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Fraud Prevention

Scam artists are clever. Take some time to learn about the common scams that circulate in the financial services sector. Know the ways scam artists will try to take your money. You may be surprised to find out how easy it is.

Red Flags of Fraud

How to Protect Yourself

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Investment fraud is a serious crime that can cause significant financial losses for individuals and organizations. Unfortunately, fraudsters are becoming increasingly sophisticated in their tactics, making it challenging to identify fraudulent investments. However, there are some red flags that can help individuals recognize and avoid investment fraud. These red flags can include:

Low risk high returns. If it looks too good to be true it probably is.
Pressure to make a quick decision.
“Insider” information. If an individual is giving out “confidential” advice, they may actually be deceiving you or their employer. Both put you at risk.
Offers from complete strangers.
Unregistered individuals. If the person is not registered to do business in Manitoba, they may not be in a position to be dealing with you.
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.
Exclusive offers for wealthy people. Be wary of offers that are allegedly intended for the super rich but are being offered to the average person.
Cutting out the paper trail. Without receipts for statements or forms, a scam artist can easily take your money without being detected.
Overly complicated offer. You should always understand where your money is going.
Avoiding the question. If the person making the offer doesn’t answer your direct questions, they’re probably trying to keep you from seeing the truth. Legitimate business people have nothing to hide.

By being aware of these red flags, you can take steps to protect yourself, your loved ones and your investments.

Protecting oneself from investment fraud involves several key steps.

Step 1:

Conduct thorough research on any potential investment opportunity. This includes:
a. Checking the registration status of a person or company
b. Checking to see if the person or company has been disciplined in Manitoba or in other Canadian jurisdictions.
c. Checking to see if the person, company or product has been cease traded.
d. Reviewing investor alerts issued in Canada.

Step 2:

Be wary of unsolicited offers or high-pressure sales tactics, and to never give out personal or financial information to unknown individuals or companies.

Step 3:

Maintain a healthy skepticism and be mindful of potential red flags of fraud.

All complaints are thoroughly reviewed to determine if an investigation is warranted. If one is, the matter will be assigned to a Commission investigator, who will contact the complainant to obtain further information. For additional information on the MFSA complaint process, how to file a complaint and FAQs, click here.

Canadian Securities Administrators issue Investor Alerts to warn the public about activities that are illegal or pose a risk to the general public. The Alerts act as a warning to potential investors that an individual or business is not registered to engage in selling securities in Manitoba, and/or their products are being offered in a manner contrary to or directly violating securities laws.

Check the Canadian Securities Administrators national investor alert database here. To sign up for alert notifications, navigate to the the bottom of the national investor alert database page where you’ll see a form you can complete to receive alerts whenever they are sent out.

For a complete understanding of investment frauds and scams visit Recognize Investment Fraud, a MFSA website.

Members of the public are advised to contact MSC if they believe they have been targeted by any type of investment fraud attempt. MSC’s anti-fraud line is 1-855-FRAUD-MB.

Securities

Real Estate

Financial Institutions

Investment fraud can happen to anyone, even the financially savvy. The more you know about what investment fraud looks and sounds like, the better prepared you’ll be to protect yourself. Find out more in this section.

For a complete understanding of investment frauds and scams visit Recognize Investment Fraud, a MFSA website.

