Con Artists Profit from Get-rich Quick Schemes

NOTE: A detailed list of possible scams follows this release.

The Nova Scotia Securities Commission today, Aug. 23, released its annual list of financial products and practices that can trap unwary investors, many by taking advantage of investors troubled by economic uncertainty and volatile markets.

"Con artists follow the news and seek ways to exploit the headlines to their advantage while leaving investors holding an empty bag," said Scott Peacock, director of enforcement at Nova Scotia Securities Commission. "Promoters often offer investors an opportunity to get in on the 'ground floor' of new technology or ideas to help others and make a great economic return.

"Unsuspecting investors can be lured into these schemes, especially if they sound familiar or mirror what is being reported in the news. These offerings require careful research and a strong reminder that if it sounds too good to be true, it probably is not true, nor will it be profitable to anyone but the promoter."

The North American Securities Administrators Association, of which the Nova Scotia Securities Commission is a member, compiled a list of the top threats to investors. In products, people should be wary of energy investments, gold and precious metal investments, and promissory notes. In practices, the most popular traps are in affinity fraud, bogus or exaggerated credentials, mirror trading, private placements and securities and investment advice offered by unregistered agents.

Mr. Peacock urged investors to learn the warning signs of investment fraud and independently verify any investment opportunity and the background of the person and company offering the investment. He reminded investors that while the securities commission cannot provide advice, it can provide background information about those who sell securities or give investment advice, as well as about the products being offered.

"Investors should do business only with registered investment advisers and should report any suspicion of investment fraud to us," Mr. Peacock said.

For more information on how to protect yourself from investment fraud, visit www.beforeyouinvest.ca or call 1-855-424-2499.

Following is a list of the this year's top investor traps and threats:

Products

• Energy Investments. Swindlers continue to attempt to trick investors by using high-pressure marketing tactics and the lure of untapped oil and gas reserves and bountiful production runs. Even genuine oil and gas investments almost always bear a high degree of risk. Investors must realize they could lose their total investment in legitimate ventures.
• Gold and Precious Metals. Higher precious metal prices and the promise of an ever-appreciating "tangible" asset have lured unsuspecting investors. Investors should be aware that there are no guarantees, even in legitimate markets. This spring, silver's value declined by 30 per cent in a three-week period.
• Promissory Notes. Investors seeking safety in uncertain economic conditions or those enticed by the promise of big returns through a private, informal loan arrangement may suffer deep losses investing in unregistered or fraudulent promissory notes. Even legitimate notes carry some risk that the issuers may not be able to meet their obligations.

Practices

• Affinity Fraud. Marketing a fraudulent investment scheme to members of a group or organization continues to be a highly successful and lucrative practice for Ponzi scheme operators and other fraudsters. A recent national study of Ponzi schemes over the past decade found that one in four were marketed to affinity groups to increase the scheme's credibility and build the fraud. The most commonly exploited are the elderly or retired, religious groups, and ethnic groups. Investment decisions should always be made based on careful evaluation of the underlying merits rather than your relationship with the promoter.
• Bogus or Exaggerated Credentials. Regulators are noting an increase in the use of other bogus credentials or exaggerated designations, with salespeople pitching financial services or products with nonexistent law degrees or financial credentials. In one case, a broker listed "C.H.S.G." after his name on his business card – "Certified High School Graduate." Investors should always press for full disclosure and check with the securities commission if they have suspicions.
• Mirror Trading. The latest evolution in the securities market is "mirror trading," which is promoted as automated trading that ensures investors will participate in real-time transactions by a skilled and knowledgeable third party. When the third-party executes a trade, the same trade is mechanically placed on behalf of the investor. Investors must continue to objectively evaluate and carefully consider all new or popular investment platforms. They should also recognize that unscrupulous traders and promoters may use trendy platforms as a way to launch fraudulent schemes or manipulate markets by lying about their qualifications, misrepresenting the success of their strategies, or concealing their motivations and conflicts of interest.
• Private Placements. Investors should be aware that, with legitimate issuers, private placement offerings are highly illiquid, lack transparency and have little regulatory oversight.
• Securities and Investment Advice Offered by Unregistered Agents. Securities regulators have identified a consistent increase in investor complaints regarding unregistered persons giving investment advice or making securities transactions. Investors should insist that any time anyone recommends or suggests a transaction with their stocks, bonds, mutual funds or other securities holdings, the person must prove they are registered.