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Most investors need help with choosing and buying investments. You may trust someone to help you and believe their advice is good for you. But it can be hard to tell whether someone is trying to help you or just trying to help themselves. If they are just trying to help themselves, their advice is likely to hurt you.

Sometimes people pretend to offer you investments, but are really trying to steal your money. In other cases, advisor/registrants selling real investments take advantage of you.

Being aware of both of these risks is important for protecting yourself and your money. Knowing what to do if you have one of these problems is also important.

The risk of investment fraud and the risk that an advisor/registrant will take advantage of you are different. The signs of trouble, or “red flags,” are different; how you protect yourself is different; and what you do if it happens is different. You will learn about both concerns. We will start with investment fraud and then look at the other concerns.

Investment Fraud

Sometimes you give someone your money to invest, but the investment does not exist. The person simply takes your money and you never get it back. Usually, the people selling these fake investments are not allowed to sell real investments. This is illegal and is known as “investment fraud.” The people who do this are known as “fraudsters.”

This video from the British Columbia Securities Commission (BCSC) is a good summary of investment fraud. It also tells you about a real investment fraud case.

Fraudster Investment Schemes

These videos from the Nova Scotia Securities Commission (NSSC) tell you about some common schemes, or ways fraudsters may try to trick you. Since fraudsters are always coming up with new schemes, the videos also tell you some general things to watch for. Recognizing these red flags can help you avoid new schemes, not just the ones talked about in the videos.

You can watch as many of the videos below as you are interested in.  The same red flags are mentioned are in each video so you may want to watch all of one video and just parts of the others.

Affinity fraud involves a fraudster using the relationships between members of a group to gain their trust.  When people you trust recommend someone they trust, you tend to be less skeptical and become more likely to be taken advantage of.

In a Ponzi Scheme, a fraudster uses the investors’ own money invested to pay out fake returns.  By using the money from new investors to pay out earlier investors who want to withdraw their funds, the fraudster can keep the scheme going for a long time.

In a Boiler Room scheme, fraudsters use fake information to promote a fake company that is supposedly about to list their shares on a stock exchange.  They say the price will quickly skyrocket to put pressure on people to invest quickly. They often choose an industry with a lot of media attention to make their more believable.

In a Pump & Dump scheme, a fraudster artificially inflates or “pumps” the price of a stock that he owns a lot of.  He does this by falsely promoting it and selling it to his victims.  Once the price is high, he sells or “dumps” his large holding, making a profit. The price falls after the “dump,” leaving his victim investors with a loss.

A FOREX scam is a fake investment that promises a quick high return with little or no risk by investing in the Foreign Exchange market.

Fraudsters look for opportunities. When situations make people more vulnerable, they try to take advantage of that. NSSC made this video about schemes being used during the 2020 Covid-19 pandemic.

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