Know the Red Flags of Fraud - Canadian Securities Administrators (2024)

CSA’s RED FLAGS OF INVESTMENT FRAUD

Look for any one of these 10 red flags when investing. If you spot a red flag, stop and don’t invest! The investment may be a scam or you could be dealing with a fraudster. Immediately, report suspicious activity to your local securities regulator.

1. Unregistered individuals and firms.Use the National Registration Search (NRS) to check registration. If you suspect an individual or firm selling an investment or offering advice is not registered, stop dealing with them immediately. If someone who has approached you to invest tells you they are registered, check NRS and with the registered firm they say they work. Always use an individual’s business contact information provided by a registered firm.
2. Offers of unrealistic returns.Returns that are “too good to be true” probably are, and all investments have some level of risk. Fraudsters often try to hook people by guaranteeing extremely high returns in a short period of time with little or no risk.
3. Pressure to make a quick decision. Individuals who promote fraudulent schemes don’t want to give you any time to figure out their game. They may also pressure you to invest a little at first. Once you invest, they will then come back looking for a larger amount.
4. Financial advice from strangers. Fraudsters may offer to help you with your investment account or ask for remote access to your computer or mobile device. Giving out your account information to people, or allowing them to access your computer or mobile device is extremely risky. It could result in fraud and/or identity theft.
5. Exclusive investment offers.Be wary of investments that are promoted as exclusive offers only you and select people, like wealthy insiders, have access to. Fraudsters like to name drop, or say they have access to famous or rich people when promoting an investment.
6. “Insider” information.If an investment advisor or individual says they are giving you “confidential” investment advice, they may actually be deceiving you or their employer. Both put you at risk. It is illegal to knowingly trade on inside information.
7. Offshore firms and advisors. If a firm or individual from outside of Canada is trying to open an account for you, wants to give you trading or investment advice, or is offering you an investment, be extremely wary. Brokerage firms need to register with your province or territory as dealers or advisors in order to open trading accounts or recommend investments to you.
8. Anti-establishment.Any individual who encourages you to subvert the government or avoid financial institutions is most likely trying to keep their illegal activities from being tracked.
9. Cutting out the paper trail.Without documents for investment purchases, statements, or a prospectus (a formal document that explains the details of an investment and the risks involved), a fraudster can easily take your money without being detected.
10. Avoiding the question.If the person selling you the investment doesn’t answer your questions or they use diversionary tactics, they’re probably trying to keep you from seeing the truth. A legitimate investment advisor has nothing to hide.

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