Common Frauds and Scams

Common frauds and scams to watch out for

The scams that tend to work are the scams that fraudsters go back to again and again. That means if you want to protect yourself, you can start by being aware of the types of frauds that you’re most likely to experience. Most scams have common warning signs that are fairly easy to spot. Look out for them, and avoid becoming a victim.

Affinity fraud

Affinity fraud targets groups like social clubs and ethnic or religious communities. The scam artist plays on our instinct to trust those who are like us. In some cases, the scam artist may be an established member of the group. In other cases, they may build relationships with influential members of the group in order to gain acceptance—and then use their “trustworthy” status to lure in new victims.

Binary options scams

Scammers posing as “traders” will place ads online directing you to a well-designed website that seems legitimate. They’ll then bait you with free or bonus money to open an account. They’ll ask for your money via credit card, pre-loaded card, or money transfer—with the promise of easy, impressive returns. In reality, it’s often all fabricated. If you try to withdraw money from or close your account, the “trader” will ignore your phone calls and emails, and may even use your credit or personal information to access even more funds without your knowledge. The sale of binary options is banned in Canada. 

If you think you have been the victim of a binary options scam, compile any and all documentation you may have received from the binary options traders and:

  1. Cancel your credit cards and debit cards
  2. Contact your local securities regulator
  3. If you have provided the binary options firm with your banking information, contact your bank to advise it of this
  4. If you have provided the scammers with passport information, driver’s licence, or utility bill information, contact the appropriate issuer(s) to advise them of this
  5. Tell a close friend or family member of your involvement. Keeping the fact that you have been victimized a secret, only adds more stress to a difficult situation

Boiler rooms

This type of scam begins with an unsolicited phone call to buy shares in a private company that is about to be listed on a major stock exchange. They will say that once the company goes public, the value of its shares will skyrocket. The catch? The company doesn’t exist. To convince you the company is real, they might send you to the company’s website to check things out. But everything on the site could be fake. By the time you realize you’ve been had, the scam artist will have closed up shop and moved on to another scam. You’ll likely never see your money again.

COVID-19 scams

These scams (emerging during the COVID-19 pandemic) are based on claims that a company has a solution to help stop the coronavirus outbreak. To learn more about how fraudsters have exploited the pandemic, visit the COVID-19 and Investment Fraud page.

Crypto scams

Crypto-related scams often promise unrealistic returns with little or no risk to the investor. The goal is to make you feel afraid of missing out on an opportunity others are profiting from. These types of scams are typically promoted online using social media and websites designed to look like legitimate/registered trading platforms or investment firms. People running these scams will often suggest that they don’t need to comply with financial regulations in your province or country. They may also withhold funds and try to scam you by demanding payments for fake taxation, fees, or other charges.

There are a number of ways you can be scammed when dealing with crypto assets:

  • Claims of regulatory exemption: When someone selling a crypto asset or a related product suggests they don’t need to comply with regulations, be skeptical. Don’t mistake business registration for registration with the securities regulator.
  • Guaranteed returns or risk-free promises: Crypto-related scams often promise guaranteed daily returns. Crypto assets are volatile and there is no guarantee of returns. Crypto assets have many risks associated with them. As with any investment, be sure you know the risks you are exposed to before you speculate, buy or trade any crypto asset. 
  • Unsolicited, high pressure sales pitches and/or recruiting bonuses: Crypto-related scams typically make use of social media and high energy pitches to pressure you into buying. The goal is to make you feel afraid of missing out on an opportunity your friends are profiting from. Be skeptical if you receive an unsolicited crypto-related pitch.
  • Unregistered activity: Make sure the company, platform or individual you are considering is properly registered, if required. You can search registration using the National Registration Search, and if you are uncertain about registration requirements or if securities laws apply to an offer, you can contact your local securities regulator

Double dip or repeat scam

If a scam artist receives money from you after a scam, they’ll often hold onto your information for future use, or sell their list of names and contact information to other scam artists for profit. Typically, after some time has passed, you’ll be contacted a second time and they’ll tell you that some or all of your original “investment” has been lost. The scam artist will say that they can help recover your lost money for a “fee”. However, if you pay the fee, you’ll lose that money, too.

Email or text messaging spam

Spam is an unsolicited message via email or text message that promotes a product or service, including investments. These messages can come in a variety of forms, including investment advice, offers to invest in stocks or crypto currencies, or fake solicitations from legitimate financial institutions. Be wary of all unsolicited messages—If you receive spam, don’t reply or click on links within the message. Delete it and block further messages from that sender.

