You ASC'd Blog
We’ve created this blog to present you with answers to some of the more common questions we receive from investors. We'll have different subject matter experts blogging about what they know best and we'll update it as new blog topics arise. We hope you'll find it interesting and helpful.
There are many events to attend in Alberta this season, ranging from football games to music festivals and horse-jumping and more. One thing they all have in common (aside from being fun to attend) is that they accept advertising and/or sponsorships from companies in order to finance their events.
Companies purchase advertising for many reasons, including attracting new customers and even new investors. We often talk about victims of investment fraud being approached by phone or online, but victims have been introduced to fraudulent investment opportunities at Alberta events in the past, through solicitation and advertising/sponsorship. It’s important not to give a potential investment more legitimacy than it deserves just because it is associated with an event you enjoy.
Things to remember to avoid getting scammed:
Don’t assume anything – The organizers of a music festival are focused on stage setup - they aren’t required to know securities laws. In an ideal world, the group hosting an event would investigate the business practices of companies before accepting sponsorship from them, but in reality, that’s generally not the case. Don’t assume that just because a legitimate event accepts advertising or sponsorship from a company that the company doing the advertising is legitimate. Even if they are, investing with them may or may not be the right choice for you.
A company that supports the same events you do does not necessarily share your values – It’s great to support and invest in businesses that participate in your community, but just because a company supports a sport or event you believe in does not mean that company exhibits good values. Also, don’t buy into the belief that all scams are big, cosmopolitan endeavours. Frauds can be small and local, so be aware that even events and individuals in small communities can pose a risk. In particular, affinity fraud is a type of scam that deliberately looks to infiltrate tight-knit communities or groups.
Meeting someone in person doesn’t ensure they’re trustworthy – Often, sponsors and advertisers will be in attendance at events. For instance, a company that sponsors a beer garden at an event may have representatives in the tent to talk to those in attendance. If you attend such an event and meet someone offering an investment, that’s not sufficient knowledge to decide to hand over your money. Be sure to do your own research on the person or company, starting with checking to see if they are actually registered to sell investments, and if they’ve had disciplinary action taken against them in the past.
Remember, it’s our job at the Alberta Securities Commission to regulate people and companies offering investments – so contact our Public Inquiries Office toll-free at 1-877-355-0585 or via email at firstname.lastname@example.org with questions you may have about an investment you’re considering. In an interesting coincidence, we share our ‘ASC’ moniker with the Advertising Standards Council – you can direct advertising questions that are not investment-related there.
Check out a Potential Investment
This year, as Canada celebrates its 150th birthday, we are reminded of all that we have to be proud of and thankful for. Canada has long been a destination for people from many different countries and backgrounds to settle and establish new roots, while still maintaining a strong sense of self and cultural identity. Coast to coast, our diversity is a part of our Canadian values, and it is something we celebrate and are proud of.
Many new Canadians join organizations and groups to integrate themselves into the community and meet others who share their culture. Unfortunately, dishonest people exist worldwide (Canada is no exception), and fraudsters target people based on perceived vulnerabilities. New citizens may experience a language barrier, or be less informed about regulations and how investments work in Canada. Sadly, scam artists are adept at lying and swindling people out of their hard-earned money and use all of these opportunities to exploit people. Specifically, affinity fraud is a common type of scam in groups like these.
Affinity fraud is when a scam artist infiltrates an organization or group and pitches a fake investment opportunity to its members. Those first members who believe the opportunity to be legitimate become unwitting participants, because they spread the word to other members of the group. This second wave of people then buy in to the opportunity, believing it to be trustworthy because the information is coming from their friend, neighbour or someone in their congregation. This can create a snowball effect, allowing the scam to spread throughout a large group very quickly.
Although these risks exist, they can be mitigated when people are aware of them, watch for red flags, and ask the right questions. Even if an investment opportunity arises through a friend or someone you trust, it’s imperative that you ask questions, do your homework and verify the information you are being given. The first step is to check and see if the advisor or company is registered, which anyone who sells an investment that is a security must be, according to Alberta laws (with few exceptions). You can do this via www.checkfirst.ca. After that, continue your research – request and review all documentation related to the investment, and consult with an objective, unrelated third party with business knowledge, such as a lawyer or accountant.
