Recently, the BCSC became aware of three entities – Lucra Fund, Profitable Sunrise, and Goldenarium – offering unregistered, high-yield investments through e-mail, social media channels, and their own websites.

On March 11, 2013, the commission became aware of Lucra Fund, after a BCSC staff member received a promotional e-mail. The sender of the e-mail wrote that Lucra Fund offered 5.5% daily returns, and promised a referral commission. The Lucra Fund website stopped working soon afterwards.

On March 12, 2013, the BCSC issued an Investor Alert about Profitable Sunrise, an entity that claimed to provide short-term bridge loans that would pay a “risk free” return of between 1.6% and 2.7% per business day on a 180- to 240-day term.

Regulators across North America issued similar alerts, and the North Carolina Securities Division issued a Temporary Order to Cease and Desist against Profitable Sunrise and its agents. The BCSC also received reports that BC residents wired money to Profitable Sunrise.

On March 19, 2013, BCSC staff became aware of what appears to be a BC-connected promotion of Goldenarium through Twitter. Similar to Profitable Sunrise, this high-yield investment promotion offered a minimum investment of $10 and high daily returns. It also offered a referral fee.

The Goldenarium website no longer works, and people on numerous Facebook pages connected to the scheme are questioning whether the entity will reactivate its website.

The BCSC contends that the returns offered by all three of these entities are so high that they cannot be earned through legal means. The commission urges BC residents to use extreme caution if approached by anyone offering this type of investment.

Investors, agents or members of the public who have been approached by or have information about Profitable Sunrise, Lucra Fund, are Goldenarium are encouraged to contact the BCSC inquiries line at 604-899-6854 or 1-800-373-6393 (toll free).

According to its website, Profitable Sunrise offers five different investment plans, with a minimum investment of $10.00 and a “risk free” return of between 1.6% and 2.7% per business day on a 180- to 240-day term.  The BCSC contends that these returns are so high that investors cannot earn them through legal means.

The BCSC has received reports of British Columbia residents wiring money to Profitable Sunrise, and wishes to advise the public that Profitable Sunrise is offering its investments without a prospectus and without being registered.

The Alberta Securities Commission has also issued an investor alert with respect to Profitable Sunrise’s activities, and the North Carolina Securities Division recently issued a Temporary Order to Cease and Desist against the entity and its agents.

The BCSC urges investors, agents or members of the public who have been approached by or have information about Profitable Sunrise to contact the BCSC inquiries line at
604-899-6854 or 1-800-373-6393 (toll free).

Vancouver - The British Columbia Securities Commission is warning the public not to purchase shares or other securities of Flag Resources (1985) Limited, a mining company that has been cease-traded in British Columbia since 2006. Buying or selling any securities of a cease-traded company is an offence under the Securities Act. 

The BCSC has become aware that shares and warrants of Flag Resources are being distributed throughout British Columbia and Alberta, with much of the activity taking place in Kelowna.

The BCSC urges investors, agents, or members of the public who have been approached or have information about Flag Resources to contact the BCSC inquiries line at 604-899-6854 or 1-800-373-6393 (toll free).

The BCSC is the independent government agency responsible for regulating trading in securities within the province.  Learn how to avoid investment fraud at the BCSC’s investor education website: www.investright.org.

Have you noticed there is less stock spam landing in your e-mail inbox these days? If you answered “yes”, then you are not alone.

Symantec, an online security company, released a study in July that showed e-mail spam volume declined 13 per cent in 2011 from 2010 levels.

Company spokespeople from various online security companies echoed Symantec’s findings in a Globe and Mail article, saying they have also seen e-mail spam levels dropping.

Where is e-mail spam ending up today? 

According to an independent tech analyst quoted in the Globe article, instead of blasting people’s e-mail, spammers are taking to social networks to get their messages out. His assessment is backed up by another anti-spam software executive in a Bloomberg Businessweek article who says spammers create about 40% of social media accounts, and 8% of the messages sent via social pages.

Better spam filters, better awareness around e-mail scams, and the fact people now spend a lot of time on social networks, are some of the possible reasons there is a shift away from this type of activity. Furthermore, the ease of sharing content through social networks gives stock promoters and scam artists the ability to rapidly expand their audience through trusted sources (friends, followers, etc.).

