster may then transfer the investor’s money overseas, making it very difficult for the investor to get it back.
• Alternatively, when the investor checks his/her account on the crypto asset trading platform, it may show that the investor has made high returns on the investment; however, the stated trading profits are likely fake.
• The fraudster may ask the investor to send more money (claiming that it is needed to pay taxes or other fees), in order for the investor to withdraw non-existent profits made through the proprietary crypto asset trading platform. The fraudsters can then transfer the investor’s money overseas, thus, victimizing the investor all over again.

Watch out for one or more of these characteristics of crypto asset-related scams:

• “Guaranteed” high return on an investment. All investments have risk, and investors should question any investments that have a “guaranteed” return.
• Complicated jargon and language that is difficult to understand. Fraudsters often use complex new technologies as an opportunity to carry out fraudulent investment schemes, including emerging technologies like blockchain or artificial intelligence. Investors should always be suspicious of sales pitches that are difficult to understand.
• Unlicensed salesperson. Many investment frauds involve unlicensed individuals or unregistered firms. Learn how to check registration of an individual or firm here.
• Unsolicited offers. Some fraudulent investment schemes operate by sending unsolicited sales pitches to their victims. Exercise extreme caution if you receive an unsolicited communication. Some examples are e-mail messages, telephone calls, direct messages through social media, or internet pop-up advertisements or videos.
• Pressure to buy. Fraudsters may try to create a false sense of urgency to take advantage of an investment “before it’s too late”.  Take your time researching an investment opportunity, ask questions, search the internet, and talk to a registered professional before making a decision.

What are Binary Options?

Binary options are sort of a wager where investors bet on the performance of an underlying asset, often a currency, stock index, or share, usually in a short period of time—sometimes minutes or even seconds. When that period is up, the investor receives a predetermined payout or loses their wager.

No business or individual is registered or authorized to market or sell binary options in Canada.

What is a Binary Options Scam?

Binary options scams do not target one particular type of investor. In most cases, people find what seems like a great way to make money without stopping to consider if what they are investing in is fraudulent.

A large number of these scams begin online where fraudulent binary option websites purport to offer legitimate investments. The trading activity and investment returns investors see on these sites are not real.

How Do Binary Options Scams Work?

Binary options are usually advertised through websites and social media posts. Often the ads will say how easy and profitable it is to trade these products or point to how new binary options are in the investment industry.

Investors typically create an account, deposit money, and begin trading binary options in a matter of hours. All trades are rigged and investors soon find that they are unable to withdraw deposited money or any purported profits. The fraudsters running the scam eventually shut down the website and take all of the investors’ money. In some cases, credit card and banking information is stolen, which can result in even bigger losses for investors.

As is the case with most frauds, the chances of recovering lost funds are low.

Watch out for one or more of these common characteristics:

• Websites or mobile apps saying you can earn money quickly with binary options trading.
• Advertisements to engage in offshore options trades.
• Claims that the options are low-risk and provide high returns in a short time period.
• Marketing the so-called investments as offshore and tax-free.
• Free money and other incentives to open a new account.
• Pressure to register now and take advantage of an exclusive opportunity.

Other Resources

• Beware Binary Options Fraud: Canadian Securities Administrators
• binaryoptionsfraud.ca – a Canadian Securities Administrators investor education website
• News Release – Canadian securities regulators announce ban on binary options
• BC Notice 2017/02 – Binary Options

What is a Ponzi Scheme?

Made famous in the United States by Charles Ponzi, these scams promise high returns on investments. Each participant is encouraged to bring in new investors, but there is no actual investment. Investors’ money is used to pay out returns to those drawn into the scheme to create the appearance of a profitable investment. The only people who make money are the scam artists who skim money from the scheme.

How Does a Ponzi Scheme Work?

Ponzi schemes require a constant inflow of new investors’ money or they collapse. Even though the original investors sometimes see returns, they usually do not get all of their money back.

Promoters often encourage original investors to “roll over” or reinvest their funds in the scheme. To get people reinvesting or to help with the word-of-mouth promotion of the scheme, the fraudsters pay a return to early investors from deposits made by later investors. Fraud artists may also create fake statements to show investors how their funds are growing at a phenomenal rate.

Sometimes Ponzi scheme operators spend money on administering the scheme and paying out investors, but the majority of investors’ money is stolen or squandered.

Watch out for one or more of these common characteristics:

• Talk about pooling your money with other investors.
• People touting complicated, secret investments that have some kind of exclusivity to them.
• Individuals selling investment products who are not registered to trade securities or other investment products.
• Statements and contracts not associated with a registered firm, or documentation that looks like it could be a forgery.

What is a Pump & Dump?

