Montréal – Now that the Registered Retirement Savings Plan (RRSP) season is in full swing, the Autorité des marchés financiers (AMF) reminds you to be careful of certain attractive offers advertised in your local paper. They could be fraudulent, from scammers who’d like to get their hands on your money. While no one is ever immune to fraud, you can lessen the chance that you’ll be a victim by always keeping your guard up.
Signs of potential fraud
- You’re offered securities that promise a very high return and no risk. It’s unusual for securities offering potential high returns to be without a certain amount of risk. So first make sure that the investment is within your risk tolerance levels.
- Someone you don’t know contacts you without your asking them to do so.
- You’re urged to “act fast, this is a once-in-a-lifetime opportunity that won’t last.”
- You’re asked to keep the opportunity a secret.
- You’re asked up front to sign forms or proxies. You’re given backdated paperwork.
- You’re pressured to buy the investment, and made to feel guilty if you hesitate.
- You receive an offer to repurchase your shares or buy them back at better than market value provided you pay fees in advance.
- Financial transactions are made without your consent.
- You’re told that a regulatory agency has “approved” the investment.
Most scammers will try to conceal their real intentions, and the most clever:
- will find shared affinities or similarities between their situation and yours—they’ll “talk your language”;
- will suddenly show a great deal of interest in you;
- will boast about their abilities and successes.
Be on guard. While these situations don’t necessarily mean it’s a scam, any of them could be a sign of fraud or attempted fraud.
Think twice if you hear statements like these:
- “I have it from a reliable source, the value of this stock will soar.”
- “Very few people know about this, but the company is on the verge of signing a huge contract.”
- “The government is about to issue the company a patent.”
- “The return is guaranteed, you can’t lose a cent.” “You've got to act now—tomorrow will be too late. I can send a courier over for your cheque.”
- “How do you expect to reach your goals if you don’t invest in this project? You sure can’t do it with certificates of deposit and savings bonds.”
- “I’ve put almost all my money in this, and my parents’ money, too.”
- “If you’re not satisfied, I’ll pay you back.”
- “All my clients have bought this stock.”
Be wary if told to withdraw from your RRSPs
Many people work hard and use RRSPs or other registered investment plans to save for comfortable retirements. Losing a job or experiencing other financial setbacks can make tapping into that RRSP tempting. Imagine if it were possible to withdraw from your RRSP without the resulting tax consequences.
If someone asks you to withdraw from your RRSP and tells you there won’t be any tax consequences, be suspicious. Ask the proper government authorities about applicable tax rules before you take any action.
One example of a scheme
After seeing an ad in the local paper, John, a recent retiree, contacted the “Custom Financing Centre,” a company that offered financial assistance to holders of RRSPs and other registered plans. He was told that he could withdraw money from his RRSP without paying taxes—this looked like a great offer!
The scheme he was offered was simple:
- Use the amount accumulated in his RRSP to buy shares of an “RRSP eligible” company.
- Get a loan equivalent to 80% of the RRSP, to use as he wished. Because it was such an exceptional offer, it was available for a limited time only, so John didn’t have much time to think it over.
John finally understood—but not without losing a lot:
- The shares he bought were worthless. So he lost all his RRSP since the company he invested in, the one that was “RRSP eligible,” was a sham.
- The shares weren’t eligible for an RRSP, contrary to what he was told. So he wasn't able to take any money from his RRSP without paying taxes, and he received notices of assessment from the provincial and federal governments. He is now required to pay taxes on all the money withdrawn from his RRSP, plus interest and substantial penalties for violating the rules.
Lessons to learn:
- Make sure that representatives and firms you deal with are registered with the AMF.
- Check that companies issuing shares (or securities) have filed prospectuses with the AMF.
- Never assume that someone is telling you the truth.
There are other lessons to learn, too. Read the AMF’s educational brochure “Watch out for securities fraud,” which will help you recognize various types of illegal tactics. It offers tips to keep you on guard against scammers.
As well, to guide you through the complex world of financial products, consult our other brochures on the subject of saving and investing. You can find them on the AMF website, under “Making Informed Investment Choices” (click on “You are a consumer”), or phone our Information Centre at 1-866-526-0311.
The AMF also invites you to visit the section “2007 RRSP Season” on its website. You’ll find a series of items on RRSPs, including advice about how to make more informed decisions.
The Autorité des marchés financiers (AMF) is the regulatory and oversight body for Québec’s financial sector.
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Frédéric Alberro (514) 940-2176
Issuers, dealers, advisers and representatives: (877) 525-0337, choose option 9 for English, then 1 for industry
Consumers and investors: (877) 525-0337, choose option 9 for English, then 8 for consumers