Financial Literacy Month: How to spot investment fraud
In our second educational blog for ‘Financial Literacy Month’, we’re tackling an important issue for investors (or would-be investors) to be aware of—how to spot fraud.
Investment fraud is defined as a type of fraud where investors are persuaded to buy or sell something (namely stocks), based on false information. There are many forms of investment fraud, and nearly 40 per cent of Canadians have been approached to make a fraudulent investment, so here’s a few tips for spotting it.
- Pyramid schemes: this is the most common type of investment fraud, and you’ve probably been exposed to many examples of this before. Essentially, this requires the recruitment of investors to make one initial investment and then recruit others to do the same. The problem is, the majority of people in the pyramid will never make any money and often lose their initial investment.
- Advance fee schemes: another common type of scheme is to have to pay money up front and never receive anything in return. A common example of this is “work from home” opportunities.
- Ponzi schemes: these are similar to pyramid schemes, except that they offer very high guaranteed returns based on short-term investments, which never actually existed in the first place.
- Be suspicious: if anyone ever offers you a guarantee on the performance of an investment, you should be very suspicious. There is never a guarantee in investments.
- Check for credentials: always check for documentation and accreditation when it comes to investments in products or stocks.
- Nothing is immediate: when it comes to investments, you never have to make an immediate decision. Any investment is a big decision, and it’s your money, so take your time.
More information about fraud, including how to report fraud, visit the Canadian Anti-Fraud Centre online.