This is not to say that e-mail scams or illicit stock promotions are yesterday’s news. Scam artists and shady promoters will use any tool available to get at your money. For this reason, we continue to review e-mail spam, looking into any promotions that involve B.C.-based companies.

How can you avoid falling for a stock promotion on social networks? 

Here are some things to watch out for when using social networks, such as Twitter, Facebook, LinkedIn or YouTube:  

• Watch out for overly promotional language that suggests a stock is the “next big thing” or “it is going to the top of the charts”.
• If someone is talking about an investment in your social circle, check to see if it exhibits one or more of the Fraud Warning Signs.
• Be sceptical of people or companies promising hot stock or investment tips through direct messages or posts to social media networks.
• Watch out for multiple posts that are the same or similar which are published and republished within minutes of one another.
• Do not respond to direct messages about investments or stocks that come to you via social networks or text message.
• Search the social network for symbols, names, or hashtags to see if there is an increase in the volume of conversation around a stock or an investment opportunity.
• Check a company’s public disclosure to be sure they are not sharing illegal inside information on their social network pages.
• Do not repost, retweet, or help promote an investment that exhibits one or more of the Fraud Warning Signs.
• Do not repost, retweet, or redistribute a post about a stock that people or companies are heavily promoting on social networks or the Internet.
• Remove companies or individuals who aggressively promote investments from your social networks. Report them, if you think their conduct is illegal.
• Report any investment-related activity you think is overly promotional or illegal.

How do you report illegal investment activity? 

If you have been approached by someone that you suspect is illegally selling investments on a social network, or you are aware of an investment that may be a scam, contact your provincial securities regulator immediately.

In BC, contact BCSC Inquiries via e-mail or phone at 604-899-6854 or 1-800-373-6393. You can also anonymously report suspicious activity through InvestRight’s Report a scam webpage.

Residents from other Canadian provinces can find contact information for their provincial securities regulator at www.securities-administrators.ca 

The British Columbia Securities Commission is warning the public about Master Benefit Card Canada Ltd. (Master Benefit Card) and its affiliates. Master Benefit Card is also known as “Benefit Club”.

The BCSC has reports that residents of British Columbia have been approached to join Master Benefit Card’s “membership club” and invest in a variety of “Benefit Options” or “Benefit Cards”.  Prospective investors are asked to pay $100 to become a member, and then pay an additional amount to gain access to a “Benefit Option”.  Investors are instructed to deposit their funds in a U.S. bank account and wait a minimum period of time before they are able to receive their benefits.  The “Benefit Options” include:

• the Automotive Benefit, which offers the use of a luxury car each year for five years
• the Home Ownership Benefit, which offers to pay 90% towards a home and free title to the home in five years
• the Mortgage Benefit, which offers to subsidize monthly mortgage payments
• the Savings Benefit, which offers a 3% to 5% monthly return

Master Benefit Card has been soliciting investors by holding information seminars and advertising through a website, www.benefitcards.org.  The BCSC also has reports that Master Benefit Card has hired sales agents to sell their “Benefit Cards”.  The BCSC is warning the public not to send money to Master Benefit Card.

The BCSC urges investors, agents, or members of the public who have been approached or have information about Master Benefit Card to contact the BCSC inquiries line at 604-899-6854 or 1-800-373-6393. Investors can find information and access resources at the Investor Communications Services Centre.

The Canadian Securities Administrators (CSA) today issued an investor watch to make investors aware of the significant risks involved in foreign currency exchange (Forex/FX) investments. Investors who trade Forex are also warned against dealing with unregistered firms offering Forex trading.

The investor watch was created after CSA staff identified an increase in unregistered foreign exchange trading services being offered to Canadian investors, by both Canadian and foreign firms.

“Forex trading can be complex, volatile and extremely risky. It should only be entered into if investors are aware of the risks and prepared to lose their investment,” said Bill Rice, Chair of the CSA and Chair and CEO of the Alberta Securities Commission. “If they do enter this market, investors are advised to get expert advice from a registered professional before participating in Forex trading or purchasing a Forex-related investment.”

Use the National Registration Search or check with your local securities regulator to find out if an individual or firm is registered in your province or territory.

