How to spot attempted investment fraud
By Linda Lamarche, CFP® 17 March 2023 2 min read
Social media gives us many opportunities to connect with others and easily share content. Unfortunately, it’s also a space that can be lucrative for fraudsters, especially when users let down their guard. Fraudsters use these platforms to promote fraudulent investments, and gain access to personal information to target potential investors and even create the illusion of having a shared common interest.1
With social media, fraudsters can contact many different people at a relatively low cost. They can create fake accounts, email addresses, and link their posts to a website, videos, or photos that make the investment look legitimate.
The potential of anonymity on social media can also make it difficult to identify or find the fraudsters.
If a scam catches on in social media, people who think the investment is legitimate may encourage others in their network to invest. The investors' friends, family members, and colleagues invest in and then promote an unsuitable or fraudulent investment. When the investment fails or is fraudulent, money is lost, and personal relationships are damaged.2
Here are some red flags to watch for:
Hot tip or insider information
The sources of “hot tips” or “insider information” may not have your best interests in mind. Why are they offering you tips, and how do they benefit? If the hot tip is false, you’ll lose your money and if it is really inside information about a public company, it would be illegal to act on it under insider trading laws.
Pressure to buy
Fraudsters frequently use high-pressure sales tactics. If you’re asked to make a decision right away, or are presented with a limited time offer or a once in a lifetime opportunity, it’s likely not in your best interest. Take time to do your research, ask questions and talk to a registered professional before making a decision.
Promise of a high return with little or no risk
In general, higher-risk investments offer higher potential returns, and lower-risk investments offer lower returns. An offer to purchase a guaranteed investment with a high rate of return is a red flag.
Before you invest, check the registration and background of the person offering you the investment. In general, anyone selling securities or offering investment advice must be registered with their provincial securities regulator.
Unsolicited investment opportunities (even from friends and family)
Some fraudulent investment schemes operate by sending unsolicited sales pitches to their victims. Exercise extreme caution if you receive unsolicited communication. Some examples are email messages, telephone calls, direct messages through social media, or internet pop-up advertisements and videos. Even if these opportunities are offered through families or friends, do your due diligence. They may have good intentions, but they may be unsuspecting victims themselves.
Protecting yourself from investment fraud
Learn more about the different types of investment fraud and how to protect yourself.
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