Investment scams often involve convincing you to put up money for a questionable investment – or one that doesn’t exist at all. In most cases, you’ll lose some or all of your money. There are many ways fraudsters can approach you. The digital era has allowed new kinds of scams as well as more ways for fraudsters to target their victims. Learn more about common types of scams, and how to spot them.
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Eight common investment scams
1. Romance scams
Romance scams may not seem like an investment scam at first. They may start out with the fraudster initiating a relationship and gaining your trust, either through social media or an online dating platform. After contacting you more regularly, the fraudster might claim they have a great investment tip for you, which later turns out to be a scam.
If you meet someone online but have not seen them in-person, and they begin to ask you for money, it’s likely a scam. Protect yourself by slowing down the conversation. If they claim they can’t meet in person, this makes it harder to verify information about them. Don’t send money to someone you haven’t met in person. Talk to a trusted friend or family member for their opinion. And if the person is genuine, they should be open to meeting in person or by video call.
Learn more about spotting the signs of a romance scam. Watch our video on how to spot and avoid romance scams.
2. Crypto scams
More fraudsters are using digital assets as part of their scams. As crypto assets are digital, and can be quickly exchanged between users, these types of currencies are increasingly being used by fraudsters. There has been a recent rise in investor complaints about crypto-related scams.
As with any investment decision, it is important to ask questions and watch for red flags that the transaction may be fraudulent. Does the opportunity feel too good to be true? Are you told you need to provide more money before you can make withdrawals? Are you being pressured to act now? These are just some of the red flags of crypto fraud. Read more about the 8 red flags of crypto fraud.
There are many registered crypto trading platforms in Canada. Registered platforms are subject to regulatory oversight that helps protect investors. You can check to see if a crypto asset platform is registered in Ontario.
3. Affinity fraud
An affinity fraud happens when someone targets a common group such as a volunteer group, religious community, or even a workplace to gain their trust. The fraudster may seem like a regular member of the group, who one day offers you, an investment opportunity
Many times, affinity frauds are Ponzi or pyramid schemes, where the fraudster promises high returns if someone joins a select group of investors who are pooling their money on a great investment. Investors who get in early may receive high returns early on, or so they think. In the end the Ponzi scheme is revealed to be false – the fraudster has taken investors’ money for personal use or to pay off the previous waves of investors in the scheme.
Affinity fraudsters play on your trust to appear credible. To avoid being taken in by affinity fraud, it’s important to stop and evaluate the information rather than relying only on the relationship. Check the background of anyone claiming to be an investment professional. Take the time you need to research the investment and get a second opinion. And be skeptical of information found only on social media.
Learn more about affinity fraud.
4. Pump and dump scams
In these schemes, scammers work through lists of potential investors to promote an incredible deal on a low-priced stock. You don’t know that the person or company contacting you also owns a large amount of this stock, and the stock may not represent a legitimate business. As more and more investors buy shares, the value of the stock rises sharply. Once the price hits a peak, the scammer sells their shares and the value of the stock plummets. You’re left holding worthless stocks.
Avoid falling victim to these scams by always checking the registration of anyone offering to sell you an investment. Get a second opinion, take the time you need, and don’t feel pressured to buy on the spot.
Learn more about pump and dump scams.
5. Boiler room scam
Investment scams are often pulled off by a team of people who set up a makeshift office, called a “boiler room”. To convince you their company is real, they might send you to the company’s website, which looks very professional. They might also set up a toll-free number and a respectable address to make the company seem legitimate.
However, the company doesn’t exist. Everything on the website is fake, and the office is just a post office box or temporary office. By the time you realize you’ve lost your money, the scammer will have closed up shop and moved on to another scam.
6. Artificial intelligence (AI) voice scams
New generative artificial intelligence (AI) can imitate anyone’s voice or image and are now widely available to the public. Scammers are using that technology to fool people. AI can be used to create ‘deep fakes’ — impersonating the voice or appearance of someone famous. That celebrity then asks you to put money into an investment, telling you it’s a great opportunity and you should act right away. But in the end, it’s a scam.
If you get a call like this, first take a breath and pause. Slow down and verify who the caller really is. You can protect yourself by having a special word or phrase that only you and your family members know the answer to. If in doubt, hang up and call the person back using a number you trust.
Learn more about AI voice scams.
7. Exempt securities scam
When a company wants to sell securities in Canada, it must file a prospectus with securities regulators. Exempt securities are an exception. They may be sold without a prospectus, but they’re limited to accredited investors or certain other conditions.
