Investment fraud is alive and well

The Bernard Madoff $50-billion Ponzi investment scheme has focused the media spotlight again on the age-old practice and problem of investment fraud. Frauds and scams come in many forms.

The Bernard Madoff $50-billion Ponzi investment scheme has focused the media spotlight again on the age-old practice and problem of investment fraud.

Frauds and scams come in many forms.

PhoneBusters, the central agency in Canada that collects information on identity theft, telemarketing and advanced fee fraud letters, lists 24 different types of scams involving everything from vacation, travel and vehicle warranties to pyramid schemes, false charities and cheque overpayment frauds.

PhoneBusters, jointly operated by the Ontario Provincial Police and the Royal Canadian Mounted Police, plays a key role in educating the public about specific fraudulent telemarketing pitches and collects and disseminates victim evidence, statistics, documentation and tape-recordings, which are made available to outside law enforcement agencies.

Fraudulent scams in all their varieties have been around for years, but they tend to become more prevalent during recessions and bad economic times.

“When times are tough, fraudsters and victims alike look for ways to make more money,” said Graham McWaters, co-author of The Canadian Guide to Protecting Yourself from Identity Theft and Other Fraud. “When times are tough, more fraudsters come out of the cracks.”

The Internet also has contributed to the rise of fraudulent schemes because it provides quick, easy and cheap access to thousands of potential victims.

“The Internet gives scammers and fraudsters access to many more potential victims than they had before, with a lot less work,” said Tom Hamza, president of the Investor Education Fund (IEF), a not-for-profit organization founded in 2000 by the Ontario Securities Commission to offer unbiased investment education to the general public.

“During desperate times, people tend to do desperate things, and the incidence of fraud tends to rise.”

Last year, PhoneBusters handled 62,264 calls, seven per cent more than in 2007. In the first four months of this year it handled 22,493 calls. If that pace continues throughout the year, the number of calls in 2009 will increase 8.3 per cent over 2008.

In 2008, Canadian victims lost $23.9 million to mass-marketing fraud, $9.5 million to identity theft and $3.2 million to advanced fee fraud. In the first four months of 2009, Canadians lost $6 million, $3.6 million and $485,000 respectively to these three types of fraud.

Those numbers, however, are just the tip of the iceberg.

“Only five per cent of frauds are reported — 95 per cent go unreported,” said Louis Robertson of the RCMP’s Criminal Intelligence Analytical Unit. “People aren’t in a hurry to admit publicly their mistakes.”

In general, most fraud schemes have a common theme.

“Most offer a promise of great returns on your money,” said Hamza. “People should ask themselves, ‘Why am I so special that this is being offered to me? If this offer is so great, why wouldn’t you give it to a financial institution that has lots of money instead of an individual?’ If people used these kinds of questions as a filter, they’d probably be able see through the scam.”

People who get scammed once are often likely to be approached and scammed again.

“There is a propensity for people to repeat their behaviour,” said Hamza. “Often, people will be offered the opportunity to recover the money that they’ve lost, and end up losing that money as well.”

Hamza said investors should be sceptical and do some homework before parting with their money.

“People need to apply a good measure of scepticism to these promises being made,” he said. “Check the records of the individual or companies involved and check for official registrations. Securities regulators and police are always aggressive in prosecuting fraud.

“Unfortunately, it’s usually after people have lost their money.”

Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors. He can be contacted at

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