Canadian Securities Administrators
Affinity Fraud Checklist
When it comes to protecting seniors, collaboration is key. In June, ASC employees presented to legal and law enforcement groups who work with seniors to make them aware of what we do, the resources we offer and the ways we can work with them to combat elder financial abuse.
Our CheckFirst booth popped up at Calaway Park’s Grandparents Weekend, where we talked investor education with 800 grandparents, and treated the kids to games and cotton candy.
We also updated our consumer website with a new section dedicated to seniors, www.checkfirst.ca/senior. This page contains educational tools and resources for seniors and Albertans with seniors in their lives. After you read our educational materials, be sure to take our How safe is your nest egg? quiz before Friday, June 30 to find out if you are on the right track to protecting your financial future. Once you complete the quiz, be sure to enter our contest to win one of five great prizes!
Seniors are living longer, healthier lives (“70 is the new 60!”) and they have spent a lifetime accumulating investments and assets. Despite this, the natural aging process has the potential to affect a person’s ability to remember and make important decisions, including those related to their finances. Scam artists see this as a great opportunity, to prey on the perceived vulnerability of seniors.
The ASC wants to prevent that from happening, by helping seniors learn ways to avoid becoming a victim of fraud and financial abuse. Below are some tips on how to protect those you care about, or your own retirement savings.
Don’t judge a book by its cover – Successful scam artists look and sound professional, including their professional wardrobe, offices, and websites. They are experts at making the flimsiest deal sound safe. Remember that appearances can be deceiving and have no bearing on the soundness of an investment opportunity.
Don’t be a victim of your manners – Many people born in the 1930s, 40s and 50s were raised to be polite and trusting. Scam artists will try to exploit your good manners by pressuring you to invest in a “too good to be true” opportunity. Don’t forget – it’s your money and it’s not impolite to start by saying NO to something you are unsure about.
Check out strangers touting strange deals – Trusting a stranger with your money is a mistake that can be made by anyone at any age. Even if you’re one of those people who remembers a time when a handshake and a good word used to mean something, don’t just rely on a handshake when it comes to your finances. Be sure to do your own research on the person or company offering you the investment. An important free and easy first step is to check registration.
Don’t let embarrassment or fear keep you from speaking up – Scam artists know that seniors may not report an incidence of investment fraud because of embarrassment or fear of losing financial independence. Making a report to your local police or the ASC is the best thing you can do to protect others from becoming victims.
Monitor your investments and ask questions – Be sure to read financial statements when you receive them; don’t let unopened mail or e-mails concerning your account activity pile up. Watch out for signs of unauthorized trading and if you are unsure about any account activity, be sure to ask questions.
Looking for more information? Check out our seniors resources at Checkfirst.ca. And be sure to take our quiz (open until June 30) for a chance to win great prizes.
Alberta Elder Abuse Awareness Network
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
The ASC just wrapped-up another jam-packed Fraud Prevention Month. The CheckFirst Café set up shop at the Calgary and Edmonton Home & Garden Shows where we served coffee and investor education tips to show-goers. Over the course of both shows, we connected with approximately 8,000 Albertans at the CheckFirst booth, serving them coffee and investor education. We reminded Albertans to research and check registration before investing and to educate themselves on the red flags of investment fraud.
You may have also seen our Public Service Announcement on CTV during February and March. Our objective is to remind Albertans that the ASC is here to help, as a resource to help Albertans learn ways to recognize and avoid investment fraud. If you haven’t seen them yet, check out our PSAs here.
In our boldest campaign yet, we demonstrated to Albertans how simple it is to become a victim of investment fraud. We put ourselves into the shoes of the scam artist and staged a phony investment seminar during Fraud Prevention Month. To create the ‘perfect scam’ we covered all of our bases - we invented a fake company called “Maplestock Investments,” hired an actor to play the role of the stock promoter and even developed a detailed, fake online profile for the company and promoter.
Attendees heard about the scam through online advertising, which contained commonly used red flags of fraud. The event advertisements were viewed by Albertans nearly six million times and more than 8,500 potential investors clicked on the promotional materials. Forty-eight people registered for the event and 22 people attended, all genuinely searching for a new investment opportunity.
