How to protect yourself from investment scams

The failing economy continues its’ hold here in Haldimand County and Norfolk County.  My office is experiencing more calls from folks out of work or unable to pay their bills –this may only be the beginning and times could get much worse.

 As the economy continues to sink, there will be those who are looking for every opportunity to make a quick buck – the fraudsters and the scammers. It is imperative that we all know how to protect our savings and our investments – no matter how big or small.

 Last Thursday I hosted a seminar: Investment Scams: How to Protect Yourself led by Wayne Vanderlaan, an investigator with the Enforcement Branch of the Ontario Securities Commission (OSC). Prior to joining the OSC, Wayne was as a Peel Region police officer. To say Wayne has seen it all is an understatement. Currently his role is to investigate illegal and fraudulent sales of securities to the public using high pressure sales tactics. Wayne is part of the OSC’s Boiler Room Investigations Unit.

The OSC is a provincial body that administers and enforces securities legislation. Their mandate is two-fold; 1. to provide protection to investors from unfair, improper or fraudulent practices; and 2.to foster fair and efficient capital markets and confidence in capital markets.

With 1 in 20 Canadians becoming victims - 25 percent to be defrauded again – it’s clear the OSC has an uphill task

‘Affinity fraud’ is one of the most widespread schemes whereby con artists target ethnic groups, religious groups or clubs offering investment in product that does not exist.

‘Ponzi’ or ‘pyramid’ schemes – a la Bernie Madoff - recruit investors who are encouraged to recruit others. The investment ‘returns’ are paid using money from the new recruits. The scheme collapses when it runs out of recruits.

A ‘Pump and dump’ brokerage encourages investment in over-the-counter or penny stocks with the promise of high returns. When they feel it is at its peak, the brokerage dumps shares, walking away with the profit and plummeting the share value to its original worthless state.

While the nature of fraud varies, the sources for information remain constant. Contact the OSC (1-877-785-1555), project phone busters (1-888-495-8501), or local police

As Vanderlaan went on to tell us, many schemes are perpetrated by scammers working in ‘boiler rooms’ relying on pressure tactics, repeat calls, and limited-time offers to push product like the ill-fated Pigeon King.

The boiler room starts with a salesman to make the initial hook, then calls from a ‘loader’ who hits up more money. The final calls are from the ‘slopper’ who will come for anything left.

Warning signs to watch out for include:

• Guarantees of high return for low risk
• Suggestions of tax avoidance or wiring money offshore
• Promise that the firm is ‘about to go public’
• Use of high pressure sales techniques
• Use of confusing jargon
• Pressure to recruit friends or family
• unregistered seller
• promotion of a "no fee" investment

A potential investor should know the following:

• Know where you're going with your investments
• Know who you're dealing with
• Know what you're investing in; and
• Know where to go for help

As the OSC and Vanderlaan advise, please, “check before you invest”.