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Investor Watch: Fraudsters Prey on ‘Father Knows Best’ Attitude Toward Investing

Man is reading a stock chart
Men who are over-confident about their investing knowledge run the risk of falling victim to an investment fraud.

Men who are over-confident about their investing knowledge run the risk of falling victim to investment fraud, according to recent data collected by Canadian securities regulators and research into a multi-million dollar investment scheme.

The British Columbia Securities Commission (BCSC) took a further look at research conducted by the Canadian Securities Administrators (CSA) in 2006 and 2007 and found that men are far more confident than women when it comes to making investment decisions (scoring a net investment confidence rating of plus-36 per cent compared to minus-14 per cent for women).

The fact that men – particularly affluent, middle-aged men – are confident investors reaffirms findings from the 2005 Eron Mortgage Study, an analysis of an investment fraud that raised over $240-million from investors. The Eron study found that middle-aged, affluent men are prone to taking economic risks, making them a group that is susceptible to investment fraud. Furthermore, the CSA research found that men are more likely than women to believe investing is a gamble and that it is okay to bend the rules.

“It is important to be confident when investing, but over-confidence may get you into trouble,” says Patricia Bowles, BCSC Director, Communications and Education. “Those who described themselves as highly knowledgeable investors – often cocky, affluent men in their 50s – were hit hard by the Eron scheme. These people lost more than twice as much as the other Eron investors.”

The 2007 CSA study also found that 46 per cent of men reported someone approached them with a fraudulent investment, compared with 36 per cent of women. Of those approached, 15 per cent of men were defrauded compared to 10 per cent of women. In fact, men who have fallen victim to an investment scam are more likely to have been defrauded more than once – 32 per cent compared to 20 per cent for women.

Although men may be more at risk of falling victim to a fraud than women, the CSA research shows that men tend to be more familiar than women with their most recent investment and the risk associated with it. Men are also more likely to conduct independent research and are less likely to invest “as soon as they heard” about an investment opportunity.

“It is good to see men exhibiting the knowledge and habits that lead to making sound investment decisions,” says Bowles. “However, everyone needs to understand that bending the rules and taking chances on something that sounds ‘too good to be true’ may cost them more than just money.”

In the 2007 CSA study, victims of investment fraud reported negative impacts to their health, their personal relationships, and their trust in others.

The CSA commissioned Innovative Research Group Inc., a national public opinion research firm, to conduct the 2007 CSA Investor Study: Understanding the Social Impact of Investment Fraud and the 2006 CSA Investor Index.

The research is based on two national online surveys of more than 5,000 Canadians, 18 years of age or older, in both 2006 and 2007. The margin-of-error for each survey (5,568 and 5,868 interviews respectively) is considered accurate within ±1.3 per cent, 19 times out of 20.

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.

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

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