2016 Home & Garden Show Recap
What is bitcoin?
Bitcoin is one form of virtual currency or crypto-currency, a type of money that is created, held and traded electronically. Unlike most traditional currencies, bitcoin is not printed – it is powered by a technology known as blockchain. Blockchain is a public database that performs the job of validating and transmitting each bitcoin transaction. The process is chronological and historical and once completed, every bitcoin transaction is permanently stored in blockchain (barring technical security issues as outlined below).
Bitcoin was introduced in 2008 as an alternative to the conventional currency medium of exchange. It can be bought and sold and some sellers allow it to be used to purchase goods electronically. Bitcoin took off as a currency on the black market (Silk Road) and has since gained interest and notoriety due to media and major retailers accepting it as a form of payment (e.g., dating site OkCupid accepts bitcoin as currency, as does Overstock.com). Its continuing adoption within the commercial sphere has resulted in legitimate and wider tradability with other forms of currency making it harder to ignore than when it was previously used for illicit transactions.
What are the risks?
There are various ways to invest in bitcoin, including purchasing it with the expectation that its value will increase (similar to buying U.S. dollars), trading based on bitcoin’s price volatility or investing in bitcoin-related companies. As with any investment, investors should conduct their own research and familiarize themselves with the major risks associated with bitcoin before investing.
Opportunity for fraud
New inventions or innovative technologies are often used by fraudsters as scam bait. They may tempt investors by marketing a bitcoin investment opportunity as a way to get into a unique, cutting-edge space, promising or guaranteeing high investment returns. Fraudsters may solicit investors through forums and online sites frequented by members of the bitcoin community.
Unlike traditional tender, such as the Canadian dollar or Swiss Franc, bitcoin is not issued, backed or administered by a central bank or government agency and there is no obligation on any party to accept it as a form of payment. Because bitcoin lacks any central governing authority, its minimum valuation can never be verified and its value is solely determined by market volatility. The likelihood of dramatic fluctuations in the value of bitcoin create a greater risk for those buying it or using it to make or receive payments.
Security and technical issues
Bitcoins are stored as electronic files within individual computers and are not protected from hackers, online theft or data corruption.
The CRA ruled that like any commodity, gains or losses resulting from using or trading bitcoin are subject to taxation. Capital gains or profit earned through investing in bitcoin are converted to Canadian dollars to determine taxes owed. The fluctuation and volatility of bitcoin’s valuation may have a significant impact on the taxes you owe.
Numerous regulatory authorities such as the U.S. Securities and Exchange Commission, FINRA and NASAA have issued investor alerts warning of the increasing risk for fraud, including red flags to watch for and what to be wary of when doing your research. Various government agencies are analysing how to regulate bitcoin and investors should keep on top of legislative developments in this fast-evolving area.
SEC Investor Alert on Virtual Currencies
What you should know about digital currency (CRA)
SEC Investor Alert on Virtual Currencies
Helping Albertans stay awake and alert (about investment fraud), the ASC’s CheckFirst Café is back for the third consecutive year at the Calgary and Edmonton Home & Garden Shows this March. Stop in during your day of booth-hopping to have a coffee on us and learn the importance of doing research before making an investment.
If you’re attending one of these shows, you’re likely planning a remodel or choosing paint colours. An investment fraud can wind up costing you an entire house, never mind a new kitchen, so don’t spend more time researching your renovation than you do researching a potential investment. A little education goes a long way when it comes to investment fraud, and the ASC is here to help.
We’ll add sugar to your coffee, but we won’t sugar coat investment fraud! Visit us at the:
Calgary Home & Garden Show: Thursday March 2, 2017 to Sunday March 5, 2017 at the BMO Centre & Corral, Stampede Park.
Edmonton Home & Garden Show: Thursday March 23, 2017 to Sunday March 26, 2017 at the Edmonton Expo Centre.
In the Valentine’s Day edition of our blog, we apply the term “catfishing” to online investment fraud. An expression typically used in the online dating world,“catfishing” is the act of creating a false online identity for deceptive purposes. In online dating, individuals who catfish create false profiles and lie about their personal life to meet people and build romantic relationships. While online investment fraudsters may not be lying about their appearance or personal profile, they will falsify information about their company’s location, legitimacy and expertise in order to gain your trust and money.