Scam Type	Description
Affinity Fraud	Scam artists will use victims’ religious, community or ethnic identity to gain their trust. The scam artist will pray with them, volunteer and attend social events for that particular group. Once they have established a strong relationship, they convince people to invest in their scheme.
Binary Options	These scams direct people to binary options ‘trading’ sites, via social media, online ads, and unsolicited phone calls. Binary options are a form of ‘wager’, where you decide whether a stock or commodity will increase or drop in value within a very short time span. However, the overwhelming majority of these sites are rigged to lure in a victim with small early returns. Once larger sums are invested, the victim is bled dry as quickly as possible. Unauthorized credit card withdrawals often follow suit. There are NO binary options firms registered to trade anywhere in Canada.
Contracts For Difference (CFD)	CFDs are a type of derivative contract between a buyer and a seller where the parties to the contract speculate on what the price of an underlying asset will be at a specific time. If the value of the asset increases at contract time, the seller pays the buyer the difference. If the value of the asset falls at contract time, the buyer pays the seller the difference. CFD’s are real investments, but are utilized by many offshore investment trading scams similar to Forex and Crypto scams. In those cases, your money is just stolen and no real trading happens despite the fancy website. Anyone buying a CFD should understand the risks and make sure they independently check the firm and people they are dealing with are registered to trade CFD’s in Manitoba.
Cryptocurrency Fraud	Cryptocurrency scams can take a number of forms, such as multi-level marketing schemes, pump-and-dump schemes, or fake digital wallets. In a multi-level marketing scheme, companies lure investors through the promise of high interest with low risk (for example, one per cent daily returns) on a new virtual token or coin. Investors are incentivized to recruit more members through commissions. Promoters rely on online/social media advertising to hype schemes and attract new investors. Eventually, the company will shut down, and leave investors with nothing but worthless cryptocoins or tokens. In a pump-and-dump scheme, groups collaborate to buy a low-value cryptocurrency, and then heavily promote it on social media to push up demand and increase the price. Once a certain threshold is met, there is a sudden, coordinated sell-off. Those unaware of the scheme are left with the devalued cryptocurrency. A fake digital wallet can be set up by a scammer to lure users into unknowingly providing their private key or code – once obtained, the scammer will steal all available cryptocurrency. Fraudulent ICOs capitalize on a general lack of knowledge by the investing public on cryptocurrency and blockchain technologies. Exploiting people’s Fear Of Missing Out or FOMO on a new technology is one way these frauds will use a sense of urgency to get potential investors to make hasty, uninformed decisions. Common concerns of investing in cryptocurrency include high volatility, a lack of regulation, no recourse if your money disappears, and is untraceable once lost. Unlike money in a bank or credit union, cryptocurrency is not insured through Canadian depository insurance. Cryptocurrency is also highly vulnerable to hacking and theft.
FOREX/FX	These scams often find their victims through unsolicited phone calls or emails which direct the victim to a Forex Website. The websites look legitimate and offers what looks like an exciting opportunity to invest your money in the foreign exchange (forex) market. You’ll be told the person or company investing your money has a great track record and you’ll be promised a high return. What usually happens is that your money is not invested in anything and is stolen by the scam artist.
Insider Trading	Insider trading is the buying or selling of a security by an insider* who has access to non-public, material information** about a publically traded company. An insider (a company’s CEO, for example) can buy and sell their company’s shares (i.e. trade stock), but cannot do it when in possession of material information that has not been disclosed to the public. Insiders in Canada are required to report their trades on SEDI (System for Electronic Reporting by Insiders). Insider trading also includes tipping others when you have any sort of non-public material information. An insider is typically a director or senior officer of a company, or a person or entity owning more than ten per cent of a company’s voting shares *Material information is information about certain facets of a business which have not been made public, but may impact that company’s share price once released. Material information can occur in many forms including revisions to financial statements, pending regulator announcements, a corporate merger, or a change in a company’s board of directors, etc. Detection – Canadian regulators have systems in place to identify potential leaks of inside information. One telltale sign is unusual trading by company insiders or people with connections to insiders that occurs prior to an announcement. For example, if there is a negative news release by or about a company, and leading up to that release there is an increase of selling volume, regulators can examine who was selling, and whether it involved insiders or people that may have been tipped off. In another example, say a company was about to post a large quarterly increase in profit, and an insider used that positive news to purchase shares before the material information was made public, they would be illegally benefitting from their non-public knowledge of the increase in share price. The reason for preventing insider trading is to foster a fair and transparent market, with a level playing-field for all investors.
Off Shore Investments	In this type of scam, the fraudster will promise you a high return from an investment in another country. They will often tell you the investment is a great way to avoid taxes. What you may not know is that once your money is sent to another country and is in someone else’s control, you may not be able to get it back. The promised high return is often used to attract your attention and is never paid.
Ponzi/Pyramid Schemes	The promoter promises investors high returns. They operate by paying interest to investors with money brought in by new investors. These new investors are attracted by the stories of people claiming to be getting high returns, and in some cases by receiving small amounts of money back in the early stages of the scheme. Inevitably the Ponzi/Pyramid collapses and the investors lose their money.
Precious Metals	There are many scams using precious metals like gold, silver, palladium, etcetera, to convince investors to part with their money. Investors are misled about the risks and the company selling the precious metals may not even own them. Even legitimate precious metals investments are considered very high risk. In certain cases investors will be told they can store their investment at a storage facility for a fee, that may not exist or is impossible to verify. If you are being offered and investment in precious metals, where you are not taking delivery of it, the company may require registration in Manitoba. Prior to making an investment, you should make sure you are aware of the risks and the company is registered to trade in Manitoba.
Prime Bank Schemes	Investors are asked to contribute money to use in the purchase and sale of Letters of Credit, Prime Bank Notes or some other similarly named financial instrument. They are told that they can earn very high interest rates by buying and selling these instruments on a quick turnover basis. Investors are often told that this type of investment is a secret transaction, normally available only to the very wealthy and that they should keep all information confidential. The promoters explain that the money is invested offshore and they present investors with a complicated information document, which gives the impression that the scheme is legitimate. In the end, people lose their money.
Pump and Dump	‘Pump and Dump’ involves anonymous people talking up a thinly traded stock (which they own) on Internet chat groups quoting supposed “inside information”. People buy into the hype and start buying the stock and its value shoots up. The original promoters sell their stock at the inflated price and the stock price soon drops. The rest of the group is left holding stock that is worth far less than they paid for it.
Recovery Room Scam	Victims who have been previously defrauded are contacted by an individual claiming they can recover all or some of the money lost in the previous scam. They are asked to pay an advance fee to cover the costs of the recovery. In fact, the investor is being scammed a second time by the same fraudsters who keep the fee with no intention of helping the investor.
RRSP Unlocking Scam	A promoter advertises that his company has found a loophole in the tax law which will allow you to access your locked-in RRSP, RIF, LIF, RESP or LIRA funds tax-free. You are instructed to deposit money in a self-directed registered account and buy shares in a shell company. The company then loans you money and keeps the remainder as a fee. If the monies were lent to you, you owe the company a debt and they could require you to repay it. If the company goes bankrupt, the receiver could require you to repay the debt immediately. Most investors don’t understand that they are buying worthless shares or that any money they receive will likely be taxable.

