Investment fraud is a significant problem in Canada. In 2024 alone, the Canadian Anti-Fraud Centre (CAFC) received reports of $310 million worth of losses involving investment fraud (from over 4,000 cases in total).
However, the full extent of the issue is probably much greater, given that the CAFC estimates that fewer than 10% of all fraud cases are reported. This means that the actual losses could be well over $3 billion. Given the severity and prevalence of these scams, it's crucial to understand the different types of investment fraud and how to protect yourself from becoming a victim.
The most common types of investment fraud
In Canada, investment fraud takes many forms, which is why so many people get caught off-guard by them and become their victims. Here are some of the most common types to keep an eye out for:
Offshore investment fraud
Offshore investment scams involve the promise of high returns from investments based abroad which are not taxed. However, once your money is sent overseas, it can be extremely difficult to recoup from scammers. Fraudsters typically move the money out of the offshore company immediately and send it elsewhere, often to yet another country. This type of investment fraud can often result in significant losses.
Pension scam
Pension scams typically target people who are some years from retirement. Scammers promise to help you withdraw money from locked-in pension plans (such as RRSPs) and place it in investments that deliver higher returns.
These investments are often unregulated, high risk or even non-existent. These investment fraud schemes also often involve fees and commissions that significantly reduce any returns you might receive. On top of that, any premature withdrawals from your locked-in plans lead to high taxes.
Precious gems investment fraud
These scams involve the sale of supposedly rare or valuable stones, often at inflated prices. Scammers claim that the gems are a safe and profitable investment, but they’re either overvalued or fake. Investors are left with assets that are difficult to sell and worth much less than what was paid for them.
Fixed income scam
Fixed income scams promise higher-than-normal returns from bonds, guaranteed investment certificates (GICs) or other similar assets. The issuers of these securities are either unregulated or fraudulent, and not only do the promised returns fail to appear, but the invested money often disappears as well.
Initial coin offerings (ICO) investment fraud
ICOs are a popular method for raising capital in the cryptocurrency sector. However, scammers create fake ICO opportunities; to separate you from your money, they’ll provide convincing documentation, offer tokens (which have no underlying value) and even have celebrity endorsements (either real or fake). Ultimately, these cryptocurrencies turn out to be fake, and you lose your whole investment.
Pump-and-dump scam
These involve the manipulation of stock prices. Scammers buy shares of a low-priced stock and then promote it using false or misleading information (usually emphasizing what a great deal the stock is). They sell their shares at a huge profit when the price rises, leaving their victims with an almost worthless investment.
Cryptocurrency investment fraud
Given the highly unregulated world of cryptocurrency, plus the well-publicized stories of people getting rich quickly from Bitcoin investments, crypto scams have become increasingly common. This type of investment fraud can take various forms, including fake trading platforms, phishing attacks and Ponzi schemes. Investors are lured by the promise of quick and massive profits but end up losing their investments.
How to spot investment fraud
Investment fraud can be difficult to spot, but there are several tell-tale signs to watch out for that could mean that an investment "opportunity" is actually a scam:
- Legitimate investments with high returns always involve some level of risk. Anything promising high returns with little or no risk is almost certainly a scam.
- A legitimate investment company will be registered with the appropriate financial regulators. Verify the registration status of any company or individual offering an investment opportunity.
- Investment fraud scammers often use urgency to pressure potential victims into making quick decisions. If you feel rushed or pressured, such as with tight deadlines, take a step back and thoroughly research the investment before parting with your money.
- Legitimate investment opportunities don't rely on insider information. If an investment opportunity claims to be based on confidential or non-public information, it's either a scam or illegal.
How to protect yourself from investment scams
Protecting yourself from investment fraud requires a combination of vigilance, education and professional guidance. Here are some steps you can take:
- Be very wary of unsolicited offers: these include offers through friends, social media, texts or emails. Verify the source and carry out due diligence before considering any offer.
- Thoroughly research the company offering the investment: check that they’re registered with local financial regulators and look for any red flags or negative reviews.
- Take your time: never allow yourself to be pressured into making a quick decision. Take as long as is necessary to fully understand the investment, its risks and its potential returns.
- Understand cryptocurrency risks: cryptocurrency markets are highly volatile and unregulated, making them a prime target for fraudsters. Even legitimate cryptocurrencies, such as Bitcoin, can experience huge changes in value.
You should also discuss any potential investment opportunity with your IG Advisor. Not only will they be able to tell you if it’s likely to be investment fraud, but if it is legitimate, they’ll also let you know if it fits in with the goals within your overall financial plan. If you don’t have an IG Advisor, you can find one here.
Written and published by IG Wealth Management as a general source of information only. Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice. Seek advice on your specific circumstances from an IG Wealth Management Advisor.
