Even in this age of technology with the invention of robo-advisors and algorithmic trading software, one thing all investors have in common is that we’re human, with human emotions, reactions and instincts. Based on our personalities and perceptions, we all have different levels of risk tolerance and capacities for trust, and we deal with loss and disappointment in various ways. In light of CMHA Mental Health Week, we’re looking at how victims are affected by investment fraud, some common social and psychological implications and sadly, one extreme case.
The sense of loss associated with being a victim of investment fraud lingers far beyond the initial financial devastation. A 2007 study conducted by the Canadian Securities Administrators (CSA) found that the most impactful loss a victim experiences is their loss of trust. Because investment fraud typically “depends on trust while also destroying trust,” the CSA noted that the victim’s trust in other people, investments and the financial markets becomes significantly diminished.1
The CSA also found that victims of fraud, especially those who have lost $10,000 or more, experience increased levels of stress, anger, depression and feelings of extreme loss and isolation. Also common amongst those who faced major losses from investment fraud were panic or anxiety attacks, increased vulnerability to physical illness and extreme weight fluctuations.
The results of the Investor Fraud Study completed by the Financial Industry Regulatory Authority (FINRA) in 2006 reinforced prior research findings that fraudsters customize their pitches and tactics to appeal to their target’s psychological profile and vulnerabilities. For example, a fraudster’s offer to a recently divorced, single mom may draw on her fears of becoming the sole provider and possibly not having enough savings for her children’s education or her own retirement. In contrast, the pitch to a highly successful, male, banking professional who is knowledgeable about investing may appeal to his fixation on wealth and power.2
The key takeaway from this portion of FINRA’s report is the importance of investors taking steps to protect themselves by understanding exactly how their psychological state or life circumstances can be exploited and used against them by fraudsters. It is clear that anyone can become a victim of investment fraud. As schemes and pitches become more innovative and as fraudsters continue to adjust their pitches to prey on investor’s vulnerabilities, we need to be increasingly conscious of our own susceptibilities and of the common red flags of fraud.
Part of being an informed investor is understanding your investing personality profile. Asking yourself questions such as: How much risk can I tolerate? How much do I expect to make on my investments? How long do I plan to invest for? And will I ever need quick access to the funds in my investments? will help paint a picture of what type of investor you are and assist you in strategically planning for your financial goals.
Unfortunately, in some situations, when a fraud does occur, the financial devastation and stress is too much to bear. This is what occurred in the case of Fred Turbide, an Edmonton man who took his own life in December 2016 after learning that the binary options trading company he invested with (23Traders) was a fraud and lost almost $330,000. Before he ended his life, Mr. Turbide begged the broker he was working with to contact him, writing that he had been financially destroyed and fearing that he had lost his house and retirement savings – he did not receive any response. Mr. Turbide’s family contacted the ASC after their tragic loss in an effort to raise awareness about the fraud and prevent it from happening to anyone else. 23Traders has since been shut down, however other binary options scams still exist, learn how to recognize and avoid them here.
As part of a Fraud Prevention Month initiative, the ASC filmed an interview with the Turbide family that captured their experience with investment fraud and its devastating effects. Click here to watch.
While this is an extreme example, investment fraud can significantly impact an individual’s well-being. It’s important to know something can be done to pursue fraudsters. If you suspect that you, or someone you know, has been a victim of investment fraud, please contact the ASC’s Public Inquiries Office toll-free at (877) 355-4488.
CMHA Mental Health Week
1 2007 CSA Investor Study
2 FINRA Investor Fraud Study Final Report