In this scheme, fraudsters promote the purchase of a publicly traded stock in order to drive up its price (pump up the market), and then sell it into the artificial market they have created (dump their shares), making a huge profit. Once the promotion ends, investors own a stock that is worth far less than they paid for it.

How Does it Work?

To run a successful pump and dump, the promoters must control (usually through associates or family) or own most of the stock of a publicly traded company. Often the company will trade in lightly regulated markets or quotation services.

The stock is promoted in many ways. The scam artists may use boiler rooms, stock spam, or social media websites to promote the stock to investors all over the world. They may also hire newsletter writers to suggest that the company is a great buy or an unbeatable investment. All of this effort results in a stock price increase, allowing the scam artists to sell at a much higher price than their original purchase price before the market price falls dramatically when the fraudsters stop promoting the company.

In the end, the lack of a market for investors to trade the stock results in the investors owning a nearly worthless, untradeable stock. Sometimes the holders of these stocks are targeted in re-victimization “re-up” or “recovery-room” schemes or by boiler room schemes.

Watch out for one or more of these common characteristics:

• A start-up company with little or no business history being promoted as the next big thing.
• Pressure sales tactics or promotional language such as “get in now before it’s too late”.
• Investments aggressively promoted over the phone, through email, or on websites by unregistered individuals or offshore companies.
• A sudden surge in the buying and selling of a stock that has little or no trading history.

What is Forex?

The forex market, also referred to as the Foreign Exchange or FX market, is basically the simultaneous buying of one currency while selling another. Profits and losses depend on the fluctuations in the exchange rate between the two currencies.

What is a Forex Scam?

Forex scams offer investors the opportunity to invest in foreign exchange, but in the end, the money is lost to those running the scheme. Sometimes the fraudsters steal it to fund a lavish lifestyle, or they may lose it by making poor trading decisions.

Forex trading is extremely high risk. Making money in this market is difficult, even for large financial institutions that employ professional traders, run million-dollar trading accounts, and use sophisticated technology.

How Does it Work?

Promoters often find investors by advertising on television, the Internet, or radio. Some will prey on affinity groups, friends, or family to find willing investors, promising an opportunity to invest with expert traders employed by financial institutions.

The promoters often promise high returns. They will try to get you to sign paperwork, attend trading seminars, or buy software that will unlock the mysteries of the forex market.

When you respond to their promotions, sellers or their affiliates may encourage you to invest in a forex opportunity. They provide you with a contract and encourage you to wire your money offshore. After you invest and some time passes, you may find out the investment is a scam or a Ponzi scheme.

Watch out for one or more of these common characteristics:

• An offer to pool your money in a fund that will be managed by expert currency traders.
• A guarantee of little or no risk and high investment returns.
• An unwillingness to discuss the past performance or track record of the expert currency traders.
• High-pressure sales techniques to buy an investment, purchase software, or take courses.

What is an Offshore Investment Scheme?

These schemes come in many forms, but one common characteristic runs through them all: the promoters want you to send money out of the country. Once a fraud artist has moved the money offshore, they may move it two or more times. Moving money over borders helps fraudsters avoid detection.

How Does it Work?

Promoters lure investors through seminars, advertising, or word-of-mouth. The investment vehicle is often one that is getting a lot of recent attention in the media.

The company you send your money to could be a fake, or one that is set up merely to funnel investor funds to the fraudsters. After you send the money to the offshore company, the operators remove it and deposit it somewhere else – a holding company in Panama, for example.

While the offshore scam is running, you may receive some statements, get some money back, or get updates on the progress of the company. When it collapses, or the company goes broke, your money will be gone. When people move money to another country (including the United States), Canadian law does not protect their investments, and they may not have legal recourse in Canadian courts.

Tax-Avoidance

Another characteristic of this scheme is an investment offer that will let you avoid or lower your taxes.

A tax-avoidance offshore scheme usually requires you to deposit money in an offshore account that you supposedly control. The promoters will tell you that money will flow in and out of the account, so you may see activity in the account. This money could be going to a feeder account, which is draining money out of your account.

If the promised tax savings are false, you may also be required to pay the Canadian government money in back taxes, interest, and penalties.

Watch out for one or more of these common characteristics:

• Promoters want you to wire money outside of Canada.
• Promoters who are not registered with a securities regulator.
• A company or investment that does not have a prospectus that is filed with a securities regulator.
• Offers of high returns, tax savings, and insider information.
• Documentation that doesn’t contain audited financial statements, or details about the investment or management, etc.

What is a Real Estate Scheme?

Real estate schemes are sold as short-term loans to buyers, construction loans to companies, or even as shares in a building that will earn income and pay it out to investors. Scam artists offer high, guaranteed rates of return to investors seeking steady income from a tangible asset like real estate.

