4 signs of investment fraud to look for
1. You can make a lot of money with little or no risk
In general, higher-risk investments offer higher potential returns, and lower-risk investments offer lower returns. This is known as the risk-return relationship. When you buy investments like stocks, there’s no guarantee you’ll make money. And the risk of losing money increases with the potential return. Investments that are considered low risk typically have returns similar to GIC rates. If your expected return is higher than this, you’re taking more risk with your money. Learn more about the risks of investing.
2. You get a hot tip or insider information
The sources of “hot tips” or “insider information” don’t have your best interests in mind. Think about why they’re offering you tips, and how they benefit by telling you about them. If the hot tip is false, you will lose your money if you act on it. If it is really inside information about a public company, it would be illegal to act on it under insider trading laws.
3. You feel pressured to buy
Scammers frequently use high-pressure sales tactics – because they want to get your money and then move on to other victims. If you’re asked to make a decision right away, or are presented with a limited time offer, it’s likely not in your best interests. Scammers know that if you have time to check things out, you may not fall for their scam.
4. They’re not registered to sell investments
Before you invest, check the registration and background of the person offering you the investment. In general, anyone selling securities or offering investment advice must be registered with their provincial securities regulator.
One of the best ways to protect yourself from investment fraud is to understand how scammers operate. See some real examples
from the Ontario Securities Commission.