A hot tip or a scam? How to spot investment fraud

Financial markets go up and down, often without warning. In a frequently volatile market, it’s uncomfortable for many investors to see the value of their investments decline, even for a short while.

It can make an investor who wants to recoup their losses more vulnerable to investment fraud.

Unfortunately, investment fraud is becoming more common and even more experienced investors can be taken in. Just keep in mind the old adage: “If it’s too good to be true, it probably is.” 

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6 classic red flags of investment fraud

1. A guarantee of high returns and low risk

A general rule of investing to keep in mind: the higher an investment’s return potential, the higher its potential risk. If someone is making claims of high or guaranteed returns with little to no risk, it’s likely too good to be true.

2. High pressure or time-limited

If someone is trying to pressure you into putting money into an investment quickly, ask yourself why. A fraudster doesn’t want you to have time to do your research, or to figure out it’s a scam.

3. Money up front

Care should be taken on any investment where you have to make an up-front deposit, or if you have to borrow money to afford it.

4. Exclusive or unsolicited

Be careful of investment opportunities that are promoted as “exclusive” or “just for you”. Why are you receiving the opportunity? It could be a fraudster targeting an investor’s fear of missing out.

5. Based on “insider” info

Someone might approach you to invest based on a “hot tip” or insider information. Even if they do have some exclusive information, it’s illegal to knowingly trade on inside information.

6. Offshore / Anti-establishment

Be wary of anyone who tries to help you invest in something that avoids normal government or financial institution oversight. They are likely just trying to keep their activities from being tracked. Similarly, be careful of any investment opportunities you receive from an offshore firm or advisor. Anyone selling securities or offering advice must be registered with your province or territory.

How to protect yourself from investment fraud

Take some time to check out the investment opportunity through a credible source. Is it a real investment or just a “get rich quick” scheme?

If someone approaches you for an investment, check to make sure that they are registered to sell securities. The Canadian Securities Administrators keeps an online National Registration Search (NRS) for registered firms and individuals. Confirm that they are registered with the firm where they say they work. You can also check with the Canadian Investment Regulatory Organization, which maintains an online registry of disciplinary information on investment professionals.

If the proposed investment opportunity involves a security (such as a stock or bond) that is listed on an exchange, you can also do some research on that specific company. Qtraders can explore more details with our enhanced research tools for investors.

Where to find fraud resources


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The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This material is for informational and educational purposes and it is not intended to provide specific advice including, without limitation, investment, financial, tax or similar matters.