When it comes to separating people from their money, con artists have slick new tools to help them ply their trade, primarily social media and other internet technologies. Also playing a role are social changes that cause isolation among vulnerable people and a growing pool of old folks, who tend to be more susceptible to financial fraud.
As for the scams, though, there’s not much new under the sun. Stock promotions, Ponzi schemes, errant brokers churning clients’ accounts, romance schemes and predatory marriages are all common themes. The largely unregulated crypto-asset space may turn up something new as investigators here and abroad take aim.
“The delivery may have changed as online approaches make communication easy, but the core of the scams remains the same,” says Frank Allen, executive director of the Foundation for the Advancement of Investor Rights (FAIR Canada), a national charitable organization dedicated to promoting investor rights.
“Fraudsters are bold, creative and quite devious,” Mr. Allen says. They still are “deceiving people, building trust, and bleeding their available funds and investments.”
One in 10 Canadians admit to investing in something that turned out to be fraudulent, FAIR Canada says on its website. Even at that, “fraud is severely under-reported,” Mr. Allen says. “No one has a handle on the extent of it, so the stories that do surface are troubling.”
Here are some of the activities that securities regulators are looking at:
Cryptocurrency platforms and new offerings
The Ontario Securities Commission (OSC) recently said it was looking into cryptocurrency trader QuadrigaCX as concerns grow about the potential loss of $250-million in cash and cryptocurrency owed to the company’s users. If these same investors had checked the regulators’ website first, they might have hesitated before handing over their money to a young man with a laptop and not much else.
Cryptocurrency trading platforms are often unregulated, so key investor protections may be missing, the Canadian Securities Administrators (CSA) says on its website. That includes secure handling of client funds, safekeeping of assets, protection of personal information, pretrade disclosures and measures against market manipulation. “Liquidating your holdings may be difficult and costly,” the CSA’s website adds.
Before venturing into such a high-risk market, ask these questions, the CSA says: Am I making a rash decision without the necessary facts? Where is the business or individual located? Do I understand what the crypto-asset does and how it is structured? Am I prepared to lose all or most of my invested capital? Are there any signs the crypto-asset may be a scam?
Initial coin offerings are also a growing concern, regulators say. In testimony before the United States House of Representatives, a top U.S. regulator warned that initial coin offerings of cryptocurrencies are among the “greatest threats” to mom-and-pop investors. That warning came from Steve Peikin, co-head of the U.S. Securities and Exchange Commission’s enforcement division.
Classic stock pump-and-dumps, but in hot new industries
In November, the B.C. Securities Commission issued a news release about a scheme in which a group of “purported consultants” known as the BridgeMark Group bought about $51-million worth of new shares from at least 11 startup companies listed on the Canadian Securities Exchange. Startups are allowed to sell shares without a prospectus to consultants, advisors, sophisticated or “exempt” investors and family members.
The companies, mainly based in British Columbia, then put out news releases about how much new capital they had raised, pumping up the value of their shares in the public market in hopes of attracting new investors.
Meanwhile, the companies – in crypto-asset, cannabis and resource exploration – handed back the lion’s share of the capital to the “consultants” as prepaid consulting fees. The consultants made back the small shortfall plus a sizable profit. Then, they dumped the shares on the market, knocking down the stock price and greatly diluting the equity interest of existing shareholders with all the newly issued shares.
The investigation has since spread to Alberta, where the Alberta Securities Commission (ASC) is investigating whether Prize Mining Corp. engaged in a similar scheme with the BridgeMark consultants. In July, Prize apparently issued $6.5-million worth of new shares to BridgeMark Group consultants, simultaneously agreeing to pay the consultants $5.5-million in advance for marketing and investor relations consulting, the ASC said in its release.
The investigations are continuing and no fraud charges have been laid.
The ‘recovery room scheme’
This one is especially cruel because it adds insult to injury.
This past August, the OSC warned investors about Payback Ltd., an outfit that appears to be involved in a scheme that targets former investors of Trans Atlantic Direct who lost money in a foreign-exchange trading scheme. Payback is contacting former Trans Atlantic investors and claiming that it can recover their funds for a fee.
Here’s the rub: The OSC believes the same individuals who perpetrated the Trans Atlantic forex scheme are behind the Payback offer, something known as a “double dip.” This is where people who were scammed once are targeted again, often by the same group or individuals, the OSC said in a news release. This is sometimes called a recovery-room scheme.
In January, the ASC warned investors about an organization that offers to help investors recover funds lost in high-profile failed investments. Global Advocacy Association or Global Advocates has been targeting investors in troubled Alberta-based CBI Group and real estate developer the Walton Group of Companies, as well as Ontario-based Canyon Acquisition, the commission says.
Once investors agree to the deal, they are typically asked to pay upfront fees for Global’s service. Global keeps the funds but does not appear to provide the service.