Be Aware of Schemes and Scams

This site will provide information to make you a better informed investor by advising about the latest schemes and scams thought up by the small minority of individuals who might seek to take advantage of your enthusiasm.

The topics that we’ll be covering are those which are reported to us by our partner agencies around the world and also by you, the investor.

Investment Newsletters

The Financial Services Regulation Division would like to warn investors about unsolicited investment newsletters that they may receive via fax or e-mail. There are numerous newsletters out there, some are legitimate and some are not. Investors have to realize that the information they contain is often biased and that the information may be being distributed as part of an investment scam.

Many of the newsletters promote little known stocks that are not even listed on a stock exchange. They are listed on the over-the-counter market and trade very infrequently. The newsletter usually gives some information about a company which is usually in a growth sector (e.g. biotechnology, home care, health care, etc.) and is poised for expansion and tremendous sales growth. The article often gives a very favourable target price for the stock which it will reach in the near future (e.g. 6 months).

Most newsletters include a detailed disclaimer at the bottom of the page (in very small print) which usually states things like:

  • This is not an offer to buy or sell securities.
  • This newsletter is for marketing purposes only and is not to be considered a recommendation or investment advice.
  • They admit that they received compensation (shares and/or cash) from a third party for advertising this stock in their newsletter.
  • The information contained may or may not be the opinion of the named company’s management.

By advertising like this owners of the stock hope you will buy it and drive the price up. Once the price rises, the stock owners sell off their stock at the high price and then the stock starts to fall and the new stock owners are left with illiquid stock that is worth far less than what they paid for it. This is called a “Pump and Dump” scam and it is very common. The scam artists use news releases, Internet chat rooms, web sites and investment newsletters as vehicles to pump up the value of their stock before they dump it. So, before relying on investment information, check the source and ask yourself why are they telling me about this incredible investment opportunity?

If you receive faxes or e-mails of this nature please call the Financial Services Regulation Division at 729-4189.

^ Top of Page

Foreign Exchange Firms

The Financial Services Regulation Division is warning the public about classified ads that have been placed in various newspapers across the province over the past month or so.

These ads use headlines like “HUGE PROFIT POTENTIAL IN 30 DAYS!!!” to catch readers attention. The company then gives you a 1-800 number to call to receive a free information package. These companies are involved in trading foreign exchange/currency options which are very risky investments and charge high fees to perform this service.

Both Quest Capital Enterprises (1-800-663-3105) and Universal Brokerage Services (1-866-664-0366) have placed ads in local newspapers in recent months. These companies are neither registered to sell securities in Newfoundland and Labrador nor permitted to advertise the sale of securities in the province. By doing so they may be in contravention of the Securities Act of Newfoundland and Labrador.

Their sales pitches are very smooth painting a rosy picture for either the U.S. Dollar or Euro currency. They ask for large investments (e.g. $10,000 U.S.) and stress the urgency of acting now to take advantage of this tremendous opportunity. They also speak of the tax advantages of doing business in the Bahamas. People should consider that investing in foreign countries can be risky as investments are not subject to the same laws and regulations that are in place to protect investments in Canada.

If you have contacted or invested with either of these companies or you simply would like to check on the validity of an investment or the registration of an investment salesperson, please call the Financial Services Regulation Division at (709) 729-4189.

^ Top of Page

Legitimate Investments and Registered Sellers

Many people are too trusting. Some people will give their life savings to a person who calls or presents them with an investment opportunity that sounds too good to be true. They simply believe that this person is telling the truth because he wears a suit, has a business card and talks like a businessman. Many people will give him their money without a second thought. But sometimes people get ripped off by these polite, well-dressed individuals.

There is a way to check to see if an investment or investment advisor is legitimate. You simply call the Financial Services Regulation Division. We can tell you if the person is registered to work as an investment advisor in the province, the name of the sponsoring company, the types of investments the person is allowed to sell and if the person has ever been the subject of a complaint or an investigation.

Whenever dealing with your finances, considering an investment, or choosing an advisor, it is very important to ask a lot of questions. Make sure the advisor can answer them all. You can also ask for references from his other clients. It is also advisable to get a knowledgeable friend, lawyer or accountant to look over the proposed investment to get their opinion. However, calling the Financial Services Regulation Division at (709) 729-4189 is your safest option.

^ Top of Page

West African Letter Scams (Nigerian Letter Scams)

The Financial Services Regulation Division wants to inform the public to beware of West African Letter Scams. This scam has become more prevalent lately as the scam artists are using unsolicited (spam) e-mails (and faxes) to contact potential investors. These e-mails promise an opportunity to get rich quick, but are actually nothing more than a fraud.

Recipients of these e-mails are told that the sender is either a high-ranking government official or the close relative of a high-ranking government official from a developing country. As a result of some financial miscalculation, the sender has millions of dollars languishing in a bank account that they cannot touch without the recipient’s assistance. In return for this assistance, the recipient is promised a portion of the funds, usually 20 percent. All the recipient has to do is demonstrate their good faith by either depositing a sum of money in a bank account (which the sender can access) or by faxing company letterhead and information on the recipient’s bank account. The sender then drains the bank account.

