Fraudsters are constantly trying to reinvent themselves to try and take your money.
They’ll hop on the latest investing trends and platforms in order to repackage their schemes and make them seem suitable.
It’s important for retail investors to keep an eye out for these suspicious “opportunities”. To help, the North American Securities Administrators Association (NASAA) has released its list of top investor threats to watch for in 2021.
Let’s delve into the top products and practices that fraudsters may use this year, and how to protect yourself against them.
#1. Investment Fraud Through Social Media
Social media is a great way to connect with others and find out what’s happening in the world. But it has also become a common tool used by fraudsters to target potential investors. Fraudsters can contact a number of people quickly and easily on social media platforms to present fake investment opportunities. They may try to sell their legitimacy by setting up fake social media accounts, websites, and email addresses.
Investment fraud via social media is constantly changing due to various factors, including what’s trending on popular platforms and apps. But frauds will often have similar characteristics, including the following:
- guaranteed, unrealistic returns
- investments with little to no risk
- a sense of urgency/pressure to buy the investment before it’s too late
Don’t let FOMO Cloud Your Investing Instincts
Online investment opportunities are plentiful and seeing others making money might make it more tempting for you to jump into an investment quickly. Fraudsters will also play on people’s fear of missing out, or “FOMO,” to push investment scams online.
It’s important not to rush into an investment or let FOMO guide your investment decisions, especially when you don’t have all the details. Remember to do your research and seek independent advice if you’re unsure or have questions.
Tips to Protect Yourself Against Online Investment Scams
Learn to Spot the Fraud Warning Signs
Knowing how to spot the investment fraud warning signs is key to avoiding online scams. Learn more about the warning signs by watching these videos.
Ask Questions About the Investment
Asking specific questions about what the investment is about, how it’s performed in the past, and how it will make you money may help you distinguish a real investment from a scam. If you take it a step further and ask for written information, a con artist likely won’t be able to provide you with the kind of written information that typically comes along with an investment, such as financial statements and a prospectus. Documentation helps investors make informed decisions and also seek a second opinion.
#2. Crypto-asset-Related Investment Fraud
Continue to stay alert for investment scams involving crypto-assets in 2021. Crypto-assets (which include cryptocurrencies) have various liquidity, security, and volatility risks. These types of investments can be complex, and often require advanced investment knowledge. However, both new and sophisticated investors are susceptible to falling for crypto-related investment fraud.
How a Crypto-asset Scam Works
Scams involving crypto-assets continue to pop up in a number of ways. Fraudsters could offer up fake investment products, fake cryptocurrency exchanges, and create false websites claiming to sell packaged investments.
The BCSC Warns Investors About Fake Websites Offering Cryptocurrency Packages
Websites offering packaged cryptocurrency or forex packages have been popping up, especially during the COVID-19 pandemic. In September 2020, the BCSC Enforcement Division’s COVID-19 Taskforce issued a public warning about these types of websites, which usually offer high returns.
Watch this video for more information on what these sites can look like, and how to protect yourself online.
#3. Investment Scams Involving Precious Metals
Why Gold Might “Shine” When Other Investments are Down
Precious metals like gold are often considered a secure investment when there is market volatility.
Many investors may see gold as a tangible and secure commodity since the supply of precious metals like gold and silver cannot be arbitrarily pumped up (unlike fiat currencies). NASAA mentions that another reason gold may seem appealing is because it often moves in reverse of stocks and bonds. So when stocks are down, gold may be a tempting investment.
Gold Isn’t Always a Solid Investment
Gold is not “foolproof” – it’s a commodity, and like other commodities, prices can dramatically fluctuate.
Gold scams are also common. Fraudsters will take advantage of the false sense of security that investors may feel with gold. For example, fraudsters could try to raise funds to re-open a gold mine that is no longer operating. These types of gold mine scams can include promises of high returns, and exaggerated claims of how much gold has been found within a previously defunct mine.
NASAA also warns investors to pay close attention to “exploration” companies. Some of these companies may offer geological surveys or financial statements that look official when, in reality, there is little to no production taking place.
Do Your Research and Dig Into Precious Metal Investments
Before committing your money to any investments, including gold, take the time to do your research first. Use public search tools like SEDAR to review documents including annual reports, shareholder’s meeting materials, and financial statements.
You can also seek out independent advice from a registered investment advisor when considering an investment involving precious metals. AreTheyRegistered.ca is a national search tool that can help you find a qualified securities industry professional.
If you’re looking for more information about investment opportunities in the mining industry in British Columbia, we’ve got a detailed guide that can help.
#4. Foreign Exchange (FOREX) Fraud
Forex Trading At a Glance
The foreign exchange market is also known as forex or FX. It’s a global marketplace that allows national currencies to be exchanged against each other. People will often invest in different currencies to try and make money on the changes in exchange rates.
Forex trading is very risky, volatile, and complex. Making money in this market is challenging, even for large financial companies who employ professional traders and run multi-million dollar trading accounts.
How Fraudsters Use Forex Trading to Trap Investors
Forex trading does not have a central market – it is mostly traded in an over-the-counter marketwhere brokers and dealers negotiate directly with each other. Fraudsters will use the risky and volatile nature of this market to present investors with an opportunity to invest in forex.
Promoters may advertise their forex schemes on television, social media, and other online forums. They’ll typically use high-pressure sales tactics that offer guaranteed high returns, with little to no risk. They may even try to reassure you by promising to invest with expert traders who are employed by financial institutions.
How to Protect Yourself From Forex Scams
As with other investments, research is key. Ask the promoter questions about the investment, and ask them to provide you with financial statements as well as past performances of “expert” traders.
If your questions aren’t being answered, or the person selling you the investment offers up answers that you don’t understand, don’t take their word for it. Run the investment by an independent professional, like a registered investment advisor, to see if it’s legit.
You can also use the BCSC’s Disciplined List to look into potential disciplinary actions of a person. For a national list, check out the Canadian Securities Administrators’ Disciplined List.
#5. Investment Fraud Using Promissory Notes
NASAA continues to warn investors about scams delivered through promissory notes.
A promissory note, also known as a corporate note, is an unconditional promise made by a borrower to repay the borrowed money and pay interest by a specific date (or set of dates) in the future.
Promissory notes are considered high-risk investments, and they’re only as good as the projects or companies that they are financing. That means the associated risks can increase with an inexperienced management team or unfavorable market conditions.
How Fraudsters Use Promissory Notes to Push Investment Scams
Promissory note schemes tend to guarantee above average, fixed interest rates. They may also guarantee that you’ll make back the principal – something legitimate notes do not do, as there is always the risk a company cannot meet its obligations.
NASAA also warns investors to approach short-term promissory notes with caution. In the US, promissory notes with durations of nine months or less generally do not require federal or state securities registration.
Don’t Buy the Promises: Take Note of the Warning Signs
Investments come with risk, and there’s no guarantee that you won’t lose money. If someone is offering you a guaranteed return with little to no risk, don’t fall for the promise. Instead, check the investment with a registered advisor. You can also contact the BCSC if you have questions about an investment, and we can help you look into it.
Remember, if an investment opportunity involving a promissory note seems too good to be true, it probably is.
For more information, check out NASAA’s top investor threats list for 2021.
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 through e-mail at [email protected]. You can also file a complaint or submit a tip anonymously using the BCSC’s online complaint form.