How to recognize the red flags of an unsolicited investment offer

Criminals frequently use digital channels to deploy investment scams that rob Canadians of their hard-earned money every year. According to a survey by the Canadian Anti-Fraud Centre, Canadians lost more than $161.4 million to investment scams in just the first six months of 2023. While these losses are expected to surpass 2022’s total of $305.4 million, the CAFC estimates that only 5-10 per cent of frauds are reported.

One reason so many Canadians fall victim to scams is social engineering. Many times, investment scams start with an unsolicited message designed to deceive: a well-crafted introduction to build trust with the potential victim and set the stage for a “money-making opportunity”.

Some versions of these scams — such as the infamous lottery ticket or Nigerian prince schemes — have existed for decades. However, these swindles have evolved considerably over the last few years. Fraudsters are increasingly leveraging growing interest in online trading, cryptocurrency investing, and social media popularity to target Canadians.

How fraudsters use unsolicited messages to initiate a scam

A random direct message on social media or text serves as the modern equivalent of an unsolicited cold call. Messages often begin simply, like “Hi” or a more personalized greeting such as “Hey, are we still on for coffee?” This could be a fraudster trying to start a conversation.

Fraudsters who use this technique quickly build a rapport by striking up a conversation and making the victim feel like they’ve found a real friend. Scam artists will frequently use publicly available personal details, and the victim’s hobbies and interests from social media, to boost credibility and tailor their scam during this stage. Once trust is established, the scammer will introduce a supposedly lucrative investment opportunity that has earned them large returns, enticing the victim to invest as well.

In a 2023 global study by the Global Anti-Scam Alliance, 34 per cent of victims reported being “attracted to the offer made” as the primary reason for falling victim to a scam.

Signs an unsolicited investment opportunity may be a scam

One of the typical red flags of an investment scam is when a person makes claims about unrealistic returns with little to no risk. A seasoned investor or registered investment advisor will tell you that every investment comes with some degree of risk. The higher the potential return, the higher the degree of risk you may lose most, if not all, of your investment. This holds true, especially with alternative high-risk investments such as crypto.

Scammers also employ tactics of impersonation. A recent Interac survey showed that fraudsters pretended to be representatives of legitimate organizations, including government institutions and securities regulators, to deploy fake banking, credit card, and investment scams. Any unprompted communication that lacks background information about the representative or business should be considered a red flag of potential scam. Remember, requests for personal data in such communications are also a warning sign.

Fraudsters frequently use social media platforms, dating sites, messaging apps like WhatsApp, Kik, Signal and Telegram (which allow users to interact with anyone else using the app), and services like Google Chat for correspondence. These platforms allow scammers to quickly delete their profiles once a scam is complete, thereby hiding their identities.

How can you avoid unsolicited investment offers from turning into a scam?

Taking the time to check the fundamentals of any investment opportunity is crucial. Some other steps you can take to protect yourself and your money from investment scams are:

• Be wary of any investment advice that you did not seek out yourself. Legitimate registered investment professionals and businesses generally do not conduct outreach via social media or text messages.
• Ignore investment offers that use words like ‘proven’ or ‘guaranteed’ investment returns. If it sounds too good to be true, it usually is.
• Avoid any unsolicited crypto investment opportunities offered online or through unknown individuals. Fraudsters often tailor their scams around crypto or fake trading platforms. 
• Be cautious of unexpected investment offers that come from friends or acquaintances on social media. Fraudsters can hack or create fake accounts that impersonate those you know.
• Limit the personal information you share publicly on social media platforms. Fraudsters often tailor scams based on publicly available details about their targets.
• Stay cautious of individuals pushing ‘time-limited’ opportunities. These types of offers are meant to create a sense of urgency to prevent you from researching the investment and the person or firm offering it.
• Commonly, fraudsters will direct potential victims to cloned websites by mimicking trusted brands. Remember, spoof websites or phishing ads can open you up to fraud risk. Always check the destination URL of an advertisement or website, and be wary of clicking links in unsolicited messages. Better yet, if you are looking for information, go directly to a company’s official website.
• Always check to ensure the individual, firm or trading platform you plan to work with is registered with the Alberta Securities Commission before investing. Generally anyone offering investments should be registered with the ASC. Check registration at CheckFirst.ca/Check-Reg

While unexpected investment opportunities can seem enticing, falling victim to fraud can have long-lasting financial and emotional impacts. Educating yourself about common scam tactics and staying vigilant is the best defence against losing your hard-earned money.