While the majority of e-mails claim to originate from Nigeria, the source of the e-mails could just as easily reside anywhere else in the world. The Central Bank of Nigeria has issued a press statement subtitled “don’t be fooled! Many have lost money”, which warns persons not to be fooled by persons claiming to be associated with the Government of Nigeria. Because the operators of these scams usually reside outside of the country in which they are soliciting, prosecuting such cases is difficult.

The use of e-mails to rejuvenate this old scam demonstrates the power of the Internet. In the past the scam artists had to individually address and arrange postage for the letters. With e-mail, a simple computer program, and a list of e-mail addresses the same letter can be sent to thousands of recipients at a fraction of the cost.

Any unsolicited e-mail which offers you an opportunity to get rich quick should be viewed with suspicion. People promoting sure-fire stock tips, the latest multi-level marketing scheme or easy access to locked-in funds often have their own get-rich-quick scheme – they get rich by taking your money.

If you receive this type of offer, report it to The Canadian Anti-fraud Centre at (888) 495-8501 or their website. If you have any questions or concerns about an investment offer, a person selling investments, or general questions about investing please call the Financial Services Regulation Division at (709) 729-4189.

^ Top of Page

Locked-In RRSP Scam

There appears to be an investment scheme operating in parts of Canada, and possibly Newfoundland and Labrador, aimed at getting investors’ locked-in RRSP funds before they would otherwise be entitled to access them and to get them without having to pay taxes. Here’s basically how it works:

  • A promoter tells you that he represents a company which has found a loophole which allows you to access your locked-in RRSP funds without having to pay taxes on them.
  • You’ll be instructed to place money in, or use an existing balance within, a self-directed RRSP to purchase shares in this or another company.
  • The company then gives or lends you 70 to 80 percent of the share purchase price, keeping the remaining 20 to 30 percent as a fee.

These transactions may contravene the intent of Pension law, which is to ensure the funds are used to provide you with a monthly income during retirement. As well, the shares may be sold to you in contravention of Securities law which requires the company to be registered to sell the shares and provide you with a prospectus and other disclosure documents.

Although you get a portion of your funds now, you should be aware:

  • The amount invested may be deemed a withdrawal from your locked-in RRSP and subject to income tax.
  • Where monies are lent to you, the company’s records will show that you owe the company a debt. At some time they could require you to repay the loan or settle the account.
  • If the company goes bankrupt with your debt on its books, the receiver, on behalf of the creditors, could require you to pay the debt immediately.
  • Your future financial security of a monthly income for life is lost.

The Securities Act of Newfoundland has strict requirements as to the type of documents that must be given to an investor before he or she invests. This information is normally found in a document called a prospectus. It would tell you a number of things such as:

  • the details of the investment;
  • the company’s address and the names of its officers,
  • the financial position of the company;
  • its past profitability (if it was profitable);
  • its future plans; and
  • a number of other pieces of pertinent information.

As always, your best defense against being caught in a scam is to consult with your licensed financial adviser to see if an investment is suitable for you. The advisor will also tell you the legal and tax consequences of making an investment. Ask the person who wants you to invest if both he and the investment are registered with the Financial Services Regulation Division.

To find out if a person is licensed to sell you an investment, or if the investment is registered to be sold in Newfoundland and Labrador, contact the Financial Services Regulation Division at (709) 729-4189.

^ Top of Page

Public at Risk From “TRI-WEST INVESTMENT CLUB” Bank Debenture Trading Program

The Financial Services Regulation Division is warning the public to be on the look out for an illegal and possibly fraudulent investment scheme. Investments described as “Bank Debenture Trading Program” are being increasingly sold to individuals who are at risk of losing their money.

The “Tri-West Investment Club” is using a web site based in San Diego, California. They are urging individuals to invest funds into the Bank Debenture Trading Program by sending the funds to Haarlem Universal Corporation located in Belize City, Belize. The organization looks for investors with $10,000 or more to invest. They claim that returns are in excess of 300%, there is no risk of losing the principal invested and that investments are secured by a bank endorsed guarantee.

Tri-West Investment Club and Haarlem Universal Corporation are NOT registered to sell securities in the Province of Newfoundland and Labrador. A number of US securities regulators have issued cease trade orders or are conducting investigations respecting the Tri-West Investment Club.

^ Top of Page

Public at Risk from Prime Bank Investment Scheme

The Financial Services Regulation Division is warning the public to be on the lookout for an illegal and possibly fraudulent investment scheme. Investments described as “Prime Bank Instruments” or “Bank Debenture Program” are being increasingly sold to individuals who are at risk of losing their money.

Individuals are approached and asked to contribute funds to use in the purchase and sale of Letters of Credit or Prime Bank Notes. Investors are told that by buying and selling these Instruments on a quick turnover basis, investors can earn enormous returns, as much as 2% per week. Investors are also told that the buying and selling of these investments is secret within bank firms and investors are asked to keep all information confidential. The individuals responsible for setting up these schemes explain to potential investors that their money is being invested offshore. They present the investor with an impressive Information Document in which the language may be complicated, leading the investor to believe that the scheme is legitimate.

The Office of the Superintendent of Securities is warning the public to be wary of schemes of this nature and to contact the Office of the Superintendent of Securities at (709) 729-4189 if you have purchased or have been contacted to purchase any of these or similar investments.

Office of the Superintendent of Securities

Tel: (709) 729-2596
Fax: (709) 729-4901

^ Top of Page