Criminal Law
If it Sounds too Good to be True... It Probably is!
A guide to recognizing con artists and investment fraud
Every year Canadians lose millions of dollars to investment fraud. Promises of riches and high pressure sales talk tempt people into investing their money in worthless products and stock. By the time they realize what's happening, it's too late - they've been conned. Their money is gone and so is the person they gave it to.
This pamphlet looks at con artists and common types of investment fraud. It provides general information and tips to help you recognize con artists and how they operate.
Who are con artists?
Con artists are people who find fraudulent ways to get others to give them their money or other assets. The best way to recognize a con artist is to get rid of any ideas about what a con artist looks or sounds like. Con artists are like actors; they often change appearance and personality to suit the role they are playing. They may appear as a business person in an expensive suit. Or, they may wear a hard hat and denims. They may be a friend of a friend or a voice you hear on your phone. Be prepared for anything and don't be fooled by a con artist's appearance.
Who are their victims?
Anyone can be the victim of a con artist. Some con artists may choose to go after wealthy investors. Most cons go after anyone's money. It doesn't matter whether you are a truck driver, teacher, factory worker, widow or corporate executive. If you have money and are willing to invest, you are a potential victim for a con artist.
How do con artists work?
Con artists often pretend that they are legitimate salespersons. They use methods similar to legitimate investment firms to attract investors. The most common are:
Telephone: Many con artists operate out of a small, low-rent office called a "boiler room". It provides the con artist with a telephone, a mailing address and little else. By using the telephone, the con artist can quickly and cheaply contact many people. A con artist may make hundreds of calls before finding a potential victim. If a person seems interested on the phone, the con artist usually keeps calling back until the person is convinced to invest.
Mail: Sending out letters and pamphlets is another way that con artists contact potential investors. Often, the con artist will buy a mailing list with the names of people who subscribe to certain magazines or who have responded to mail offers before.
Advertisements: Con artists sometimes will advertise their product or investment opportunity in a reputable newspaper or magazine. Beware! Just because you see the ad in a well-known publication doesn't mean it's legitimate.
Referrals: Con artists may use the well known tactic of paying the first few investors large profits so they will recommend the investment to others. Soon, the con artist doesn't have to look for investors, they are looking for him.
Common types of investment fraud:
Precious metals and gems: If you invest in precious metal and gems, remember " all that glitters is not gold! " Con artists exaggerate the quality of precious metals and gems. Many investors have paid thousands of dollars for a precious gem, such as a sapphire, to find out it was worth much less. Beware of any offers to sell metals or gems at below the market price. It's a good idea to find an expert to advise you about the soundness of investing in precious gems or metals.
Ponzis: This old form of investment fraud rewards early investors with money coming in from later investors. Lured by the profits of early investors, more people invest. These people, however, never get a penny. By the time they realize it is a scam, the con artist has disappeared.
The pyramid: The pyramid scam is a multilevel sales organization. Pyramid promoters get people to buy distributorships for particular goods or services. The promoter tells them that they will make large profits by recruiting other people to buy distributorships. These people recruit other people ... and so on. Pyramid scams often last until there are no more people left to recruit.
If you are investing in the right to sell particular goods or services, be wary of large start up costs. Find out whether the company will buy back the product. And make sure the product has a market.
Oil and gas: Many legitimate companies offer investment opportunities in oil and gas. However, be very cautious when investing in this area. Many investors have lost money to con artists using fake drilling equipment set on worthless land.
Phoney tax shelters: Another popular scam, phoney tax shelters may appear in such forms as art work, livestock or mining interests. They usually are economically weak and may not be recognized by Revenue Canada. Beware of promises that your tax deduction claims will be more than you invest in the tax shelter. Always check with Revenue Canada first to find out if the tax shelter is legal.
Advance-fee loans: In this type of scam the con artist offers you an interest free loan from an off-shore bank or a foreign company. To get the loan, you first must pay him or her an advance fee. The con artist tells you the loan will take about two months to process. By then the con artist has fled with your money.
Generally, you should not pay an advance-fee for a loan. Always check out the financial institution offering the loan.
Agriculture and live stock: Be wary of do-it-yourself plans such as growing crops or breeding animals such as chinchilla or mink. Con artist falsely guarantee to buy back crops or offspring.
Tips on how to avoid being conned:
1) Investigate before you invest. Ask a lot of questions. Make sure there is a market for your investment. Ask the seller for references and accounting statements. Find out if a government or industry regulatory body supervise the seller.
2) Be wary of unexpected phone calls, letters or visits from strangers who offer get-rich schemes.
3) Be wary of exaggerated claims of profit in a short period of time. Ask about how you can sell your investment when you decide to seek your investment return.
4) Be cautious when someone offers you a time-limited investment opportunity and demands that you invest on the spot. Don't make snap decisions. If it's good now, it will be there tomorrow.
5) Beware of claims that there is little or no risk. All investment opportunities involve some risk. Never invest money you cannot afford to lose.
6) Beware if you are told you were chosen as one of only a few potential investors.
7) Beware when someone hesitates about promptly delivering the goods or services in which you invest.
8) Beware if you are given only a glossy brochure about the company. Always ask for a prospectus and other professionally prepared disclosure documents, especially when investing in securities, such as stock in a company. And make sure you read the small print. Some stocks cannot be resold without the permission of the directors of the company. The information you are given should tell you about the stock and the company issuing it.
9) Before making a commitment, get aprofessional opinion. Ask about your advisor's qualifications. If necessary, phone the government department or industry association that licenses or registers him or her. Confirm that the individual is qualified to advise you.
10) When in doubt, don't make promises or commitments. It's better to be safe than sorry!
Remember, the golden rule to investing: If it sounds too good to be true - it probably is!
Make life difficult for con artists by investigating investment schemes and reporting suspicious activities to the securities regulators, the consumer affairs officials or the police. Not only will you help yourself - you may prevent other potential investors from being victimized.
For more information about security fraud write or call:
The New Brunswick Securities Commission
133 Prince William Street, Suite 606
Saint John, NB E2L 2B5
Reception: (506) 658-3060
Fax: (506) 658-3059
Toll Free: (866) 933-2222 (within NB only)
E-mail: info@fcnb.ca
Public Legal Education and Information Service of New Brunswick (PLEIS-NB) is a non-profit organization. Its goal is to provide New Brunswickers with information on the law. PLEIS-NB receives funding and in-kind support from the Department of Justice Canada, the New Brunswick Law Foundation and the Office of the Attorney General of New Brunswick.
Published by :
Public Legal Education and Information
Service of New Brunswick
P.O. Box 6000
Fredericton, NB
E3B 5H1
CANADA
Tel: (506) 453-5369
Fax: (506) 462-5193
Email: pleisnb@web.ca
www.legal-info-legale.nb.ca
July 2004
ISBN: 1-55048-496-6
Disclaimer: Please note that our website contains general information about the law. This is not a complete statement of the law on particular topics. We try to update our publications often, but laws change frequently so it is important for you to check to make sure the information is up to date. The information in our publications is not a substitute for legal advice. To receive legal advice about your specific situation, you need to speak to a lawyer.
