The cost of investment fraud

This article is the fourth in a series. By Nikita Mohile

Your money takes hard work to earn, but it can be lost in an instant to scammers. In 2024, Canadians lost over $310 million to investment fraud, according to the Canadian Anti-Fraud Centre, making it the costliest type of fraud.

Scammers purposefully exploit people’s behavioural biases to promote investment fraud. For example, optimism bias makes people overestimate positive outcomes, while the halo effect leads them to assume that someone who seems appealing in one way is appealing in other areas as well. The halo effect is seen primarily in relationship scams, where the scammer’s physical appearance makes a person believe that they are trustworthy. Present bias causes people to focus on short-term gains at the expense of the future, and regret aversion pushes people to act quickly for fear of missing out.

Photo by Vitaly Gariev

“Scammers have clever tricks and tactics to take advantage of people,” says Theresa Ebden, vice president of the Ontario Securities Commission’s (OSC) Investor Office. “In a complex financial decision, people may rely on their gut feeling to simplify their decision-making process, but this can lead to unwanted outcomes.”

To stay safe, Ebden highlights four red flags: promises of high returns with little or no risk; tips based on “insider knowledge;” pressure to act quickly; and unregistered companies. The OSC’s website, checkbeforeyouinvest.ca, is a good source to verify if a firm or individual are registered, as well as if these have been flagged with any investor warnings and alerts.

Crypto fraud is a major threat to investors. According to CTV, crypto investments made up more than 70 per cent of investment fraud losses in 2024. While crypto can be a legitimate investment, scammers take advantage of its lack of regulation and irreversible payments. “If you didn’t check before investing, there is probably no actual crypto investment happening here,” warns Ebden. The OSC’s website getsmarteraboutmoney.ca offers resources to verify registrations and learn more about investment fraud.

Social media and artificial intelligence, or AI, are inadvertently helping drive fraud. An OSC survey found that 35 per cent of people made financial decisions based on influencer advice.

“Sometimes you’re not getting enough information on social media,” says Ebden. “It leaves little room for detail and nuance and it’s not designed to address your circumstances and goals.”

AI has made scams harder to spot. Deep fakes — altered or generated videos, images, or audio — are increasingly used in investment, emergency, and relationship scams – all scams which especially target seniors. Before believing what you see online or hear over the phone, pause and think if the person would really say or do what you see. Setting up a password with friends and family can help to confirm identities.

“These deep fakes stem from the loneliness that comes with getting older,” says Yigal Bruk, CEO of GAL Senior Care Foundation. “They take advantage of those vulnerable moments in your life.” His foundation encourages building a “circle of trust” for a social support network.

Another type of scam targeting seniors is the recovery room scam. This, the OSC says, is “when you get scammed twice” by paying money to recover losses from a previous scam.

Fraudsters also utilize AI to design convincing and sophisticated fake websites. To protect yourself, Bruk suggests using his charity’s GSC Phishing Protection extension, which verifies Canadian banking links, or a similar extension called Stingray. To learn more about AI use in financial fraud, you can visit gsc-foundation.org or call the GAL Senior Care Foundation at 1-250-900-7215.

In this ever-changing investment landscape, caution and education remain the strongest defenses. The OSC recommends pausing and researching any opportunity before committing money.

“At the end of the day, it’s you who decides what to do with your money,” says Ebden. Bruk adds that “the less educated are always the most vulnerable. If you’re not staying up to date, then you don’t know what’s around the corner.” If unsure about whether something is an investment scam, you can contact the OSC inquiries centre at 1-877-785-1555 or inquiries@osc.gov.on.ca.

If you become a victim, there is no shame in it.

“Fraud knows no boundaries, and fraudsters are experts at manipulating your trust,” says Ebden. “It can happen to anybody. Having a good nature and trusting people does not make you a bad person.”

If you get scammed, reporting the incident is critical to help raise awareness, increase the chance of recovery, and protect others. To report, you can contact the Durham Regional Police at drps.ca and the Canadian Anti-Fraud Centre at antifraudcentre.ca or 1-888-495-8501.