Scam Type

Description

Affinity Fraud

Scam artists will use victims’ religious, community or ethnic identity to gain their trust. The scam artist will pray with them, volunteer and attend social events for that particular group. Once they have established a strong relationship, they convince people to invest in their scheme.

Binary Options

These scams direct people to binary options ‘trading’ sites, via social media, online ads, and unsolicited phone calls. Binary options are a form of ‘wager’, where you decide whether a stock or commodity will increase or drop in value within a very short time span. However, the overwhelming majority of these sites are rigged to lure in a victim with small early returns. Once larger sums are invested, the victim is bled dry as quickly as possible. Unauthorized credit card withdrawals often follow suit. There are NO binary options firms registered to trade anywhere in Canada.

Contracts For Difference (CFD)

CFDs are a type of derivative contract between a buyer and a seller where the parties to the contract speculate on what the price of an underlying asset will be at a specific time. If the value of the asset increases at contract time, the seller pays the buyer the difference. If the value of the asset falls at contract time, the buyer pays the seller the difference. CFD’s are real investments, but are utilized by many offshore investment trading scams similar to Forex and Crypto scams. In those cases, your money is just stolen and no real trading happens despite the fancy website. Anyone buying a CFD should understand the risks and make sure they independently check the firm and people they are dealing with are registered to trade CFD’s in Manitoba.

Cryptocurrency Fraud

Cryptocurrency scams can take a number of forms, such as multi-level marketing schemes, pump-and-dump schemes, or fake digital wallets.

In a multi-level marketing scheme, companies lure investors through the promise of high interest with low risk (for example, one per cent daily returns) on a new virtual token or coin. Investors are incentivized to recruit more members through commissions. Promoters rely on online/social media advertising to hype schemes and attract new investors. Eventually, the company will shut down, and leave investors with nothing but worthless cryptocoins or tokens.

In a pump-and-dump scheme, groups collaborate to buy a low-value cryptocurrency, and then heavily promote it on social media to push up demand and increase the price. Once a certain threshold is met, there is a sudden, coordinated sell-off. Those unaware of the scheme are left with the devalued cryptocurrency.

A fake digital wallet can be set up by a scammer to lure users into unknowingly providing their private key or code – once obtained, the scammer will steal all available cryptocurrency.