For example, what if you found out that Bob, who you met on a stock message board, is really a scam artist? The same Bob who:
claimed he was an experienced financial adviser located in Alberta and pitched you a “once in a lifetime, low-risk, high-return, investment opportunity too good to pass up”
guaranteed you early retirement when you confided in him about your worries for your financial future
you gave your personal financial information to so he could triple your initial investment
If we told you that Bob is in fact located somewhere overseas, not registered to sell securities and it is his job to try and swindle you out of your savings, would you be surprised?
Many times, victims of online investment fraud have been shocked when they discovered who they were really dealing with on the other side of the screen. Unfortunately, this discovery typically comes after the money is already lost.
There are many ways scam artists use online tools to entice investors with fraudulent investment opportunities including: spam emails, online discussion boards or chat rooms, social networking websites and deceptive online advertising.
Binary options scams are a type of online investment fraud that has increased over the past two years, and unfortunately, one that many Alberta investors are falling victim to. ASC research shows that Albertans who fall victim to binary options scams lose an average of over $20,000. This number becomes even more alarming when you find out that these companies operate overseas and are not registered in Alberta, which means it is illegal for them to solicit Albertan investors.
As the financial industry becomes increasingly web-based, it becomes more important for investors to know how to protect themselves and their savings from online fraud. Here is a list of warning signs to watch out for:
1. Sending money overseas. When investors send their money overseas and something goes wrong, it can be difficult or impossible to get it back because unfortunately, regulators and agencies in Alberta can do little to help. When conducting research on the firm or advisor, it is important to confirm that your money is going where they say it is. Be sure to check that the contact information the firm provides you is accurate.
2. Guaranteed high returns and no risk. No one can offer you a guarantee – with limited exceptions all investing involves some level of risk. Typically, investments that have the potential to generate larger returns come with greater risks.
3. Unregistered investment firm or advisor. With limited exceptions, in order to legally sell securities in Alberta, an individual or company must be registered with the Alberta Securities Commission. Whenever you're online, you can run a quick and free registration check by going to www.aretheyregistered.ca
When it comes to matters of the heart or investing online, take extra precautions to protect yourself by asking the right questions and conducting your own research before spending any time, energy or money.
ASC warns Albertans of top five investor risks for 2017
Investment fraud on the internet
The earlier we start to think about saving for our retirement years, the better. From pension plans, to TFSAs to conventional investing, there are many ways to contribute to your nest egg. Today we focus on RRSP basics, what they are, how they can help maximize savings and how to avoid unsafe RRSP investments.
What exactly is an RRSP?
The Registered Retirement Savings Plan (RRSP) was introduced in 1965 to assist Canadians with saving for retirement. Plainly, RRSPs are retirement savings accounts, registered with the federal government with certain tax-deferring characteristics. You can contribute to an RRSP over your working lifetime.
An RRSP is not an investment in itself, it consists of a packaged set of securities and can be built using a number of different types of CRA-qualified investments including mutual funds, exchange-traded funds (ETFs), Guaranteed Investment Certificates (GICs), Canada Savings Bonds, stocks, mortgage-backed securities and more.
Are there different types of RRSPs?
Yes, you can open an individual, spousal or a group plan.
An individual RRSP is a plan that you open for yourself that is registered in your name. The investments and tax advantages of the RRSP belong to you.
A spousal RRSP is registered in your spouse or common law partner’s name. They own the investments in the RRSP, but you contribute to it and receive a tax deduction for any contributions you make. Spousal RRSPs are used to equalize retirement income and minimize tax.
Lastly, a group RRSP is offered by some employers to help employees save for retirement. It is identical to an individual RRSP, but your employer sets it up and the contributions typically come from payroll deductions. You and/or your employer can make contributions and the contributions are tax-deductible.
How do I open an RRSP account?
Anyone who files an income tax return and has earned income can open and contribute to an RRSP. You can open an RRSP account through a bank, trust company, credit union, mutual fund company, investment firm or even a life insurance company. Like any other type of investment, it’s important to research the firm and the individual providing the services before deciding to invest.
