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.
 

• Affinity fraud
• Boiler room scams
• Celebrity imposter scams
• Investment seminars
• Nigerian letter fraud
• Offshore investments
• Pig butchering scams
• Prime bank debt instrument fraud
• Ponzi or pyramid scheme
• Recovery scams
• Romance scams
• RRSP scams
• Spam email

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.

 

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.

 

Celebrity impostor scams

Celebrity impostor scams involve scammers pretending to be a well-known celebrity or public figure to trick people into giving them money or personal information. These scams can take on various forms including fake social media accounts, phishing emails and fraudulent offers.

 

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.

 

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.

 

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.

 

Pig butchering scams

A “pig butchering” scam is a type of long-term investment fraud where scammers build trust with their victims over time, often through social media or messaging apps. They may try to befriend the victim, develop an online romance with them or pretend to be a legitimate investment advisor.

Eventually, the scammer will recommend putting money into an investment opportunity, promising high returns. The scammer will show fake gains on these investments to encourage the victim to invest more. Once the victim has invested a significant amount or asks for a withdrawal, the scammer disappears with the money. The scammers are often part of organized crime rings operating outside of Canada.

These types of scams are referred to as “pig butchering scams” because they are akin to fattening a pig before slaughter.

 

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.

 

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.

 

Recovery scams

Victims of scams are targeted by scammers with the promise to recover their lost funds for a fee. Once the fee is paid, the scammers disappear with the money.

Scammers pretend to work for the police, government agencies, financial regulators, and investor protection agencies. They might contact a victim over the phone, through a text message or email, or in person at their front door.

If someone has contacted you with a pitch to recover your funds it’s likely a scam, especially if they demand payment upfront. If you have been the victim of a scam, be aware you can absolutely be targeted again.

 

Romance scams

Romance scams involve scammers deceiving their victims into believing they are in a genuine romantic relationship, often through the use of fake profiles. These scammers manipulate their victims, often over a long period of time, by appealing to their emotions and trust, with the goal of convincing them to send money or personal information. They use various tactics to claim why they cannot meet in person such as being overseas or in the military. They will come up with elaborate reasons for needing money such as an emergency situation or medical care, or funds to travel to visit the victim. They may even ask the victim take out a loan for them in the victim’s name.

 

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.

 

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.