Radar Screen:- Investor
Source: Canadian Securities Administrators (CSA), January 29, 2002
Title: Regulators sound alarm on affinity scams
Winnipeg -- With the RRSP season bringing savings and investing to mind for many people, securities regulators are alerting Canadians about the alarming growth of affinity frauds across the country.
In an affinity fraud, scam artists take advantage of the common bonds people develop through their religious, professional, or ethnic affiliations to gain their victim's trust. Typically, fraudsters target a respected member of an affinity group and through that person attempt to meet and gain the trust of other group members to convince them to invest in their schemes.
Affinity scams usually involve a pyramid or ponzi scheme where a part of the money from new investors is used to make payments to earlier investors. The flow of money gives the illusion of a high return and builds credibility for the scheme. This helps to lure more investors and convinces the earlier investors to leave their money in, or even invest more. Inevitably the supply of new investors dwindles and the scheme collapses and the investors lose most, if not all, of their money.
"More and more people are falling prey to this type of fraud," said Doug Hyndman, Chair of the Canadian Securities Administrators (CSA), the umbrella organization representing the 13 provincial and territorial securities commissions. "What's even worse is that in many cases the victims feel such a strong affiliation with the group that they will often not report their loss to the authorities but rather try to deal with the matter within their group." The following tips can help investors protect themselves against affinity scams:
|Before you make any investment, know what you are buying. Never make an investment you don't understand. Ask questions and get professional third party advice.|
|Never make an investment solely on the recommendation of people you know through an organization, religious or ethnic group you belong to - they may already be an unknowing victim of a scam. Even if they have received a return, it doesn't mean you will as well.|
|Too good to be true? It is! No investment is entirely without risk. A promise of a very high return or guaranteed returns should always raise a red flag. Remember, the greater the potential return, the greater the risk of losing money.|
|Investments that are open to a select few or that you are asked to keep confidential should be viewed with skepticism. Scams rely upon the victim's silence until they collapse.|
|Always ask for documentation. Fraudsters do not like to leave a paper trail. If there is no documentation or the documents are hard to understand, question the investment.|
|Don't be pressured into a decision. Scams are often presented as a one-time opportunity and usually require an investor to make a quick decision before the opportunity is gone.|
For more information for investors, contact your local securities regulator for a free Investor Education Kit or visit the CSA website at www.csa-acvm.ca.