You’ve been offered an investment opportunity? Does it seem too good to be true?

In general, the higher the anticipated return on an investment, the greater the risk you must be prepared to assume. This is a basic investment rule. You should think twice if you’re told that you’ll earn a higher return, without any risk, compared with other offers on the market.

There are a number of investment fraud strategies. Here are a few of them.

International fraud: HYIP and prime bank fraud

HYIP (High-Yield Investment Programs) and prime bank fraud mislead investors into believing that certain investments on international markets will allow them to make a lot of money. In reality, these investments and their markets don’t exist.

There are ways for you to avoid this type of fraud. For example, don’t invest if you’re asked to keep the information secret.

OTC market fraud

Over-the-counter markets (also known as “OTC markets” or “Pink Sheets”) are marketplaces for buying and selling securities issued by small companies. Generally, these securities are not frequently traded and they have little liquidity. Often, they are valued at less than a dollar, hence the name “penny stocks.”

Some investors are taken in by fraudsters’ slick talk and their promises of high returns with penny stocks. Be careful! Learn to limit the risk of over-the-counter market fraud.

Is your RRSP being targeted by a fraudster?

Have you been promised amazing performance from your RRSP? Are you being urged to transfer your RRSP funds into investments that are “more profitable” yet still RRSP-eligible? Be wary when people make enticing promises. A few simple rules can help you avoid a fraudster’s empty offers.

Classified ad fraud

Scammers can take advantage of your financial troubles. They offer you their so-called expertise to conduct transactions in your name, for example, in your RRSP. Watch out, as fraudsters use various tactics to trap their victims. Learn more about classified ad fraud.

Classic frauds

Ponzi schemes

A Ponzi scheme consists in taking an investor’s money to pay bogus returns to other investors or simply to reimburse investors who want their money back. Fraudsters can thus give the false impression that the investment is generating good returns and that you will have no problem recovering your money.

When fraudsters can’t find new investors, they become unable to pay back the existing investors and that’s when victims suspect a scam. However, by then it’s too late because the money is gone. The Ponzi scheme can be combined with many other types of fraud.

Affinity groups

Fraudsters sometimes associate with people who share the same beliefs or even interests. Their objective is to build credibility. They forge ties with you and begin, subtly at first, to boast about their success and wealth, then, gradually, more blatantly.

Once you’re convinced that they’re credible, they’ll propose “attractive” investments. In some cases, they’ll ask you to keep this “golden opportunity” under your hat, because they only want to let their friends in on it.

The fraudster is the only one who’ll benefit. You, on the other hand, will lose some or all of the money you invested.

Follow the guide!

The guide Red-flagging financial fraud (pdf - 7 MB)This link will open in a new windowUpdated on 23 October 2015 explains how to recognize various types of fraud in 5 steps.