To open an RRSP account, you would generally either make a contribution, or transfer money from another RRSP. You can also set up regular contributions through a pre-authorized debit, pre-authorized contribution or a payroll savings plan, instead of making your annual contribution all at once.
How much can I contribute each year?
There are limits to how much you can put into an RRSP each year. You are able to contribute the lower of 18 per cent of your earned income in the previous year or less than the defined maximum contribution amount for the current tax year ($25,370 for 2016).
If you belong to a pension plan, your pension adjustment may reduce the amount you can contribute to an RRSP yearly.
What are the tax-deferring benefits associated with RRSPs?
You claim your RRSP contribution as a deduction against your income on your tax return. However, you need not claim any or all of the amount of your contribution in the tax year in which you made the contribution. For example, if your income is lower during a certain year, you can carry forward the deduction for your contribution to a future year when your income might be higher. That way, your tax savings will be greater because you're in a higher tax bracket.
In addition, you won't pay any tax on investment earnings as long as they stay in your RRSP.
You can borrow from your RRSP to buy your first home or pay for your education. Under the Home Buyer’s Plan you can take out up to $25,000 to fund a down payment on your first home. You can also use up to $20,000 to pay education costs for yourself or your spouse under the Lifelong Learning Plan (LLP). You won't be taxed on these withdrawals as long as you pay the borrowed money back within specified time periods.
Are RRSPs safe from investment fraud?
Again, RRSPs are packages of investments designed to help you save for retirement. The quality of the investments you choose to put into your RRSP account is important. Like any other investment decision, it’s essential to conduct independent, unbiased research on the firm or individual offering the investment as well as on the investments themselves.
RRSP accounts are not out of bounds for fraudsters. Commonly, they prey on individuals who may need early access to their RRSP funds and promise them this access “tax free” or offer a “loan” if their RRSP is locked in. They also convince individuals to divert their RRSP funds to purchase shares in a fraudulent company. In most cases, the victim is required to pay a fee to the fraudster, ends up owing taxes for withdrawing funds from their RRSP and loses a chunk of, or all of, their savings in the account.
What do I need to consider when choosing investments for my RRSPs?
Balance and diversification - no single investment can be a top performer all the time and in all economic environments. Investors who diversify are less likely to lose everything due to a downturn. Diversifying the types of investments that make up your RRSP account is also a good practice. Depending on your investment objectives, mixing safe investments (like bonds) and riskier investments (such as stocks) can help create more consistent returns over the long-term.
Risk tolerance – your risk profile is dependent on multiple factors such as your investment goals, personality and life objectives. Because saving for retirement is typically a long-term goal, you may be more willing to take on riskier investments in earlier years, when there is time to recover if something does go wrong. By the same logic, most people prefer safer investments as they near retirement. It’s important to make sure each investment matches your risk tolerance and that you periodically review and re-evaluate your strategies and portfolio, especially when there has been a change in your financial circumstances or if significant life events occur.
Time horizon – age is an important consideration when building an RRSP account and choosing investments. Did you open the account at an early age? Do you plan to max out your contributions each year? Will you withdraw money from your RRSP at any point? What age do you plan to retire? How much time do you have left? Choose investments that make sense with the timeline you’re working with. Keep in mind that you are required to close your RRSP when you turn 71; build a plan with all these considerations in mind.
Due diligence – Conduct thorough research on each investment within your RRSP account, including relevant registration or enforcement history checks, as well as reading news releases or online reports. In some cases, it may also be best to consult a professional, unbiased third party such as a lawyer or accountant for a second opinion on a particular investment or on your RRSP account as a whole.
What are some ways that help me preserve my nest egg?
Remember to check on your account regularly, open and read statements when you get them and keep an eye open for any unauthorized activity.
If you discover any discrepancies with your RRSP account, or you’ve been approached or fallen victim to an RRSP scam, contact us at email@example.com or (877) 355-4488.
RRSP Fraud or RRSP Borrowing Scheme (AMF)
Ten Tips to Protect Your Nest Egg
Beware of Scams Involving Your Retirement Savings, Regulators Warn
This blog is for general information purposes only and does not constitute legal or other professional advice. You should obtain independent professional or independent legal advice prior to acting on information in this blog or if you have questions about your particular circumstances.