Best ways to avoid being another victim of investor fraud in B.C.

Securities fraud is a serious and widespread problem that can leave victims facing financial ruin. Each year in British Columbia, many people lose hard-earned money, often their life savings, to securities fraud, more commonly known as stock fraud or investor fraud.

Fraudsters induce their victims to make purchases or sales based on false information, frequently resulting in losses, in violation of securities laws. They often target vulnerable populations, such as the elderly, through building relationships based on trust, with the ultimate goal of influencing their victims’ financial decision-making.

In other cases, fraudsters convince trusting friends, family and other members of their social circles to invest in opportunities that might appear legitimate but, in reality, are scams that can result in the loss of most, if not all, of their investment.

Securities fraud can manifest in many different ways. Recent cases in B.C. demonstrate the depth of the abuse:

•Rashida Samji was sentenced to six years in prison for perpetuating a fraud, commonly referred to as a Ponzi scheme, for which she received $83 million from 218 unsuspecting investors. Samji, a notary public, made representations to investors that their funds would be held safely in trust and used only as collateral for an investment opportunity related to a wine business. In fact, Samji used the funds for her personal benefit and to pay other investors for the purpose of maintaining the illusion of investment returns, as often occurs in a typical Ponzi scheme.

•Manna Trading Corp Ltd. and its related entities carried on a scheme whereby 800 investors paid approximately $16 million and received less than $5.6 million in return. Among other things, the scheme’s promoters told investors that their funds would be placed with experienced traders who would secure high rates of return by trading on the foreign currency exchange. In fact, the funds were never placed with traders or any other source that could generate returns. Instead, a large portion of the funds was funnelled through bank accounts in British Columbia and Costa Rica to the scheme’s promoters and other recipients, who were, for the most part, unidentified. To make matters worse, the investors were wrongfully led to believe that a portion of their investments would be put toward humanitarian purposes.

•David Michael Michaels used his radio program and investment seminars to aggressively target seniors by touting the benefits of buying exempt market securities, such as shares in speculative oil and gas companies not subject to the continuous disclosure requirements under provincial securities legislation, while casting doubt on less risky investments such as mutual funds and bonds. In total, he advised 484 clients to invest $65 million, earning $5.8 million in commissions and marketing fees. Most, if not all, of the investments touted by Michaels are now worthless. 

As the above cases illustrate, millions of dollars of investors’ funds have been put at risk in this province due to the fraudulent activities of a few people. To avoid becoming a victim of securities fraud, be wary of red flags in any investment opportunity that could be an indication of a scam.

In particular, watch out for any investment opportunities that:

•claim no risk or guaranteed return;

•have unusually high rates of return;

•are available to a select number of people;

•involve the transfer of funds outside of Canada, otherwise known as offshore; and

•are available for only a short time – in other words, get in now or miss out.

A good rule of thumb is: if it looks too good to be true, it probably is.

Prior to making any investment, it is advisable to seek the professional opinion of a registered representative, otherwise known as a financial adviser, who is permitted under the Securities Act to provide investment advice.

If you have reason to believe that you are the victim of securities fraud, make a complaint to the British Columbia Securities Commission and seek qualified legal counsel.

Hakemi & Ridgedale LLP lawyer Leah Shepherd advises clients in a variety of commercial matters involving shareholder and partnership disputes, fraud and misrepresentation, contractual disputes and professional negligence or misconduct. She also has experience advising clients in mediations and other alternative dispute resolution proceedings.