To improve public understanding of foreign exchange trading, the CSA have published a detailed document describing Forex and the various risks associated with this type of investment.  It has also created a Forex resource page on its website.

Investors should be aware of the potential for fraud and avoid offers to trade Forex associated with any
of these characteristics:

• a guarantee of little or no risk and high investment returns;
• dealers or brokers that are not registered with the provincial or territorial securities commissions, and typically are based outside of Canada where it can be difficult or impossible to protect or retrieve funds;
• an unwillingness to discuss the past performance or track record of the specialist traders who will purportedly handle their money;
• an unwillingness to identify specialist traders or traders located in offshore jurisdictions who will purportedly handle their money; and/ or
• high-pressure sales techniques to buy a Forex investment, to purchase software or take courses related to Forex trading.

This investor watch is published on the new Investor Alert Page and is the first major one issued by the CSA since the launch of this resource on its website. This centralized location of investor alerts is designed to aid the public in identifying potential threats related to investing.

The Investor Alerts list is available on the CSA website.

On March 7, the BCSC’s Criminal Investigation Team arrested McLeod at his home, with the assistance of the Surrey RCMP. The arrest followed an undercover investigation conducted by the BCSC. McLeod is charged in connection with the Provina Investment.

In October 2009, McLeod was fined $8 million by a BCSC panel, and was ordered to pay back the US $16 million the Manna scheme obtained from the investors. The panel also permanently banned McLeod from trading securities or exchange contracts and from being a manager or consultant in connection to the securities market. He is also prohibited from being a director or officer of any issuer, registrant or investment fund manager, being a registrant, investment fund manager or promoter, and from engaging in investor relations activities.

“Given his previous misconduct and the severity of the sanctions that were brought against him, we feel it’s important to warn investors not to give any money to McLeod. We also want to make people aware that he has recently had his name legally changed to Michael Smith,” said Lang Evans, Director of Enforcement for the BCSC. “We encourage anyone who has had recent dealings with McLeod to contact the BCSC.”

Investors can contact the BCSC inquiries line at 604-899-6854 or 1-800-373-6393.

The Alberta Securities Commission (ASC) and the British Columbia Securities Commission (BCSC) are warning investors of what appears to be a ‘recovery room’ scheme that is reportedly targeting Medwell Capital shareholders. Recovery room schemes involve companies that contact investors who may be losing money in a current investment with an offer to buy their shares at an inflated price or exchange them for shares in a different company. Once investors agree to the deal, the operators of the scheme ask the investor to first pay a fee for the transaction or there is a cost to exchange shares. The operators keep the fee, but do not repurchase the shares or issue the promised replacement shares.

This investor alert is in response to reports that Medwell Capital shareholders in Alberta, B.C. and Ontario have been solicited directly via phone or email by a man representing himself as Michael DeJuan of NT Global. The man is offering to purchase Medwell Capital shares from investors in exchange for shares in a different company at a significantly higher price. Shareholders are then emailed a form to complete that includes their contact information and the address of NT Global. The address on these forms is false and NT Global Advisors, a Canadian subsidiary of Northern Trust Global Advisors based out of Chicago, Illinois, indicates that their employee, Michael DeJuan, is not making any such representations to Medwell Capital investors.

If the public has any information regarding the investment scheme described in this alert, they should report or forward this information to the ASC or BCSC by calling the Public Inquiries lines listed below.

The ASC is the regulatory agency responsible for administering the Alberta’s securities laws. The BCSC is the independent provincial government agency responsible for regulating trading in securities within British Columbia. Both agencies are entrusted to foster fair and efficient capital markets in their provinces and to protect investors. 

 

Public Information: 

BCSC Public Inquiries

604-899-6854

Toll Free 1-800-373-6393

ASC Public Inquiries

403-297-4296

Toll Free 1-877-355-0585
 

The British Columbia Securities Commission is investigating Rashida Samji and Arvindbhai B. Patel (also known as Arvin Patel) in regards to their involvement in an investment scheme.

As part of a regulatory investigation, the BCSC is looking at transactions related to an investment sold by Samji. As the sole director and officer of Samji and Assoc. Holdings Inc, Samji was a member of the Society of Notaries Public of BC, classified as a “roving notary” who covers the practice of other notaries due to illness or vacation. The BC Society of Notaries Public suspended Samji on February 7, 2012.