How Does it Work?

While many people buy real estate as a personal investment or a place to live, sometimes real estate is sold as a security. These situations involve a sale where the purchaser does not own or live on the property, but may earn a return through the efforts of another party in connection with the property.

Illegitimate schemes are often promoted through aggressive advertising (advertisements disguised as news articles) with promises of big profits for investors in only a few years. Investors contribute to a pool of funds that is used, ostensibly, to buy and hold property. Often, investors are charged high fees and are offered little in terms of details or disclosure of risks.

In illegitimate schemes, the property value is sometimes inflated to attract investors; other times there is no property at all. As with many other schemes, communication dwindles or ceases all together once you invest.

Watch out for one or more of these common characteristics:

• Promises to “get rich quick” or live your dream retirement with passive income from real estate.
• Lack of documentation or disclosure regarding a real estate investment or loan.
• A company or investment that does not have a prospectus that is filed with a securities regulator.
• Promoters who are not registered with a securities regulator.

What is a Boiler Room Scheme?

Boiler rooms cold call potential investors and pressure them to buy shares. Boiler room operators often set up in a different jurisdiction or country than the people they target in order to avoid detection by securities regulators and enforcement agencies.

How Does it Work?

This scheme starts with an unsolicited phone call. Once the caller has you on the phone, they try to persuade you to invest in the company they are promoting. In many cases, the company is private and is doing business in an industry that is in the news – for example, gold mining.

Promoters, or their agents, will advise you to wire the money to a bank account, and they promise to send you stock certificates. Once you invest, you may be put on a list that is traded or sold to other boiler rooms or recovery room operations.

In the end, you may discover that the investment and company do not exist. You will likely never see your money again.

Watch out for one or more of these common characteristics:

• Aggressive sales techniques are used to get you to buy the investment immediately.
• Websites or offering documents that contain vague, promotional language, and not a lot of real disclosure about the investment.
• Predictions promising unrealistic returns.
• Repeat phone calls about investing in stocks, bonds, etc. – there have been cases of people being called 20-30 times.

What is a Recovery Room Scheme and How Does it Work?

In a recovery room, victims of previous schemes are victimized again. They are offered inflated prices for shares they purchased in a previous boiler room scheme. As part of a promise to buy their shares at a profit, the investor is instructed to wire an additional sum of money to an offshore bank account. The perpetrators withdraw the money, and the investor loses again.

What is a High-Yield Investment Program?

HYIPs use websites to offer extremely high daily, weekly, or monthly rates of return. A HYIP website will have little information about the company’s location, management, or how it invests funds it receives. HYIPs boast about passive income, secure online accounts, and exclusive investment products or savings accounts.

How Does it Work?

Setting up a HYIP is relatively cheap. Operators buy a domain name, design a webpage, and publish it on the Internet. Once it’s live on the Internet, the promoters are in business. Their next step is to attract investors from all over the world.

Sophisticated HYIP sites offer investments in legitimate securities, like commodities, futures, etc. These sites may also offer online accounts with sophisticated e-commerce security, guaranteeing you safe and easy access to your money. Scammers use advertising and positive word-of-mouth, networking through social media or HYIP-rating websites to get the word out to as many people as possible.

When you invest, you will be asked to send your money through a wire service or an online payment system. In the past, some fraudulent HYIPs have purportedly set up their own online payment systems. Once you open an account, you may receive some high-yield payments, or they might show up in your online account. As in Ponzi schemes, the operators are probably sending you other people’s money.

Watch out for one or more of these common characteristics:

• Websites that offer stocks, bonds, or savings accounts with high rates of return (for example, 2% a day, 14% a week, or 48% a month).
• Online advertisements linking to a website that offers high-yield investment products or passive, high-yield savings accounts that will make you rich.
• Websites that rate HYIPs claiming to separate the real ones from the fake ones.
• Postings in web forums or on social media websites purportedly from the management of the HYIP that gives technical updates, payment details, etc.

What is a Romance Scam?

A romance scam occurs when scammers lure victims into false or misleading relationships, often with the intention to steal money or commit other types of fraud.

How Does a Romance Scam Work?

Romance fraud or online dating scams come in many forms, including investment offers. Typically, there are some common moves fraudsters will make to find targets.

1. Setup Profile: Fraudsters usually create accounts on legitimate dating apps and websites. They’ll construct fake profiles and personas by using stock photos or stealing someone’s identity.
2. Hook and Reel: A scammer can play the long game. Similar to the example above, they may initiate a conversation or sit back and wait for someone to match with their fake profile. Once the targets are established, the hook and reel begins.
3. Build Trust: A romance scam target might receive a constant stream of affectionate emails and messages. The fraudster will do this to build interest, attachment, and trust.
4. Request Finances: Then, at some point, the fraudster will bring up finances. It could be a broad range of scenarios – business struggles, investment opportunities, family emergencies, or even asking for money to purchase a plane ticket so they can come visit.

