Calgary (January 10, 2020) – The general rule, if something seems too good to be true, it probably is, does still apply in 2020, especially when it comes to investments. The Alberta Securities Commission (ASC) issued a warning about the top investment risks in the new year. The ASC’s enforcement division identified six untrustworthy investments based on investor complaints, ongoing investigations, and current enforcement trends: unscrupulous marketing, exploiting a bad economy, new and emerging industries, promissory notes, unregistered individuals selling securities, and affinity fraud. In part one, we focused on get-rich-fast schemes. Part two addresses the illegal fraud schemes on the list of ASC’s top investment risks in 2020.
Some scammers try to lure investors in financial ventures which they advertise as especially safe with higher returns than the stock market. They offer opportunities to loan money through so-called ‘promissory notes’ which is simply a promise to pay.
They claim promissory notes are not securities and that it is a very safe way to invest since it is advertised a loan that is backed by an asset like a real estate. None of these claims are true. There are different names for money-making opportunities such as units, assets, shares, as well as loans or promissory notes. No matter the name, giving money with the expectation of a return is always a security and requires a registered seller.
Furthermore, the claim that the loan would be an especially safe investment since it is backed by an asset such as a real estate is also a sham. If the person who gives the money for the loan is not on title, the loan is not secured by the real estate. Or even worse, the loan might be just a scam.
Unregistered individuals selling securities
According to the 2018 Alberta Investor Study, four in five Albertans do not check the registration of their advisor. Although a non-registered individual selling investments is a key red flag of fraud.
Scammers try to convince investors that they know what they are doing and that they do not need to register because it is a promissory note, or a loan, etc. These claims are not correct. Generally, anyone offering investments in Canada must be registered with their local regulatory agency. The name of the investment is not relevant. As long as there is the expectation of a return it is always a security and therefore, the seller must be registered.
Investors are encouraged to check the registration of any advisor or organization they are willing to invest with on the website of their local regulatory agency.
Affinity frauds are especially devious since the victims are introduced to the scams by someone they trust. To do so, fraudsters join groups and organizations and build relationships with the members. They target religious affiliations and cultural groups, particularly in rural areas.
As soon as they are part of the community, they take advantage of the trust and friendship within those groups and start to pitch fake opportunities. Sometimes, they use their relationship with respected or influential members to recruit new investors.
The ASC advises investors to always check into any person or business offering ‘opportunities’ and to be wary when it comes to ‘exclusive’ and ‘time-sensitive’ opportunities, referrals from group members as well as low-risk, high-reward promises. The provincial regulatory agencies provide online tools and information for investors such as the ASC’s Checkfirst.ca or Ontario’s GetSmarterAboutMoney.ca. Anyone who has become a victim of a scam is encouraged to report the incident to the public inquiries offices.
Marina Burghard writes for Canadian Fraud News about fraud-related cases, whistleblower, jurisdiction, identity theft, consumer protection, etc. – essentially about scams and how to protect yourself against this kind of fraudulent criminal behavior. She holds a Master’s degree in Political Science where her interest in criminology grew. Besides fraud, Marina’s scientific interest lies in terrorism, extremism and how to deal with it as a society.