On their own, exempt securities aren’t scams. But some scammers pitch fraudulent investments as “exempt” securities. Be suspicious if you get an unsolicited phone call or email about a hot tip on a promising business that is about to “go public”. You may be told that the investment is only available to very wealthy people, but an exception will be made for you. You could be asked to sign some paperwork that misrepresents your income or net worth. If you have to lie about how much money you have, you are dealing with someone who breaks the rules.
8. Advance fee scheme
In an advance fee scheme, the victim is persuaded to pay money up front to take advantage of an offer promising significantly more in return. The catch is that the scammer takes the money and the victim never hears from them again.
Scammers often target investors who have lost money in a risky investment. They’ll contact the investor with an offer to help recover their losses. They may say they will buy or exchange the investment at a substantial profit to the investor, but the investor must first pay a “refundable” fee, deposit or taxes. If the investor sends more money, they’ll lose that, too.
Not sure if it’s a scam?
Use the Scam Spotter Tool and Investment Fraud Checklist to learn how to spot the warning signs of fraud. Check the registration of an individual or business trying to sell you investments or investment advice at CheckBeforeYouInvest.ca
Watch for these warning signs of investment fraud
While different scams operate through different tactics, there are many common warning signs no matter the type of scam. If you’re approached with an investment tip or someone asks you for money urgently, watch for these warning signs:
- You’re pressured to act now.
- You’re promised high returns and low risk.
- The fraudster promises to have a hot tip or insider information.
- The investment dealer is not registered to sell investments.
Fraudsters will often exploit emotions and behavioural biases in order to manipulate their victims, across many kinds of scams. You can protect yourself by slowing down and taking the time you need, getting a second opinion, and checking registration.
Other common financial frauds and scams
There are several other common scams that may not be investment scams but still target your finances or your identity. Watch out for these financial scams:
1. Grandparent scams
Exploiting family ties is the driving force behind grandparent scams, also called emergency scams. In this type of scam, the fraudster will pretend to be your grandchild, or another close family member or friend who needs help. They might tell you they urgently need cash from you (or gift cards, or cryptocurrency), because they are in an emergency. For example, they may say they need money to pay for a sudden medical crisis, or are under arrest and need money for bail.
Be suspicious if anyone contacts you with an urgent request for money. Hang up the phone and contact the family member directly to confirm it is really them. Remember that no police officer or lawyer would ever ask for money or valuables over the phone. And don’t send money through the mail or give your home address to the caller.
Learn more tips about grandparent scams. Watch our video on how to spot and avoid grandparent scams.
2. Phishing scams
In a phishing scam someone tries to lure you into sharing personal information, over email, text, or phone. They may ask you to click a link or download an attachment in order to verify your account or to submit personal information. Scammers may pretend to be from the Canada Revenue Agency, a package delivery service, or an online retailer or streaming service. Just clicking the link or attachment may be enough to load malware onto your computer to give access to the scammer.
Phishing scams can lead to identity theft, when someone uses your personal information to commit fraud. There are many kinds of phishing scams, but don’t take the bait. Be on alert for any text or email that rushes you into taking an action quickly. Think twice before clicking on anything in an unsolicited message. And always look for spelling mistakes in texts and emails – fraudsters often misspell words or use strange grammar.
Find out more about phishing scams and identity theft, and how to protect yourself and your personal information.
3. Recovery room scams
Perhaps the only thing worse than being scammed once is being scammed a second time. Recovery room scams happen when a victim is contacted by another scammer, who says they can help them recover their money from the original scam, in exchange for a fee. They may pretend to be from law enforcement or a bank. But once the fee is paid, the scammer disappears, and the victim loses money a second time.
Be wary if you are contacted by someone who claims to be able to recover your money. Don’t share information with anyone unless you can confirm who they are. Check information independently by contacting the real organization the person claims to be from. Don’t be afraid to hang up the phone. And if you think you have been a victim of fraud, reach out to the Ontario Securities Commission Contact Centre at 1-877-785-1555.
Learn more about recovery room scams and how to avoid them.
Summary
Many people who experience financial loss through an investment scam never thought it would happen to them — but it can happen to anyone. Protect yourself by knowing what common investment scams look like and always watch for these four warning signs:
- You’re pressured to act now.
- You’re promised high returns and low risk.
- The fraudster promises to have a hot tip or insider information.
- The investment dealer is not registered to sell investments.