The BCSC is also examining Patel’s role in the sale of the investment. He has been suspended from his position as a financial planner and as a mutual fund salesperson.

The investment offered a 12% annual return and funds were purportedly held in a trust account administered by Samji.

“We felt it was important to warn investors not to send any money to either of these individuals,” said Lang Evans, Director of Enforcement for the BCSC. “We encourage anyone who had dealings with Samji or Patel to contact the BCSC.”

Investors can find information about the case and access resources at the Investor Communications Services Centre on InvestRight.org, or contact the BCSC inquiries line at 604-899-6854 or 1-800-373-6393.

The Court has appointed a representative of the BC Society of Notaries Public as the custodian to operate Samji’s notary practice. The custodian can be reached at 604-681-4516.

The BCSC is the independent provincial government agency responsible for regulating trading in securities within the province. For media enquiries, please contact Richard Gilhooley, media relations, at 604-899-6713.

Housing prices in British Columbia, and particularly those in Metro Vancouver, have been on a steady rise for the past ten years, causing many people to look to real estate as an investment. However, like any other type of investment, housing prices can fall and there are other risks associated with investing in real estate. With this in mind, the British Columbia Securities Commission is issuing this Investor Watch to remind people to do their research before they make a real estate investment.

What is a real estate investment? 

There are many types of real estate investments. Buying a rental property is a real estate investment that most people understand – a person buys a house or an apartment that they rent out to gain investment income over time. When a group of people invest together, or a company sells a stake in a rental property, the investment becomes more complex. 

Some of these investments classify as securities, while others do not. The BCSC only has jurisdiction over transactions involving securities – an interest in pool of mortgages, an interest in a pool of properties, etc. This is one of the reasons why you need to take your time to assess a real estate investment. Whether you buy a contract from a developer, purchase securities in a company involved in real estate, or buy a property, you need to understand the risks and your legal rights.

What are real estate-based securities? 

Real estate-based securities trade as public and private companies. For example, you can invest in a real estate investment trust (REIT) that trades on a stock exchange like the TSX, or you can buy shares in a property when a company raises money through a private placement. The Informed Investing section of our website details how different real estate investments are structured.

If you buy into a private placement, it is important to understand that you are largely on your own. This is because the company is raising capital through a series of private placement exemptions from the prospectus requirement.  A private company using these exemptions is not required to give investors the same ongoing disclosure (financial statements or press releases) as a public company.

How are real estate-based securities sold?  

You can purchase a REIT through a registered financial advisor, or on your own if you do direct investing. Since they trade on stock exchanges, you can buy and sell them in the same way you would do with shares of other public companies.

Private placements are generally sold without a prospectus (a formal document required by law when a company wants to sell shares to the public), and without the advice of a registered dealer. Sometimes companies sell these securities under an offering memorandum (OM), a document that provides information about the company and the investment. It’s important to remember that securities regulators do not review OMs before the investment is offered to the public.

What are the risks? 

When real estate-based securities are distributed using exemptions, the risks are similar to those related to private companies.

There are also risks associated with the underlying real estate investment. First and foremost, you need to be aware that property values can go down. Additionally, there is the possibility that mortgage or rental payments will not be paid. Furthermore, developers sometimes run into problems – this could cause them to seek more capital, or they could go out of business altogether. All of these risks can affect the value of your investment and your expected returns.

Finally, if you are considering borrowing money to make the investment, you should know that you could be compounding your risk. If the deal goes bad, or if you don’t get the returns you expect right away, you will need to be able to pay back the loan with interest, and the borrowing costs.

What should you do before you invest in real estate? 

Understand the risks associated with the investment. Be sure to do background checks on the developer and the person promoting the investment. Take the time to seek advice from someone independent of the investment, like a lawyer or a registered financial advisor.

You should make sure the investment matches up with your financial goals. The InvestRight Guide to Investing is a free tool that can help you assess an investment, choose a financial advisor, and understand more about investing in private companies. You can download it from our website.  

Who do you contact to ask questions about these type of investments? 

The BC Securities Commission regulates the trading of real estate-based securities. Other real estate investments, like the purchase of a pre-sale apartment from a developer or the purchase of a property, generally fall under other provincial regulatory bodies such as those listed below.

