Saturday 3rd December 2016

Resource Clips


“No risk, high return”

Four words that signify danger, a fraud awareness campaign warns

by Greg Klein

As part of a cross-country program, the BCSC renewed a series of TV spots featuring David the fraudster and Jean the informed investor, seen here in a surprising interaction with mall shoppers.

 

Is a financially naïve generation preparing for retirement? While launching Fraud Prevention Month, the British Columbia Securities Commission says many Canadians don’t understand the relationship between risk and return. Facing dismal performance on savings deposits, potential investors can become easy prey for scammers. On March 5 the BCSC released a number of user-friendly resources to help “tap into your inner skeptic.”

Part of a country-wide awareness campaign by provincial and territorial securities regulators, the BCSC unveiled its Fraudster Fighter Tool Kit, with links to the Be Fraud Aware mobile app, along with a number of written guides and videos to keep investors skeptically informed. “Most importantly, the tool kit links to a form people can use to report a suspected fraud,” the BCSC states. Just those four dubious words—“no risk, high return”—are enough to trigger a complaint, the BCSC points out.

“We need investors to report suspicious activity to us as early as possible so we can disrupt it before investors are harmed,” said commission CEO/chairperson Brenda Leong.

To better put investment advisers under scrutiny, the guides offer tips on how to vet an adviser and which questions to ask him or her. Of course the commission outlines due diligence techniques for investments themselves. There’s also a private placement guide for retail investors who are thinking of backing a start-up.

BCSC research on seniors and pre-retirees showed “many investors have unrealistic expectations about market returns, and do not understand the fundamental relationship between risk and reward,” the commission added. The Be Fraud Aware campaign began in 2011 and has coincided with increased reports of suspicious investment activity.

Additionally, tweetable fraud prevention tips will emanate from @CSA_News, courtesy of the Canadian Securities Administrators.

A first for Canadian regulators, the Ontario Securities Commission last month proposed rewarding whistleblowers up to $1.5 million. Informants would get their money even if the guilty party didn’t pay up. The idea follows similar programs implemented by the Canada Revenue Agency, the U.S. Securities and Exchange Commission and the Australian Securities and Investments Commission. The OSC continues to seek public input until May 4.

Meanwhile that province has seen an increase in “quasi-criminal and criminal proceedings,” the commission stated on March 2. “The OSC has a stronger enforcement presence today because of more eyes and ears on the street, improved technological sophistication and significant alliances with police and other agencies,” said Howard Wetston, OSC CEO/chairperson. “Through sheer hard work and dedication, OSC enforcement has become more vigorous and effective in protecting the interests of the investors and capital markets in Ontario.”

Last year the commission began 22 proceedings and concluded proceedings against 91 individuals and companies. Some 87 respondents faced an OSC tribunal, two others went to court under provincial securities laws and another two got slapped with criminal charges.

Two defendants went to prison. One got three years and was ordered to pay US$4.33 million restitution. The other got 60 days.

Among new enforcement tools gained by the OSC last year is a no-contest settlement agreement. Of the first two such settlements, one drew an $8-million payment “to advance the commission’s mandate.” In the second, three respondents agreed to repay clients more than $13.5 million.

With enhancements to its digital forensics lab, the OSC has been researching “emerging concerns such as cryptocurrencies.” Commission boffins also endeavour to find and analyze hidden, deleted or “obfuscated” digital files.

Sounds reassuring, but how effective are the securities commissions overall? A seemingly irrepressible serial scammer might cause doubt. Late last month the OSC announced charges against Michael Lee Mitton, who’s already under lifetime trading bans in Ontario, Alberta and B.C. Calling his behaviour “notorious,” the OSC acknowledged Mitton’s career includes “approximately 100 criminal convictions since 1977 for fraud, forgery, false pretences, money laundering and related conspiracies.”

Scheduled for court again on March 13, he faces charges of trading without registration and while prohibited.

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