Fraudulent ICOs capitalize on a general lack of knowledge by the investing public on cryptocurrency and blockchain technologies. Exploiting people’s Fear Of Missing Out or FOMO on a new technology is one way these frauds will use a sense of urgency to get potential investors to make hasty, uninformed decisions.

Common concerns of investing in cryptocurrency include high volatility, a lack of regulation, no recourse if your money disappears, and is untraceable once lost. Unlike money in a bank or credit union, cryptocurrency is not insured through Canadian depository insurance. Cryptocurrency is also highly vulnerable to hacking and theft.

FOREX/FX

These scams often find their victims through unsolicited phone calls or emails which direct the victim to a Forex Website. The websites look legitimate and offers what looks like an exciting opportunity to invest your money in the foreign exchange (forex) market. You’ll be told the person or company investing your money has a great track record and you’ll be promised a high return.

What usually happens is that your money is not invested in anything and is stolen by the scam artist.

Insider Trading

Insider trading is the buying or selling of a security by an insider* who has access to non-public, material information** about a publically traded company. An insider (a company’s CEO, for example) can buy and sell their company’s shares (i.e. trade stock), but cannot do it when in possession of material information that has not been disclosed to the public. Insiders in Canada are required to report their trades on SEDI (System for Electronic Reporting by Insiders). Insider trading also includes tipping others when you have any sort of non-public material information.

*An insider is typically a director or senior officer of a company, or a person or entity owning more than ten per cent of a company’s voting shares

**Material information is information about certain facets of a business which have not been made public, but may impact that company’s share price once released. Material information can occur in many forms including revisions to financial statements, pending regulator announcements, a corporate merger, or a change in a company’s board of directors, etc.

Detection – Canadian regulators have systems in place to identify potential leaks of inside information. One telltale sign is unusual trading by company insiders or people with connections to insiders that occurs prior to an announcement. For example, if there is a negative news release by or about a company, and leading up to that release there is an increase of selling volume, regulators can examine who was selling, and whether it involved insiders or people that may have been tipped off.

In another example, say a company was about to post a large quarterly increase in profit, and an insider used that positive news to purchase shares before the material information was made public, they would be illegally benefitting from their non-public knowledge of the increase in share price.

The reason for preventing insider trading is to foster a fair and transparent market, with a level playing-field for all investors.

Off Shore Investments

In this type of scam, the fraudster will promise you a high return from an investment in another country. They will often tell you the investment is a great way to avoid taxes. What you may not know is that once your money is sent to another country and is in someone else’s control, you may not be able to get it back. The promised high return is often used to attract your attention and is never paid.

Ponzi/Pyramid Schemes

The promoter promises investors high returns. They operate by paying interest to investors with money brought in by new investors. These new investors are attracted by the stories of people claiming to be getting high returns, and in some cases by receiving small amounts of money back in the early stages of the scheme. Inevitably the Ponzi/Pyramid collapses and the investors lose their money.

Precious Metals

There are many scams using precious metals like gold, silver, palladium, etcetera, to convince investors to part with their money. Investors are misled about the risks and the company selling the precious metals may not even own them. Even legitimate precious metals investments are considered very high risk. In certain cases investors will be told they can store their investment at a storage facility for a fee, that may not exist or is impossible to verify. If you are being offered and investment in precious metals, where you are not taking delivery of it, the company may require registration in Manitoba. Prior to making an investment, you should make sure you are aware of the risks and the company is registered to trade in Manitoba.

Prime Bank Schemes

Investors are asked to contribute money to use in the purchase and sale of Letters of Credit, Prime Bank Notes or some other similarly named financial instrument. They are told that they can earn very high interest rates by buying and selling these instruments on a quick turnover basis.

Investors are often told that this type of investment is a secret transaction, normally available only to the very wealthy and that they should keep all information confidential. The promoters explain that the money is invested offshore and they present investors with a complicated information document, which gives the impression that the scheme is legitimate. In the end, people lose their money.

Pump and Dump

‘Pump and Dump’ involves anonymous people talking up a thinly traded stock (which they own) on Internet chat groups quoting supposed “inside information”. People buy into the hype and start buying the stock and its value shoots up. The original promoters sell their stock at the inflated price and the stock price soon drops. The rest of the group is left holding stock that is worth far less than they paid for it.