If you’ve made a real estate investment, or are considering making one, and you don’t understand what it is, give the BCSC a call. Our inquiries staff can point you in the right direction. You should also call us immediately if you think an investment is a scam.

We can be reached at 604-899-6854 or toll-free at 1-800-373-6393. You can also e-mail us at inquiries@bcsc.bc.ca. 

Links to other resources 

InvestRight Guide to Investing: How to Make Informed Investment Decisions: http://www.investright.org/tools_for_investors.aspx#informed_investing 

InvestRight webpage on real estate-based securities:  

http://www.investright.org/real_estate.aspx 

The Financial Institutions Commission: www.fic.gov.bc.ca 

The Financial Institutions Commission (FICOM) is a regulatory agency of the provincial Ministry of Finance. FICOM is responsible for administering 10 statutes that regulate the pension, financial services and real estate sectors in British Columbia.

The Real Estate Council of British Columbia: www.recbc.ca 

The Real Estate Council of British Columbia (RECBC) is a regulatory agency that is responsible for licensing real estate representatives, brokers and brokerages engaged in real estate sales, rental and strata property management.  The RECBC also enforces entry qualifications, investigates complaints against licensees and imposes disciplinary sanctions under the Act. 

With the price of gold reaching record heights during the latest market downturn, it’s no surprise that fraudsters jump on this news to offer investment schemes that involve precious metals.

The benefits of precious metals such as gold and silver – their “tangibility” and security, as well as the fact their value often increases during market downturns – make them appealing to investors, especially during times of economic uncertainty. Fraudsters play on this and use well-worn tactics to entice unsuspecting people into investing in suspect financial products.

Sometimes, it’s as simple as telling investors that they are looking to raise money to re-open a defunct mine. In exchange for providing funds to purchase equipment, the fraudster will promise the investor a high return on their money, plus a stake in the proceeds of the mine. Or, the scam could involve the sale of gold bullion (which may or may not exist), with promises of large returns based on trading coins and other materials in private markets. Other times, the stories are more involved and fanciful, such as promises of sunken treasure being raised (literally) from a ship-wrecked galleon after centuries on the sea floor.

But, regardless of the backstory, these scams will likely share a few common elements:

• In the case of mining scams, there is often a ludicrous over-representation of the amount of gold found within a mine.
• The fraudsters may over-estimate claims of the share price of gold mining companies, or make speculative claims about the value of a mine based on its proximity to a proven reserve.
• Prospective investors may be invited to visit a property, but only during set times and under careful supervision.
• Fraudsters may allude to so-called “specialty” markets that only they can access.
• High-end brochures, a slick website, or pictures are often used to demonstrate a mine or an investment’s value, with little other evidence provided.
• The scam may include supposed offshore or foreign brokerage firms soliciting people to open trading accounts (in this case, to trade in gold or other precious metals). These brokerages are rarely registered and often hail from jurisdictions where securities regulation may be less stringent than in Canada, both of which greatly increase the risk to investors.

All of these are variations on established methods of fraud, such as promising high returns with no risk, the ability to profit like an insider, and the need to get in quickly without doing any research.

Always remember, whether you’re investing in conventional blue-chip stocks or precious metals, there is risk in every investment, and anyone telling you NOT to perform your due diligence on an investment is not someone you should give your money to.

If you have been approached or know of an investment that fits the description above, contact your provincial securities regulator immediately. Residents from other Canadian provinces can find contact information for their provincial securities regulator at www.securities-administrators.ca.

In BC, contact BCSC Inquiries. You can also anonymously report suspicious activity through InvestRight’s Report a scam webpage.

If you know a person who has put money into, or is considering contributing, to an investment like the one described above, give or send them this information, and encourage them to do more research.

The British Columbia Securities Commission (BCSC) is issuing a warning to consumers about so-called “wealth enhancement” seminars that are being held throughout the country. The BCSC strongly urges consumers to avoid these types of seminars, and to consult with a registered advisor for any investment advice.

Many companies that put on investment seminars claim to provide proven wealth enhancement strategies to attendees. However, in the experience of the BCSC, these types of seminars (which are often marketed as “free”) are more likely to include substantial “membership” fees that provide access to questionable ways to succeed in business and/or to make money through things like precious metals, consumer debt, environmental projects, and international mutual funds.

