7.5.2 Tips to avoid investment scams
No one is completely safe from scams. However, when you use care, you can reduce your chances of becoming a victim. The following tips could help you avoid investment scams.
Red flags of fraud
- You're promised high returns at no risk. A security with a high potential return is seldom free of risk.
- You're contacted by someone you don't know. Legitimate investments and advisors don't approach strangers for money.
- You're asked to act fast, because this is a "once in a lifetime" opportunity.
- You're asked to keep the matter secret.
- You're asked to sign forms or proxies in advance.
- You're being subjected to pressure sales tactics and attempts are made to make you feel guilty if you hesitate to invest.
- You're told your securities could be resold or exchanged above their market value provided you pay fees in advance.
- Financial transactions are carried out without your consent.
- You're told that a regulatory agency has "approved" an investment. Regulatory organizations never give an opinion on the quality of an investment.
How to avoid investment scams
- Check that the investment seller is registered in your province or territory. Don't do business if he or she is not. Many con artists use the Internet to promote and sell investment products without being licensed or registered.
- Research the companies you want to invest in.
- Check SEDAR, the System for Electronic Document Analysis and Retrieval, a filing system that provides public access to Canadian securities information.
- Check with your provincial securities regulator or the Canadian Securities Administrators to find out if anyone associated with your investment has been subject to disciplinary action. To find your local regulator search for an individual or a firm on the National Registration Search at the Canadian Securities Administrators (CSA) website.
- Ask questions and expect clear answers; otherwise, don't invest.
- Get information in writing, even if you hear it verbally.
- Don't rely on appearances. Check information if you are not sure it is true.
- Don't buy securities if a prospectus, a simplified prospectus or an offering memorandum is not available. These documents describe the business, list key people associated with it, present financial statements and summarize the risks it may face.
- Don't buy securities based on information obtained from the Internet only. Check the information using other sources. Information on the Internet is not monitored or filtered.
- Don't buy a security based on so-called privileged information. It is illegal to do so and the information is generally false.
- Don't provide false information, break the law or bend the rules. Con artists may encourage you to do so, knowing that later you will be too embarrassed to report the scheme. You may also become vulnerable to blackmail.
- Take time to think before investing. Never make impulsive decisions.
- Always read carefully any materials you get before signing them.
- Get a second opinion, even if a "tip" comes from a person who is a member of a group you trust. This person may be a victim of fraud, too.
- If you feel pressured or intimidated, step away and get independent advice.
- Never write a cheque payable to a representative personally.
- Check your transaction reports and statements of account as soon as you receive them. Contact your financial institution or brokerage firm if you do not recognize a transaction.
- Remember, if it seems to be too good, it probably is. Exceptional returns are rare.
Remember: Investigate before you invest. It's your money—you owe it to yourself to use it wisely.
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