Watch out for one or more of these common characteristics of romance scammers:

• They cannot meet you in person.
• They avoid video chats.
• They profess their love early on in relationships and flood you with affectionate messages.
• They steer the conversation toward finances and ask for money.

What is a Promissory Note Scheme?

Many companies use legitimate promissory notes to raise money. Legitimate promissory notes are commonly used by businesses. These transactions usually involve sophisticated investors capable of doing thorough research on the person or business they are investing in. Bogus promissory notes tend to guarantee above-average, fixed interest rates. They may also guarantee the principal-something legitimate notes do not do, as there is always the risk a company cannot meet its obligations.

How Does it Work?

Promoters sell these notes as short-term loans that promise high returns for borrowing money from you, usually at no risk.

The seller may tell you that the notes are “risk-free,” “insured,” or “guaranteed,” which is impossible. Every investment opportunity contains some level of risk. The notes may contain the label “prime quality” to make it seem like a high-grade investment, when, in fact, the company issuing the note is a start-up or is non-existent. The scam artist will try to make the notes sound like they are a guaranteed proposition for investors.

Like in other investment schemes, the scam artist may make some initial payments to you to gain your confidence. As time passes, the payments may become erratic or drop off all together. This generally signals that the scam is nearing its conclusion, and you will lose whatever money you have not received yet.

Watch out for one or more of these common characteristics:

• A start-up company with little or no business history offers its “high-quality” notes to retail investors.
• The investment promises returns above the market average for a similar type of investment.
• The notes are promoted as being a short-term, high-interest investment.
• A person who is not registered with a securities regulator is selling or promoting the notes.

What is an Oil & Gas Scheme?

The popularity of this scheme rises and falls along with oil and gas prices. Usually scam artists or unscrupulous promotors take advantage of oil and gas booms by enticing inexperienced investors who are unfamiliar with the high risks related to oil and gas ventures.

How Does it Work?

Scam artists cold call or email investors with a phony report about a promising opportunity to get involved in an oil and gas limited partnership. They often have legitimate looking websites, well-designed brochures, and research documents. For peace-of-mind, investors are often told that a large oil or gas company has invested in the venture. However, once they hand their money over, it is unlikely they will ever see it again.

Watch out for one or more of these common characteristics:

• Use of terms such as “expert geologist reports” or “tremendous discoveries in the ground at adjacent wells/drill sites”.
• New technological developments credited with facilitating record levels of oil and gas production.
• Promoters who are not registered with a securities regulator.
• A company or investment that does not have a prospectus that is filed with a securities regulator.

What is a Prime Bank Scheme?

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 usually 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 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.

Investors may 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 will probably say these agreements are necessary to preserve the exclusive, secret nature of the 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 high annual returns from 20% to 200%, for example. 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 a recognized international or central bank.
• 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.

What is an “Unlocking” Retirement Savings Scheme?

The common feature of these schemes is the promise that you can immediately access a portion of the cash value of your locked-in retirement savings account (for example, RRSP, RRIF, LIRA, etc.) or income plan without paying taxes. These schemes may also promise excellent returns on the remaining investment or significant tax benefits.

How Does it Work?

This type of scheme generally involves investing in the shares or units of a public or private company, or a debt instrument of some kind, such as bonds, promissory notes, or mortgages.

Promoters, or their agents, may advise you to move your retirement funds into a self-directed account, to conceal the unlocking transfer from your financial institution or advisor. 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. By having you move your money to a self-directed account, the promoter has succeeded in removing the scrutiny that an independent financial advisor or their firm would provide. This could result in you investing in a scam that will cause you to lose some, if not all, of your money.

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 one or more of these common characteristics:

• Advice to withdraw funds from your locked-in retirement savings account, and move it to a self-directed account.
• Offers of debt reduction through new sources of income (for example, dividends or interest payments).
• Promises of immediate access to assets in locked-in retirement savings accounts (RRSPs or RRIFs).
• Unrealistic returns on an investment, or frequent high interest or dividend payments.
• Aggressive advertising campaigns or promotional meetings that talk about investments that will help you unlock your locked-in retirement savings.

Securities regulators and other authorities cannot act without the cooperation of victims. Fraudsters understand and exploit this reluctance to report.

Bring suspicious investment activity to the attention of the British Columbia Securities Commission(BCSC) by contacting BCSC Inquiries. You can report suspicious investment activity anonymously through the Report a Scam form. Remember to keep records in case you need to make a complaint or take legal action.