Exempt Securities Scams

Exempt securities on their own are not scams—but these investments, typically aimed at wealthier investors, are often the basis of a scam. The scam usually starts with an unsolicited pitch to invest in a promising business that’s about to go public. You may be told that the investment is only available to very wealthy people, but an exception will be made for you—all you have to do is sign some paperwork. This paperwork usually involves lying about how much money you make. Since exempt securities are very risky, you could lose all of your investment.

Forex scam

Foreign exchange (forex) scams often find their victims through ads placed in newspapers, or on radio, TV, or websites. The ads offer you an exciting opportunity to invest your money on the forex market, buy software or sign up for trading courses. What usually happens is that your money is not invested in anything, but simply stolen by the scam artist. If your money is invested in the forex market, you may not have been told that the investment is very risky. Again, you’re likely to lose some or all of your money.

Investment seminar scam

Tax breaks that sound too good to be true often are. So be wary of investment seminars offering you an opportunity to “move your money,” “maximize tax flow” or “pay less tax”. The seminar is likely promoting an investment with some kind of tax break or shelter.  In some cases, investors are audited years later only to find that they could be assessed for additional taxes, interest, or penalties by CRA. If you’re approached about a tax shelter, get a second opinion from an independent and qualified tax expert like a chartered accountant or tax lawyer.

Offshore investment scam

This scam promises huge profits if you send your money “offshore” to another country, usually as a way to avoid or lower your taxes. Once your money is sent off shore and is in someone else’s control, it may be virtually impossible to track down your money and get it back. If the promised tax savings are fictitious, you could also end up owing the government money in back taxes, interest and penalties. You will also not have any recourse in Canadian court.

Oil and gas scam

The fluctuations in the price of oil and gas have spawned a rash of scams to get people to invest in fake oil and gas companies. Scam artists approach investors through emails and phone calls with false reports of an “up-and-coming” opportunity to become involved in an oil and gas limited partnership. They may have a legitimate-looking website and glossy brochures and research. Of course, these oil and gas company “headquarters” and “drilling sites” often do not exist. Once you hand over your money to one of these scam artists, you probably won’t get it back.

Ponzi or pyramid schemes

Typically, investors are recruited through ads and emails promising you can “make big money working from home” or “turn $10 into $20,000 in just six weeks.” Early investors may receive high returns fairly quickly from “interest cheques”. They’re often so pleased that they invest more money, or recruit friends and family as new investors. The catch? The investment doesn’t exist. The “interest cheques” are paid from investors’ own money and the contributions of new investors. The scheme eventually collapses, and the promoters vanish, taking your money with them.

Pump and dump

In a typical “pump and dump”, you receive an email promoting an incredible deal on a stock described as a once-in-a-lifetime investment. What you don’t know is that the person or company touting the stock owns a large amount of it. As more and more investors buy shares, the value skyrockets. Once the price hits a peak, the scam artist sells their shares and the value of the stock plummets. You’re left holding worthless shares.

Retirement account scam

You may have seen these scams in newspaper ads. A promoter typically advertises a special “RRSP loan.” They say it lets you get around the tax laws and tap into your locked-in funds. To get the loan, you have to sell the investments you now hold in your locked-in retirement account (LIRA), then use the money to buy shares of a start-up company the promoter is selling. The promoter promises to loan you back 60-70% of the money you invested. He or she will keep the rest as a fee. You’re told you will get ready cash, pay no tax on it, and still hold a valuable investment in your LIRA. The catch is, the investment you buy may be worthless. And you may never see the loan. You could lose your retirement savings, and even owe taxes to CRA. There are limited and specific circumstances under which you can access or unlock these funds early.  These circumstances may differ between provinces and territories. If you are uncertain, contact your financial institution or local pensions regulator.

Romance scams

Scam artists use dating apps or on social media sites to approach you. Before making the approach, scam artists will research their potential victims online, including reviewing their social media posts in order to maximize their chance of success. Once the scam artist develops an online relationship, they will bring up an “investment opportunity” and convince you to make an initial payment. By taking advantage of the person’s trust and desire for relationship, scam artists are often able to convince victims to continue investing, which can lead to substantial losses.

Work from home scams

A company typically offers an opportunity for you to earn high profits or wages at home as a securities or derivatives trader, without requiring a license or experience in the financial markets. The firm demands payment of fees from would-be traders. In reality, anyone in the business of trading securities or derivatives must be registered with the securities regulator, and to become registered, individuals need to meet minimum proficiency standards. Always check the registration of any person or business trying to sell you an investment or offer investment advice.