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Would you have been duped by Bernie Madoff or Earl Jones?

Written by Kelley Keehn

Monday, March 6th, 2017

Would you have been duped by Bernie Madoff or Earl Jones? The sensationalized fraudsters from a few years back are still in the forefront of their victims' lives, since victims lost most or all of their life savings. Madoff masterminded what's considered to be the largest financial fraud in US history, defrauding investors of an estimated $65 billion dollars. Jones defrauded 158 people in Canada, mostly seniors, of more than $50 million.

Financial fraud results in a cost much more severe than just lost dollars. There are health impacts, as well as the embarrassment and shame of being caught victim. Because it's often done by someone considered a friend, it can have a devastating and lasting impact. The Canadian Anti-Fraud Centre estimates that only five percent of victims ever report being impacted, so the true cost and reach of these crimes are largely unknown.

Affinity fraud

Madoff and Jones hatched what is called an “affinity” fraud. In one word, these scammers work to build your trust — and to build an affinity with you. They may be a co-worker, attend the same place of worship as you and your family, or maybe a golf buddy or PTA leader.

When it comes to matters of your hard-earned dollars and life's savings, trust should never enter into the mix. A healthy dose of mistrust and careful research (often called due diligence in the investing world) are required to investigate the person who's selling you an investment product or service — especially, if you consider them to be a friend of sorts.

“Actually, anyone in Canada can call themselves a financial planner (except in Quebec), and that's just wrong,” says Cary List, president and CEO of the Financial Planning Standards Council.

Some red flags to consider before investing your hard-earned dollars:

  • Large returns being offered
  • Low to no risk advertised
  • Little to no paperwork
  • High pressure – "must act now"
  • Your friends or co-workers have all invested
  • A high-energy, free seminar environment adding group pressure
  • There are celebrity or high-profile individuals endorsing the offer

“Every advisor is required to be registered with their securities regulator if they're going to be offering advice or selling investments,” says Tyler Fleming, Director of the Investor Office with the Ontario Securities Commission. “If they're not registered, that's a big warning sign of fraud. You can better protect yourself by always checking the registration of anyone trying to sell you an investment or give you investment advice at CheckBeforeYouInvest.ca.”

And if you're putting large dollars at stake, or borrowing to invest with someone you're unsure of, consider also investing in the services of a Chartered Professional Accountant, a fee-only Certified Financial Planner or lawyer. The few hundred dollars you'll spend could save you tens or hundreds of thousands of dollars if the offer turns out to be fraudulent. Just remember to find your own independent professional, as fraudsters like Earl Jones had a professional network of advisors who were in on his scheme and who he'd recommend clients use to “check him out.”

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