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Avoiding Investment Fraud
 Research shows fraudsters using trust to
lure victims: Investors need to take steps to protect
themselves
By Brenda M. Leong
(NC)-When John and Shirley Tremblay (not their real
names) took out a $100,000 line of credit on their
home to give to their financial adviser, they felt
confident that they were making a sound investment
decision.
What
they didn't realize is that even when you are
dealing with a trusted adviser, you still need to be
aware of where your money is going. Although their
adviser, Wilf, was a registered representative, he
stole over $500,000 from his clients. He had met
these people through his family, community, church,
and business activities.
As a
registered representative, Wilf was obliged to deal
fairly and honestly with his clients. When he
didn't, he faced 21 criminal counts of fraud,
forgery, and theft and earned himself a 30-year ban
from the stock market.
The
Tremblays were left with a $100,000 debt, plus
interest, at a time in their lives when they should
have been enjoying financial freedom.
Using relationships of trust is a common technique
amongst fraudsters. In fact, a recent survey of
investors across Canada shows that 73% of first time
fraud victims had a strong level of trust with the
person who first introduced them to a fraudulent
investment.
The nation-wide survey conducted on
behalf of the B.C. Securities Commission and the
Canadian Securities Administrators, also shows that
in 49% of cases, fraud victims got involved in an
investment because of family, friends or co-workers.
Using one of B.C.'s 28,000 registered investment
advisers is an important first step in protecting
yourself from fraud. Unscrupulous advisers like Wilf
are rare. But this case shows that investors need to
guard against becoming over-reliant on financial
advisers by learning basic financial life skills.
Financial life skills is the knowledge to manage
your money, including knowing where to get
information, and how to analyze it. It includes a
few basic survival tactics, like asking lots of
questions, and getting a second opinion when you
come across an investment that seems too good to be
true.
A
healthy dose of skepticism, and knowing a few red
flags, will help you protect yourself in the
unlikely event that your registered representative
is operating outside the law.
Be
careful if you notice any of these warning signs:
-
Requests for cheques written in the adviser's name
instead of the firm's name.
-
Sudden change in investment strategy, with or
without pressure to act now.
-
An
adviser who won't answer your questions or can't be
located after you've invested.
Before you invest with anyone, do a background check
at www.investright.org. If you
suspect illegal activity, you can call the B.C.
Securities Commission toll free, at 1-800-373-6393,
or report it online at
www.investright.org.
Brenda Leong is the Executive Director of the
British Columbia Securities Commission.
Credit: www.newscanada.com
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