Skip Ribbon Commands
Skip to main content
Navigate Up
Sign In
You ASC'd Blog :
Check registration (?)

The national registration search contains the names of all individuals and firms who are registered to sell securities in Canada, with the exception of those registered solely with the Ontario Securities Commision (OSC).

ASC ExternalSite > Investors > Investor Resources > You ASC'd Blog > Posts > Don’t fall for these frauds– a two part series

October 20
Don’t fall for these frauds– a two part series

It’s fall, school is back in session, and we’re teaching more about investment fraud in all shapes and sizes. Read our latest blog post to learn about Ponzi and pyramid schemes.iStock_FRAUD_PP.jpg

A Ponzi scheme is an illegal investment operation where the individual or company running the scheme pays returns to investors from the money invested in the operation by other investors, not from profits earned by the operation.

Investors are lured into the scheme with promises of high returns. Those who invest in the early stages of the scheme do receive returns, and are encouraged to further invest in the operation and introduce friends and family to this “too good to be true” investment opportunity.

Generally there is no legitimate business running behind a Ponzi scheme. To keep the scheme profitable, there must be an constant inflow of new investors to pay the earlier investors. Nothing lasts forever, so eventually the stream of new investors slows down.

At this point the scheme will no longer be able to sustain itself and investors will start to receive lower or nonexistent returns. A Ponzi scheme may also collapse when a large number of investors want to cash out of the investment around the same time. Throughout the whole scheme, the fraudster(s) usually direct a portion of each new investment to their own accounts, so when the scheme collapses, they disappear with your hard-earned savings.

Warning signs of Ponzi schemes include:

  • Being promised exceptionally high rates of returns, and consistently receiving these rates of return. Investments that pay out high returns over long time periods without fluctuating with the market can be a red flag - some Ponzi schemes last for years.
  • Being approached by people you trust about an amazing investment opportunity that they are currently invested in, and are receiving consistent high rates of return. They may not yet realize it’s a fraud themselves.
  • Finding it difficult to take money out of the investment or being encouraged to keep your money in the investment to “not miss out on high returns.”
  • Receiving account statements that have errors or are incomplete.
  • No documents outlining the investment, or documents that do not clearly and easily explain the investment.

Notable Ponzi schemers include:

Charles Ponzi A businessman for whom the scheme was named. He did not invent the fraud, but ran a very large and profitable scheme, one of the first to receive international attention and cost investors approximately $20 million.

Bernie Madoff: Founder and Chairman of Bernard L. Madoff Investment Securities LLC and a highly respected advisor on Wall Street. Due to his decades of experience and the perceived success of his firm, Bernie ran a successful Ponzi scheme for decades. During that time, his clients invested a total of $60 billion – believed to be the largest Ponzi scheme in history.

Gerald Payne: Former leader of the Greater Ministries International Church (U.S.), ran a $500 million Ponzi scheme. Gerald preached to investors that by giving his church their money, God would double their return on investment.

Pyramid schemes are very similar to ponzi schemes in many ways including:

  • Returns to investors do not come from company profits.
  • Returns to older investors come from the money of newer investors.
  • There is generally no legitimate business operation supporting the scheme, although there is often a token product or service.

In pyramid schemes, the main person or company involved is at the top of the pyramid and recruits one person to invest a specific amount of money. For that first recruit to earn a profit, they must recruit a certain number of people to invest and become recruiters, and so on.

The early recruiter will get paid with the money that the new recruits invest. With each new recruit, the pyramid expands and the investments from new recruits keeps funnelling up the pyramid to pay earlier investors. Eventually, the newest recruits will not be able to find new investors, and with no new money coming into the pyramid, it collapses.

Warning signs of pyramid schemes include:

  • Promises of high returns in a short time period. Be skeptical of pitches for exponential returns and “get rich quick” claims.
  • Emphasis on recruiting. If a program primarily focuses on recruiting others to join the program for a fee, it is likely a pyramid scheme.
  • Pressure to invest. You may be asked to sign up and invest money within a short time period. Scammers do this so you don’t have time to properly research the investment. ressure to invest. You may be asked to sign up and invest money within a short time period. Scammers do this so you don’t have time to properly research the investment.
  • Vague descriptions of the business. Ask to see documents, such as audited financial statements, and ask lots of questions.

If you have ever been approached with or heard about an opportunity in Alberta that sounds like it could be a Ponzi or pyramid scheme, contact the ASC:

Public Inquiries

(403) 355-4151

Toll-Free: (877) 355-4488


Helpful Links: