ASC highlights top investment risks for 2023

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The Alberta Securities Commission (ASC) has compiled a list of the top investment risks and potential scams to watch out for in 2023, based on investor complaints, ongoing investigations, and current enforcement trends.

1. Advice from fraudulent “finfluencers”

Many people look to social media for “how-to” information, and that includes when it comes to finding information about investing. There is an increasing trend of “finfluencers” on social media. These financial influencers use their large social media followings to discuss trends and share advice on topics related to finance and investing.

Some fraudsters act as finfluencers to purposefully promote deceitful investment information through schemes like:

  • Touting: promoting an investment without disclosing compensation
  • Scalping: promoting a stock to quickly drive up the price and then selling at the inflated price

Investors should exercise caution when considering investments promoted as a sure thing. And do thorough research on the company, offer and all parties involved before investing in anything promoted on social media.

Where can you go for information? Start with a Google search about the company and offer. Even if the offer isn’t fraudulent, it may not be right for you. It’s important to fully understand anything you’re investing in.

2. New (fake) friend alert

Any investor should be cautious of new friends offering investment opportunities, particularly related to cryptocurrency or forex trading. Fraudsters often use apps and social networking sites to build relationships and establish trust with strangers, before tailoring an investment scam to their needs and encouraging them to invest increasing amounts of money through professional-looking websites. Victims some times see early returns, but these are designed to create a false sense of credibility. Eventually, the victim can no longer access the website or withdraw their money and the fraudster gives excuses or stops communication altogether.

Always be cautious about sharing any personal information online or in person. Always take time to consider the source of the information and research the opportunity on your own or in consultation with a registered investment advisor.

3. Impersonating a regulatory agent

Investors should be aware of fraudsters impersonating regulatory agents. These fraudsters may pretend to be staff from the ASC or another regulatory agency, using the agency’s logo, name, picture, credentials and social media accounts. When impersonating a legitimate staff member they pressure investors into providing personal information or transferring money. It’s important to always verify the identity of the source and remember that the ASC will never request that an individual transfer money to the organization or to any staff member. To verify the legitimacy of a request, investors can check verified ASC social media accounts on our website and contact the ASC’s public inquiries office to confirm the legitimacy of any request they receive allegedly from the ASC.

4. Spoofed Websites

There is a growing trend of spoofed websites that imitate legitimate investment firms. Often these sites offer unrealistic rates of return. These sites can appear in internet searches alongside legitimate firms and often claim to be “registered with the CSA” or authorized to sell investments in Canada. To protect yourself, always check the registration of any advisor or organization. To learn how to spot the red flags of fake websites, visit the interactive SpotTheSpoof.ca website brought to you by the ASC.

5. Celebrity endorsements

Be cautious of celebrity endorsements for investment opportunities. While it’s common for legitimate businesses to use celebrities to endorse their products, fraudsters do as well. When you see a celebrity promoting an investment, it’s important to remember that they may be being paid to do so with little to no understanding of the investment they are promoting or their image might be being used without their knowledge or consent. Fraudsters will often mimic celebrity personas, adopt similar social media handles, create cloned websites, and manipulate quotes and images to make the endorsement appear genuine. Investors should be cautious of any investment opportunity that is promoted by a celebrity.

As the new year gets underway, it’s a good time to review your investing goals and brush up on your knowledge to protect yourself from scams. Always be vigilant for red flags of fraud and thoroughly research any investment before making a decision. If you suspect any suspicious investment offers, report them immediately to the ASC’s public inquiries office. To keep up to date throughout the year, consider signing up for the ASC’s Investor Newsletter.

Considerations before investing in meme stocks

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You may have heard or read about a series of select companies discussed heavily on social media and Reddit, surging in value seemingly overnight. Referenced as “meme stocks” in the news and online, these companies are a select but growing assortment whose significant growth in price is fueled by the excitement and hype generated on social media and online forums like Reddit, and may not always accurately reflect underlying fundamentals. While the idea of buying into these companies with the expectation of huge returns may sound enticing, there are a few things you should consider before investing your money.

FOMO can lead you to risk far more than you’re comfortable with

FOMO, or The Fear of Missing Out, is one of the most challenging obstacles investors can face, especially when investment opportunities are championed on social media by seemingly everybody. While some investors have made money from meme stocks, many others lost substantial amounts due to the volatile spikes and dips in their values. As concluded in the Stanford Encyclopedia of Philosophy, people have a strong tendency to want to avoid losses, and when it comes to investing, that can mean both wanting to get in on the next “big thing” or holding on to a stock that is losing significant value with the hopes that it will change. Before investing in any stock online, contemplate if you’re able to stomach a high level of risk and the possibility you may lose most or all of your money.

Investing in social hype instead of fundamentals can expose you to fraud

Investing in stocks can be a powerful tool to grow your wealth but requires you to do considerable research into the company, the products and services it offers, the experience of its leadership and the industry landscape it competes in. Doing your due diligence enables you to assess whether the company is legitimate, has the potential to grow in value and whether the investment is suitable for you and your risk tolerance.

Online forums for investors to meet up and discuss investment opportunities have led to a blend of both speculation, hype and in some cases, inaccurate analysis. Online forums and social media can also quickly become an echo chamber of a particular positive sentiment towards a stock with little or no fundamental business reasoning. This can result in wild swings of the stock’s price that make it virtually impossible to make sense of the stock’s real value as it no longer corresponds to the company’s performance.  While not all investment opportunities hyped up on social media are fraudulent, scam artists also use this avenue to promote fraudulent investment scams to excited investors.

When it comes to your investing strategy, never let social media channels be your sole source for investing information and research. Before investing in any company, research its fundamentals and legitimacy to avoid the heartache of an unsuitable or, worse yet, fraudulent investment.

Investing in meme stock can derail your investment objectives and financial plan

Developing a financial plan and objectives for your investments is an important first step for any investor. By considering your age, life goals, time horizon, and level of risk tolerance, you can develop a meaningful plan of action that may combine various securities like exchange-traded funds, mutual funds, and stocks to meet your goals. While helping you achieve your goals, a financial plan also helps you evaluate any new investment opportunity against those goals.

Meme stocks are a relatively new phenomenon that can quickly derail your financial plans if you let them. The hype of massive returns echoed by other investors online can blind you to the age-old fact that high returns in the investment world come with higher risk. The speculative nature of these investments and the hype that social media brings to them does not guarantee wealth. If you plan to incorporate meme stocks into your financial plan, seriously consider if you can absorb a loss of some or all of your investment.

The foundation for long-term investing success relies on the core concepts of diversifying your investments, maximizing the power of compounding interest and always sticking to the right level of risk for you. With the rising popularity of meme stocks, it may sound like an appealing way to start investing or a relevant strategy to integrate into your financial plan, but it could end up doing far more harm to you than good.

Learn about the factors to consider when investing in meme stocks →