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Don’t get caught by this caper

“The Trust Trap” may sound like the next big rollicking comedy out of Hollywood, but it’s one of five warning signs for destructive investment fraud schemes that bilk investors out of their money, and the B.C. Securities Commission (BCSC) wants the public to know it’s far more common than people suspect.

Fraudsters take advantage of the trust amongst friends and family or in religious or cultural-social groups, convincing victims to invest their money in the scheme because of personal trust.

One fraudster who used this technique to a legendary extent is Bernie Madoff, who is infamous for running what may be the biggest Ponzi scheme ever, in which he swindled $65 billion from thousands of investors.

When friends and family reveal a “sure thing” offered by a friend or acquaintance, then urge you to get in on it before the opportunity vanishes, it’s a textbook example of how Ponzi and other fraud schemes succeed by leveraging relationships to gain trust. Those who unknowingly perpetuate the fraud are often devastated to discover their unwitting complicity in the scam.

With March being Fraud Prevention Month, the BCSC hopes to empower investors to be skeptical of “hot investments” heard through word-of-mouth. When friends and family reveal a “sure thing” offered by a friend or acquaintance, then urge you to get in on it before the opportunity vanishes, it’s a textbook example of how Ponzi and other fraud schemes succeed by leveraging relationships to gain trust.

These days, people are on the receiving end of a torrent of information, so it’s understandable if they may put more trust in personal referrals. But the BCSC urges you to go online and use their free investor education resource, InvestRight.org, to learn how to spot deals that are too good to be true.

The 5 Fraud Warning Signs

1. The Trust Trap

An important thing to know is, the person who’s brought you the opportunity might not even know fraud is taking place. That’s why this scam is successful – it trades on investors’ inherent trust in their friends and family.

2. High Return, No Risk, Guaranteed

The reason clichés like “there are no guarantees in life” exist is because they’re true. As InvestRight.org explains, fraudsters “may suggest that their ‘risk-free’ investment is backed by ‘assets’ of some kind, or ‘held in trust’,” but this sort of assurance is bogus. There is no such thing as a high-reward no-risk investment, it’s that simple.

3. Fear of Missing Out

People don’t want to be left behind, and scam artists know this. They’ll tell you others are getting rich while you’re sitting on the sidelines because you haven’t got the guts to jump on their amazing offer. If they talk of exclusivity and how others can’t get in on this deal without the golden invite they’ve extended you, that’s a red flag, because legitimate investments usually have one requirement – having money to invest. Authentic investments aren’t about who you know, the luck of the draw, or a backroom deal.

4. Pressure to Buy

If there’s a ticking clock on the deal, it might be part of the fraudster’s ruse in which they pressure you to act fast. They do this so you can’t research the offering or turn to authorities like the BCSC to see if it’s a real deal. If you’re being pressured, err on the side of caution and walk away.

5. Questions Not Answered

Much like the “non-denial denial” that evasive politicians use to avoid tough questions, scam artists are masters of ducking and diving when you want information on their “great opportunity.” They may send piles of legalese and jargon that are hard to sift through and make no sense – a method of intimidation – or they might say they’re too busy to reply because others are so keen to jump on the opportunity you’ve been offered. Follow your gut – if you think you’re getting the run-around, you probably are.

Older is Wiser, But Fraud Never Discriminates

While many investors 55 and older are savvy to such schemes, and the BCSC’s research shows those between 18 and 34 are most vulnerable to being scammed, the reality is that no one is immune.

Embarrassment and shame prevent many people from reporting scams, especially in close-knit groups where people may try to resolve it internally rather than report ‘one of their own’.

If you suspect someone is duping others, or you believe someone you love is being taken advantage of, file a complaint or submit a tip to the B.C. Securities Commission, either at www.bcsc.bc.ca or www.investright.org. You can do it anonymously, but if you leave contact information, then investigators can follow up with you if they need more information.



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