Protecting seniors' money from fraud scams
“There is no way in hell you will lose on this investment.”
That was the pitch line that led to a senior investing $20,000 in a private company that turned out to be a ponzi scheme, bilking investors of more than $1.2 million.
“It’s an old saying, but if it sounds too good to be true, it probably is,” said Malki Haer, a senior compliance officer for the B.C. Securities Commission, during his presentation about fraud preventio at the 9th annual Seniors’ Safety Fair held last Wednesday at Trinity Baptist Church in Kelowna.
Haer offered some advice for seniors to avoid falling into a fraud investment scheme, noting that once the initial investment cheque is cashed, if the scheme turns out to be fraudulent, the chances of getting your money back are slim and none.
“Sometimes it happens where money is recovered, but generally once they get your cheque, you are out of luck,” Haer said.
Haer said many British Columbians, young and old, have lost their life savings to risky or dangerous investments because they didn’t understand the risks, ask the right questions, do some research or get a second opinion on the investment opportunity presented to them.
“Sometimes the best investment you make is the one you don’t make,” he said.
He told his seniors audience the reasons why anyone gets taken are as old as the day fraud was invented.
Sometimes it’s just a matter of seeing your friends all driving Mercedes, while you have a Honda, he said.
“You want to drive the Mercedes like everyone else, and someone comes along pitching an investment idea that sounds so convincing you can’t say no,” he said.
Another common entry point for scam artists is throughout the church, where church members are encouraged to invest in a can’t-miss scheme, only to end up being ripped off.
“We call that affinity fraud, and the impact of it can be devastating. It breaks up friendships, can lead to divorce and places financial hardships on those affected,” Haer said. “It can rip apart a community.”
He said the impact of a ponzi scheme was illustrated by the Bernie Madoff scandal in the U.S., where a New York investor swindled people out of millions in an elaborate scheme that took years to finally unravel.
“The Enron case is a good example of people getting sucked in by the hype. Enron was originally a small pipeline company that over time became worth billions on paper, but nobody really understood clearly what the company did to generate that value and it was a very complex financial situation to understand,” he said.
“Eventually it went bankrupt and people couldn’t understand why. If an investment is too complicated for you to understand, the best thing you can do is step away.”
Haer told his audience the three key “knows” in avoiding being caught up in a fraud scam are to know yourself and what you are comfortable with in terms of taking risk on an investment, know your financial advisor and know about your potential investment.
“If someone is promoting an investment opportunity to you as a low risk, high return, not tax potential, those are all lies,” Haer said.
“Another is off-shore investments that are tax free. Off-shore means nothing, other than if it is a scam, it will be harder to get your money back.”
Haer said the Internet is a valuable tool of information for doing research on a company seeking investors or a financial advisor or investment promoter trying to get your money.
“I’m not here to scare you away from making investments, just be aware of the fraud scam potential that’s out there, to do your homework, and don’t be afraid to contact the securities commission for information as well,” he said.
Haer said the B.C. Securities Commission’s role is to regulate securities trading in the province. The commission ensures that people who trade securities comply with the Securities Act.
If an individual or company violates the Act, the commission can take enforcement action against them through fines or other disciplinary actions.
“We do not put criminals in jail, that falls under the auspices of Crown counsel to pursue legal charges, and we do not approve investments or undo investment transactions.”
The other major presentation at the seniors’ fair was on the topic of representation agreements, power of attorney and estate planning, led by local lawyer Aaron Dow, with Farris Vaughan Wills Murphy LLP, and financial investor John Woodfield, with the Raymond James firm.