How to spot — and avoid — investment scams that could drain your accounts

You’re interested in investing to grow your money, but not sure how? It’s a common financial goal and one that many scammers take advantage of with investment scams.

Many schemes may try to tempt you with a promise of higher returns. It’s always important to research before you invest your money, but with investment scams, there are some clear red flags to look out for. Here's what you can do to protect yourself:

In this type of fraud, scammers attempt to steal your money by tricking you into investing based on false or misleading information. They often use high-pressure tactics, urging you to ‘act fast’ on a limited-time opportunity with promises of substantial returns. They might even offer you a “real-time” view of your investments, giving you a sense of security and an urge to invest further. Some newer scams rely on hard-to-trace digital cryptocurrencies (also called crypto) like Bitcoin, Ethereum, or Dogecoin.

According to the Canadian Anti-Fraud Centre (CAFC), investment scams were the top fraud reported in Canada for 2023. The CAFC estimated that over half of the $309 million lost in investment fraud that year was tied to crypto investment frauds.¹ Canadian seniors are particularly at risk for this type of scam. In 2022, they lost over $78 million, an average of $95,583 per person.²

These are intimidating numbers, but the good news is you can protect yourself. Read on to learn how to identify investment scams, including cryptocurrency scams, so you can outsmart scammers when you invest.

Investment scams can involve any kind of currency, including Canadian dollars, foreign currencies or cryptocurrencies. No matter the type of funds, their goal is to get their hands on your money. Once they do, the scammer disappears with your 'investment'—but you can lose more than your cash. Your personal data, including financial information like your bank account numbers, could also be in the hands of fraudsters.

Here are a few of the common investment scams to watch out for:

In Canada, cryptocurrencies are not considered legal tender and aren’t regulated by the government or the central bank. According to the Financial Consumer Agency of Canada (FCAC), crypto assets pose significant risks³ and are highly vulnerable to cybercrime because of the complete anonymity of crypto transactions.

Cryptocurrency scams follow the same playbook as other types of investment fraud. Scammers reach out directly or through online crypto platforms, sometimes claiming to be investment advisors. They might try to convince you that they have insider knowledge of an investment and promise you remarkable returns. It’s common for scammers to try to earn your trust by insisting they have also personally benefited from the investment.

This one can be especially tricky because, in some cases, the stock may be real and listed on the stock market legitimately. In a pump and dump scheme, fraudsters persuade investors to purchase shares by promoting a low-priced stock. This flurry of buying activity artificially boosts the stock's value. Once the price reaches a certain level (the "pump" phase), the scammers sell off their shares (the "dump" phase), causing the stock's value to plummet and leaving investors with worthless shares. So, be wary of unsolicited opportunities, and always do your own research to ensure the investment business is credible.

As with other investment scams, fraudsters try to get you to buy into a Ponzi scheme with high-pressure tactics and promises of big and fast returns on your investment. Similar to pyramid schemes, in a Ponzi scheme, the scammer uses the money they get from new investors to pay returns to those already invested. Eventually, the system collapses, and investors lose their money.

As an investor, you want to believe your interests are being looked after, but you need to be able to spot the difference between an investment and an investment scam. Here are some red flags to watch out for:

One of the most obvious red flags for an investment scam is the promise of high returns with little or no risk. If someone offers you an investment opportunity that seems too good to be true - it probably is.

Pressure is a key tool for fraudsters because it persuades you to act quickly before you can reconsider or do further research. Consider this a warning sign. Watch out for limited time offers or other high-pressure sales tactics that create a false sense of urgency.

Some scammers will ask for a fee to hold your spot or facilitate a trade. There are similar scams where the fraudster will contact you offering a prize, then ask for a fee for you to receive it. Neither is legitimate in Canada. Beware of anyone asking for money upfront.

Any valid investment will be able to prove it is legitimate. Lookout for people who claim to have investment advice or insider information. If you’re dealing with someone unable to provide evidence that their company or investment is real, it probably isn’t.

Investment scammers are creative, but there are ways you can fight back. 

• Use strong passwords and change them regularly. A password manager can help.
• Enable two-factor authentication on your accounts.
• Refrain from posting identifying information online, on social media, or in online forums.
• If you have a cryptocurrency wallet, never share your digital wallet’s seed phrase. A seed phrase, also known as a recovery phrase, backup phrase, or mnemonic phrase, is a collection of randomized words.

• Be cautious of unsolicited communications over the phone, internet or on social media, including messages that appear to come from a trusted friend or contact.
• Some scammers use dating apps. If you’re getting to know someone on a dating app and they bring up investments, be wary. Any talk about money on a dating app could be a sign of a romance scam.
• If you decide to trade in cryptocurrency, be extra careful. Crypto payments do not come with legal protections, and they’re typically irreversible. Get your crypto from reputable exchanges only and buy your hardware wallets directly from the manufacturer.
• Check if an investment company is registered with your Provincial Securities regulator or the Canadian Securities Administrators National Database.
• You look up an investment advisor or firm with the Canadian Investment Regulatory Organization, including whether they have a disciplinary case against them.

• Scammers are very good at applying pressure to make you act. Commit to taking some time to think and research before sending anyone money.
• Be comfortable saying no. You don’t owe it to anyone to explain your investment decisions.
• Beware of fraudsters who ask you to open and fund new crypto accounts. They will direct you to send money to wallets that they control—don’t do it!
• Be cautious of individuals on dating sites or social media platforms who attempt to educate and convince you to invest in cryptocurrency.
• Do your homework. If you’re interested in an investment opportunity, thoroughly research the investment and the company beforehand.

If you’ve fallen victim to a scam, the first thing you should do is change your passwords to limit the amount of time scammers have access to your accounts. Once that’s done, you can report fraud to the CAFC and your local police department. It’s also a good idea to contact your bank and other financial institutions to let them know of the security risk. If you are a Scotiabank customer, call 1-866-625-0561 right away.

If you happen to learn of a suspected investment scam, please report it to the Canadian Anti-Fraud Centre.

The prospect of being scammed is scary, but you can outsmart investment and cryptocurrency scammers by understanding their tactics and recognizing the red flags.