Common scams and frauds

Common scams and frauds

The most popular scams have been fooling people for decades, and defrauded Canadians out of millions of dollars. The following is a list of common scams and how to spot them.
 

• COVID-19 scams
• Affinity fraud
• Ponzi or pyramid scheme
• Investment seminars
• Spam email
• Offshore investments
• Boiler room scams
• RRSP scams
• Nigerian letter fraud
• Prime bank debt instrument fraud

 

Affinity fraud

Con artists sometimes establish credibility by associating with an affinity group, like churches, sports organizations, or social clubs. They spend some time getting to know the members of the group, then ask for investments. They may ask to keep the deal "hush-hush", because it is such a great opportunity. Usually that means it is a great opportunity for the con artist, not so great for the victims.

 

Ponzi or pyramid scheme

Investors are typically recruited through ads and emails promising big money working from home or turning small amounts of money into large sums in a few weeks.

Investors provide money up front and may receive high returns fairly quickly from “interest cheques”; however, the cheques are the investors’ own money and contributions from new investors. When the number of new investors drop, the scheme eventually collapses and promoters vanish with your money.

 

Investment seminars

Investment seminars promise to “move your money,” “maximize tax flow” or “pay less tax”. Tax breaks that sound too good to be true probably are. Investors should be aware that they could be audited by the Canadian Revenue Agency (CRA) for additional taxes, interest, or penalties.

If you are considering a tax shelter, get an opinion from a qualified tax expert.

 

Spam email

Spam is unsolicited email promoting a product or service, including investments. Do not reply to spam email. Delete the email and block further messages from that sender.

 

Offshore investments

This scam promises huge profits if money is sent “off shore” to another country, usually as a way to avoid or lower your taxes. Money may be impossible to track down once it is sent off shore and is in someone else’s control. If the promised tax savings are not legitimate the investor could end up owing the government money in back taxes, interest and penalties. In addition, when money moves to another country, it is no longer protected by Canadian law.

 

Boiler room scams

These scams involve individuals claiming to represent brokerage houses and using high-pressure sales tactics, often offering investors an exceptional deal on stock. They are called "boiler room scams" because the "salespeople" who call, offering a "once-in-a-lifetime deal," are usually calling from a "boiler room" filled with other con artists doing exactly the same thing. The "brokerage house" typically owns most – or all – of the stock, which it actively promotes to drive the price up. Once the firm has sold its holdings, it stops promoting the stock. The price of the stock falls, and investors lose their money.

 

RRSP scams

These scams are often promoted in newspaper ads as “RRSP loans," which let you take advantage of a "loophole" in tax laws to access your locked-in RRSP funds. In reality, the promoter encourages you to use your RRSP holdings to purchase stock in a start-up company. In return, he or she "promises" to loan you 60-70% of the value of the investment. The stock is often worthless, you often get no funds from the loan they promise, and you may end up paying tax on the money you withdrew from your RRSP, even though you do not actually have it.

 

Nigerian letter fraud

These letters have appeared, in various forms, through the mail or via email since the late 1970s. They appear to be from a government official or even a monarch, who claims to have access to millions of dollars that need to be moved out of the country. All they need is for some kind soul – you! – to hold the money in a personal bank account. The sender will ask for your banking information and offer to give you a percentage of the proceeds in return for "help." Of course, once they have your banking information, they empty your account.

 

Prime bank debt instrument fraud

This scam first surfaced in Saskatchewan in 1994. Since then several variations have been promoted by different individuals, based both in Saskatchewan and other provinces or countries. The basic premise is always the same:

• There is an exclusive market in which the world’s richest families and largest banks trade in debt instruments.
• Unusually high rates of return are promised ranging from 30% to 1000% in one year.
• In all cases the money must be sent offshore, usually to countries such as the Bahamas, Nevis, Belize, Latvia, Switzerland. (The laws in these countries make it difficult for enforcement agencies to obtain banking information.)
• There is frequently a requirement to sign a confidentiality agreement to keep the investment secret except to a few lucky people.
• There are promises that the investment is low risk and that the money never leaves the control of the investor.

Aspects of a Ponzi scheme have also been added to this scam. A Ponzi scheme uses new investors' money to pay off old investors. In the most recent case the perpetrators are paying referral bonuses and monthly interest payments to current investors if they bring in new investors. These ploys have the effect of convincing people that the scheme is legitimate and convinces people to invest greater amounts. It is also an incentive to promote this scheme to their friends and relatives with a view to earning these bonuses. The payment of these sums in the short term only enhances the profits of the fraud artist in the long run, and delays the reporting of the scam to officials.