Recovery Room Scam

Victims who have been previously defrauded are contacted by an individual claiming they can recover all or some of the money lost in the previous scam. They are asked to pay an advance fee to cover the costs of the recovery. In fact, the investor is being scammed a second time by the same fraudsters who keep the fee with no intention of helping the investor.

RRSP Unlocking Scam

A promoter advertises that his company has found a loophole in the tax law which will allow you to access your locked-in RRSP, RIF, LIF, RESP or LIRA funds tax-free. You are instructed to deposit money in a self-directed registered account and buy shares in a shell company. The company then loans you money and keeps the remainder as a fee. If the monies were lent to you, you owe the company a debt and they could require you to repay it. If the company goes bankrupt, the receiver could require you to repay the debt immediately. Most investors don’t understand that they are buying worthless shares or that any money they receive will likely be taxable.

Mortgage fraud occurs whenever someone lies about or fails to disclose an important fact in order to facilitate obtaining a mortgage loan. The misrepresentation can be either verbal or in writing. The fraudster could be stealing from the legitimate homeowner or the lender or could also be using real estate to launder the proceeds of crime.

Types of Mortgage Fraud	Description
Fraud For Shelter	Fraud for Shelter means lying on a mortgage application in order to qualify for a mortgage or for a larger mortgage than your income or credit history allows.
Foreclosure Fraud	The fraudster targets homeowners who are in danger of losing their homes by defaulting on their mortgage payments or property taxes. The fraudster offers to refinance the outstanding debt into smaller payments. In some cases, the homeowner is misled into signing documents transferring the title to the fraudster. They effectively become tenants in their own homes and are evicted if they default on the payments. In other cases, the fraudster just steals the payments made by the homeowner without paying the mortgage lender or tax arrears.
Title Fraud	Title fraud is a form of identity theft. When you buy a home you buy the title to the property and you are registered with the Property Registry as the owner of the property. With title fraud, the fraudster steals the identity of the legal owner of real estate and either sells the property and keeps the proceeds, or obtains a mortgage against the property and keeps the money.
Nominee Buyer	The fraudster convinces or pays an individual, sometimes called a “Nominee” or “Straw Buyer,” to buy real estate and apply for a mortgage on the fraudster’s behalf. Typically, this is because the fraudster either does not qualify for a mortgage or wants to hide their involvement in the purchase of the property. Once the mortgage is in place the nominee is liable for the mortgage payments and could be held criminally responsible for the misrepresentation.

Exaggerating the losses in an insurance claim or claiming a loss on something that was never owned can be considered insurance fraud. Insurance fraud is a crime and people who commit insurance fraud can be charged.

Types of Insurance Fraud	Description
Insurance Fraud	How it works: After losing a wedding ring, a claim is made that exaggerates the size and value of the diamond. A friend or acquaintance is hired to steal a high-priced item in a home and sells the item for profit. The profit is shared between the friend and the claimant, and an insurance claim is filed to collect additional payment for that item. A fire destroys a home and claims are made for items that were never owned. The power is disrupted in a home, resulting in damages to the home and spoiled food in the fridge and freezer. Several pounds of frozen meat are fraudulently listed as foods that were spoiled.
Vendor Fraud	Insurance fraud can also take place by contractors hired to fix a damaged home or to replace a valuable item. Insurance fraud by contractors is known as restoration fraud. Always ask for a written contract when seeking restoration services, hire professional contractors, and provide a paper trail when you pay for services or replacement products related to insurance claims.

Types of Insurance Fraud

Description

Insurance Fraud

How it works:

After losing a wedding ring, a claim is made that exaggerates the size and value of the diamond.

A friend or acquaintance is hired to steal a high-priced item in a home and sells the item for profit. The profit is shared between the friend and the claimant, and an insurance claim is filed to collect additional payment for that item.

A fire destroys a home and claims are made for items that were never owned.

The power is disrupted in a home, resulting in damages to the home and spoiled food in the fridge and freezer. Several pounds of frozen meat are fraudulently listed as foods that were spoiled.

Vendor Fraud

Insurance fraud can also take place by contractors hired to fix a damaged home or to replace a valuable item. Insurance fraud by contractors is known as restoration fraud. Always ask for a written contract when seeking restoration services, hire professional contractors, and provide a paper trail when you pay for services or replacement products related to insurance claims.

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