4 signs of investment fraud to look for
1. You are promised high returns 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 returnExpected return Estimated value of your investment in the future. Tells you the overall profit you might expect – either as income (interest or dividends), or as capital gains (or losses). Often expressed as a percentage.+ read full definition 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 “insiderInsider Every director/senior officer of a reporting issuer; every director/senior officer of a company that is an insider or subsidiary of a reporting issuer; any person/company who owns or controls more than 10% of the voting securities of a reporting issuer.+ read full definition information” don’t have your best interests in mind. Think about why they’re offering you tips, and how they benefitBenefit Money, goods, or services that you get from your workplace or from a government program such as the Canada Pension Plan.+ read full definition by telling you about them. If the hot tipTip The sharing of important information about a company not known to the public.+ read full definition 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 scamScam When someone tries to make money by misleading or tricking another person.+ read full definition.
4. They’re not registered to sell investments
Before you investInvest To use money for the purpose of making more money by making an investment. Often involves risk.+ read full definition, check the registrationRegistration A requirement for any person or company trading investments or providing advice in Canada. Securities industry professionals are required to register with the securities regulator in each province or territory where they do business.+ read full definition and background of the person offering you the investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition. In general, anyone selling securities or offering investment advice must be registered with their provincial securities regulatorSecurities regulator A government agency that enforces the securities act in jurisdiction it has authority over. This act is made up of laws that establish rules for issuing and trading securities. The Ontario Securities Commission is the securities regulator for Ontario.+ read full definition.
- Check registration through the Canadian Securities Administrators’ (CSA) National Registration Search.
- Check their background to find out if they have been in trouble with a securities regulator using the CSA’s Disciplined Persons List.
Take this quiz from the Competition Bureau to learn how to spot a scam using real examples.
4 signs of a scam:
- High returns and low risk
- Hot tip or insider information
- Pressure to buy now
- Seller not registered to sell investments