A Survey on the Characteristics of Fraud Victims and Tips for Fraud Prevention

Supported By:

Net Patrol International Inc.  Data Investigation and Forensic Services
Bankruptcy and Insolvency Trustees

By Norman Groot

At Investigation Counsel, in addition to assisting fraud victims in their civil litigation recovery efforts and in preparing criminal complaints, we are involved in fraud prevention, investment due diligence and public awareness of fraud through various public and private advocacy groups including the Association of Certified Forensic Investigators, the Association of Certified Fraud Examiners, the Toronto Police Service Social Media Group on Fraud Awareness, and the Canadian and Ontario Bar Association.

In the course of investigating and prosecuting investments fraud cases, we have also informally identified the type of persons who are targeted by investment fraudsters. Our own experience is consistent with what has been recently published (May 2015) by the International Organization of Securities Commissions (IOSCO) report entitled “Survey on Anti-Fraud Messaging“.

Their findings were summarized in an article by James Langton this month in the Investment Executive Magazine – an excerpt of which follows:

Majority of Fraud Victims are Over-Confident Educated Middle-Aged Males

Overconfident, middle-aged men are the most likely victims of investment fraud, according to a new report from global securities regulators that highlights the challenge regulators face in combating fraud.

The IOSCO published a new report detailing the results of research into the strategies and tactics being used by regulators to warn retail investors about investment fraud, and to educate investors on how to protect themselves against fraud.

The report notes that investment fraud looks similar around the world, with fraudsters using common tactics such as cold-calling, or sending unsolicited emails, that offer unrealistic returns, or use other high-pressure sales tactics. In response, regulators around the world offer similar messages warning investors about these common approaches and alerting them to warning signs. Most also focus on the importance of dealing with registered firms and individuals, and to some extent, registered products, it notes.

The report, which is based on a survey of regulators that participate in IOSCO’s Committee on Retail Investors, also found that one of the most important “surprises” to regulators is the research showing that the majority of fraud victims are “overconfident educated middle-aged males.”

Regulators also say they were surprised with how quickly investors are to trust fraudsters; investors’ naiveté, and lack of awareness about the resources government agencies offer to protect them; that even sophisticated/highly literate investors fall victim to fraudulent schemes; and, the ease and speed with which fraudulent investment schemes can be carried out.

These factors all pose challenges to regulators in their efforts to warn investors about fraud. According to the report, regulators say that they need to reach a broader audience with their anti-fraud messages; that they need to do a better job of identifying the most effective delivery methods for those messages; and that measuring and evaluating their success needs to improve too.

The most common way of getting regulators’ message out is through a traditional website, the report notes. “This report illustrates with concrete, creative and innovative examples taken from many parts of the world, how regulators are engaged with investors to raise awareness of investment fraud,” said Howard Wetston, chairman of the Ontario Securities Commission (OSC), who is also chair of IOSCO’s Committee on Retail Investors, and vice chairman of the IOSCO board. “I trust that the report will be a helpful source for regulators in developing their own strategies to prevent fraudulent behaviors,” Wetston added.

For a review of the entire article, click here. At Investigation Counsel, through our web site and industry presentations, we seek to further the public education goals of IOSCO and the OSC.

FAIR Canada’s Five Rules for Avoiding Investment Fraud

Another source of public information on fraud awareness is FAIR Canada. Their Executive Director Ermanno Pascutto, correctly notes that while there may be no foolproof way to protect against investment fraud, by knowing some of the major signs of investment fraud and following some simple rules Canadians can better protect themselves from fraud.

On the Fair Canada website they suggest investors the following rules of investing to investors:

Rule 1 – Only Deal with Registered Advisors

Rule 2 – Be Aware of the Warning Signs of Fraud, which include:

Unrealistic Returns

Guaranteed High Returns

Pressure to Borrow to Invest

High Pressure Sales

The “Advisor” with “Inside Information”

Rule 3 – Make Your Cheques Payable to Registered Firms, Not Individuals or

Unregistered Companies

Rule 4 – Invest in Registered Investments

Rule 5 – Ask Questions, Verify and Say ‘No” To What You Do Not Understand

Private Investing and Due Diligence

While we agree with FAIR Canada’s views and the IOSCO survey findings, we also recognize in a free market economy there will always be some investors who will be enticed by opportunities presented to them by persons who are not registered and not dealing with registered investment companies.

For those inclined to invest privately, we recommend you retain an independent investigation or law firm to conduct some background investigation on those you are dealing with. It is often surprising that while investors will use a lawyer to facilitate a land transaction to confirm their registration on title, for vastly greater amounts of money they will enter into private investment transactions without professional assistance to secure and verify their investment.

We often observe in our files that the legal fees that investors incur to attempt to recover their lost funds are vast multiples to the cost of background investigations to expose charlatans seeking to divulge you of your hard earned assets. We also experience our client’s frustration with how ineffective the Canadian legal system is in response to fraud – see the article below entitled Crime Without Punishment: Canada’s Investment Fraud Problem.

Inquiries

At Investigation Counsel PC, our interest is in assisting victims of fraud as well as those seeking to assist the administration of justice. For further information on conducting due diligence before investing, seehttp://www.investigationcounsel.com/post/when-investing-exercise-due-diligence-to-avoid-ponzi-schemes/ . If you discover you are a victim of fraud, we welcome you to contact us to have your case assessed and a strategy for recovery put in place.

Norman Groot, LLB, CFE, CFI – May 15, 2015
Read more on: Investigation Counsel
www.investigationcounsel.com

 

Crime Without Punishment: Canada’s Investment Fraud Problem

Jeff Gray And Janet McFarland
The Globe and Mail / Published Saturday, Aug. 24 2013

Norman Hawe, 78, and his wife, Georgette, 84, have spent their retirement volunteering with the Salvation Army, travelling the world to feed the poor and build homes and churches. Mr. Hawe, a carpenter who also worked on the blast furnaces in Hamilton’s steel mills, specializes in constructing giant wooden crosses. An engaging story teller with a booming laugh, he becomes more soft spoken when he recounts the events that wiped out his and Georgette’s retirement savings. In 2007, Mr. Hawe learned that he had sunk $450,000 in what turned out to be an illegal scheme in which investors were told their money was placed in a portfolio of mortgages. The funds were actually diverted for other uses, a financial trap that forced the couple to sell their house.

Read full article on: The Globe and Mail