How can you tell if someone is being scammed?

There are many different types of scams, but they often have several signs in common. The four red flags of investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition fraud are:

• You are promised high returns with little or no risk.
• You get a hot tipTip The sharing of important information about a company not known to the public.+ read full definition or insiderInsider Every director/senior officer of a reporting issuer; every director/senior officer of a company that is…+ read full definition information.
• You feel pressured to buy.
• When you search for their name on check before you invest, the person offering the investment is not registered to sell investments or advice.

You might be able to tell if someone you know has been approached by a scammer by looking out for these signs:

• They start telling you about a new, lucrative investing opportunity they just learned about, that they’ve never mentioned before.
• They say they heard about this investment from a new friend or romantic partner who recently appeared in their life.
• They learned about the investment through online messages or chats.
• They’ve been asked to shareShare A piece of ownership in a company. A share does not give you direct control…+ read full definition financial accountAccount An agreement you make with a financial institution to handle your money. You can set…+ read full definition passwords or PIN numbers.
• They’ve never met the person offering the investment, except through online messages, texts, or phone calls.
• They’ve been pressured to buy crypto assets or gold, on an investing platform they’ve never used before.

Many scams can be difficult to spot at first, such as romance scams, affinity fraud, or long-haul (or pig butchering) scams. These kinds of scams rely on very personal tactics. The scammer works to gain a someone’s trust over a long period of time. To the person being scammed, it can seem at first like they have made a new friend or have found someone who is genuinely interested in them. Then, when the conversation turns to making an investment or changing something about their finances, the person may not suspect it has all been a scamScam When someone tries to make money by misleading or tricking another person.+ read full definition since the beginning.

Why might someone not realize they are being scammed?

When a scammer gains someone’s trust, the person they are targeting may not realize they are being scammed. They may also not want to believe that they could have fallen for a scam, and as a result may ignore any evidence showing that the investment “opportunity” is a scam.

There are many reasons why someone might believe a scam is real. Scammers use different tactics to create a sense of urgency and legitimacy. These are also situations when a person’s rational thinking is greatly influenced by behavioural biases, without realizing it.

There are different behavioural biases that might make someone less likely to realize they’re being scammed — and scammers will try to take advantage of them. Scammers may hold sway over someone because:

• The scam is convincing because of what they already believe is true – This is confirmation bias at work. This happens when people show preference to information which confirms what they already believe, while dismissing information which challenges these beliefs. People who are convinced that they are investing in something legitimate will discountDiscount When something sells for less than its normal price.+ read full definition evidence proving that it is a scam, while trusting information that appears to confirm its legitimacy.

• The person doesn’t want to walk away from something they’ve put  time and money in – This is also known as the sunk cost fallacy. This happens when someone continues to put money into something because they have already sunk money, time, or emotion into it — even when it would be more rational to stop. People who have already lost money to a scam may put even more time and money into the scam — in the hope of the scam eventually paying off for them. Or they may try to defend their investment in an attempt to justify why they paid for it.

• The person doesn’t believe they’re capable of being scammed – For many people, admitting that they have been tricked will conflict with their image of themselves as smart and capable – so they will often refuse to admit that they are being scammed. This is a way of realigning their beliefs to match their behaviour. This is an example of cognitive dissonance. Because peopletend to align their beliefs with their behaviours, when they are not aligned, people experience psychological stress and change their behaviour or beliefs to keep them matched up.

Scammers also tend to prey on present bias — that’s the inherent desire to live for the present moment — by pressuring you to act urgently and quickly. And your desire to go along with the crowd — herd effect — is present in scams like affinity fraud or Ponzi schemes, when it seems like other members of a group are already investing in the scam.

What can you do to help someone who is being scammed?

If you suspect someone you know is being scammed, there are a few steps you can take to try to help them. Keep in mind, if someone has already lost money to a scam, it’s possible they may not be ready to admit that this is what has happened. Or, they may understand they were scammed but feel too much shame or embarrassment to talk about it to someone else.

Here are some steps to consider if someone you know has been scammed:

• Lead with curiosity and empathy instead of rationalizing – It might seem like the first step is to point out the scam, but this can backfire and cause the person to become defensive. Instead, start from a place of empathy and curiosity. Questions such as “how did you first hear about this?” or “what made you interested in this?” might be helpful. These types of questions can help the person process the situation themselves, along with potential red flags or inconsistencies.

• Let them tell you their story – If they are comfortable opening up to you about what’s happened to them, give them space to tell you about it at their own pace. It might take more than one conversation. If they seem reluctant to talk about it the first time, try again another day or in a different place. Try to stay open and non-judgemental. Active listening, where you reflect back what you hear rather than asking questions, could help keep the conversation going. Consider statements like “I can see why that would seem appealing,” or “it must have felt like a very urgent situation,” could be potential reflection statements as they tell their story.

• Reassure them that this can happen to anyone – Anyone can have money taken by a fraudster. More than a half a billion dollars was taken from Canadians last year according to the Canadian Anti-Fraud Centre. Try sharing a story about someone else you know who was involved in a similar situation — and how they recognized the scam and reported it. Stories can be an effective way to present evidence to someone being scammed. Stories make data and facts more human and personal, and this can make for a convincing argument. We tend to want to follow what others are doing, so knowing that others have broken out of scams can help us do the same.

• Make it a group problem instead of individual – People who have been scammed can live in denial that something is wrong. When helping someone in a situation like this, frame the situation as something you are doing together — such as, “if we explore this together, we could figure out next steps,” or “would it be okay if I sat with you while we look up some information together?” This can reduce their perceived judgment and shame, potentially re-engaging their critical thinking. Offering to help research the company or individual promoting the scam, or checking their registration status with the provincial securities regulator, could help.

• Offer to connect to an expert – Take advantage of authority bias, which is our tendency to trust information that comes from an authoritative figure. In speaking with someone being scammed, encourage them to reach out to an independent and trusted third-party, like their bank advisor, lawyer, or the Canadian Anti-Fraud Centre. Resources for investors has contacts for additional types of support, including mental health and legal services.
  

What can you do if they are ready to report the scam?

An important way you can help is to offer to help connect with resources. If your family member or friend has decided they want to take the next step to report the scam, you can offer to help them. Sometimes even having a supportive person sitting with them while they take the steps can be a big help. If someone has been scammed, they should ideally follow these steps:

• Gather information about the scam – Documents, emails, text messages, or any other records that show what happened.
• Report the fraud – This can be reported to the local police as soon as possible. Some financial institutions may request the police report as part of their anti-fraud investigations. Also report to the Ontario Securities Commission if it is related to investment fraud, as well as the Canadian Anti-Fraud Centre. Only 10% or fewer frauds are reported but reporting it can stop others from having money taken too.
• Review their financial statementsFinancial statements Reports that sum up a company’s financial data and tell you how it is doing.…+ read full definition – This is to check for suspicious activity or unauthorized transactions.
• Review their credit reports – This will show if someone has opened an account using their identity. Find out how to check your credit report.
• Watch for recovery room scammers – One in three victims of fraud will be approached by a recovery room scammer. This second scammer promises to help return the money from the original scam — but it is in fact just another scam.

Learn more about what to do if you have been defrauded.

This process might take more than one conversation. If they’re not open to talking about their experiences, you can try again another time. Ensure you’re remaining supportive and non-judgemental as you listen to them. Reinforce that you are there for them when they want to talk.

If you or your loved ones have not already named a Trusted Contact Person on your investing accounts, this can be a helpful protective step to take now. Your financial advisor can contact your Trusted Contact Person if they expect you are being financially exploited, or if they have concerns about your mental capacity when making financial decisions.