Seminar presenters are careful to stress that they are only selling memberships into their organization and not investments. However, the BCSC remains concerned because, according to media reports, attendees could be encouraged to purchase investments at some point. They are also frequently encouraged to recruit their friends and family.

Often, supposed “wealth experts” will tell investors that they can move funds offshore to avoid paying tax. Remember, you can defer paying taxes, but you can’t avoid paying them. If the promised tax savings are false, you may also be required to pay the Canadian government money in back taxes, interest, and penalties.

Furthermore, the BCSC wants consumers to be aware that they increase their risk when money is moved offshore because it usually makes efforts to reclaim their money more difficult, if not impossible, should their investments go awry.

Help protect yourself by taking these steps before you hand over any money:  

• Check with the Canadian Securities Administrators’ (CSA) National Registration Search to see if the company or individuals offering you the investment are registered to sell securities.
• Check the CSA’s Disciplined Persons List to see if an individual has been disciplined in Canada.
• Do your own background check on the company and individuals by searching the Internet to see if they have previously used other company or personal names, and to look for any indication of past problems such, as other investors losing money or company bankruptcies. 
      o Do a land titles or corporate registries search at BC Registry Services    
      o Contact the Office of the Superintendent of Bankruptcy in Canada  
• If individuals promote a designation or other training, check into what was required and where the credentials come from.
• Ask many questions about the investment and get information in writing. Consult with someone with business knowledge that is not involved in the deal to get a second opinion.
• If the opportunity sounds suspicious, consider not going to any of their seminars, as once you are there it is difficult to say no to what is being offered due to high pressure sales tactics.

The BCSC strongly encourages investors to be cautious about anything they are offered through a wealth enhancement seminar, and to be extremely cautious about investments that involve any of the following warning signs:

• Invitations to attend seminars in far away urban centres, for which you must pay a significant fee to attend
• Marketing that plays on your desire to get your family out of financial debt
• Investments that promise high rates of return with little or no risk
• Individuals who describe impressive-looking credentials and designations that you are not able to verify (e.g. “wealth enhancement expert”)
• Opportunities that are promoted through word of mouth by referrals of close friends or family

If the public has any concerns regarding investment seminars, they should report or forward this information to the BCSC immediately.
 

Vancouver – The British Columbia Securities Commission (BCSC) and the Manitoba Securities Commission (MSC) are warning investors who may have lost money by investing in York-Rio Resources Inc. that they could be targets of a ‘recovery room’ or ‘re-up’ investment scheme.

The BCSC and MSC have learned that an organization identifying itself as Featherstone and Bellman Equity Exchange Group (a.k.a. FAB Equity Exchange Group), purportedly based in Mexico, is contacting York-Rio investors. There are approximately 160 B.C. and more than 50 Manitoba residents that own York-Rio securities, and who may be contacted.

On Sept. 15, 2010, the Ontario Securities Commission (OSC) issued a warning about the FAB Equity Exchange Group. 

According to the OSC warning, FAB Equity Exchange Group representatives are contacting investors who hold York-Rio securities and are offering to sell the securities at a substantial premium.  The York-Rio investors are required to send an advance fee payment to FAB Equity Exchange Group representatives before their securities can be sold. 

Securities commissions in Manitoba, British Columbia, Alberta, Saskatchewan and Ontario have issued orders to cease trade York-Rio Resources Inc.

On Sept. 24, 2009, the BCSC and the MSC issued an investor alert about a company called Penn Capital Management Ltd. That company also contacted York-Rio investors with an offer to repurchase shares in what appeared to be a ‘recovery room’ or ‘re-up’ scheme. 

In a ‘recovery room’ or ‘re-up’ scheme, victims of investment schemes are offered inflated prices for their shares. Once the investor agrees to sell their shares, a contract is drawn up and the investor is instructed to wire a sum of money to an offshore bank account to cover business costs. The perpetrators withdraw the money that is sent to the offshore account and the victim loses money a second time.

If someone contacts you about selling your York-Rio shares, you should immediately notify your local securities regulator and ask to speak to an investigator. Other companies may be making the same offer.

FAB Equity Exchange Group is now on the BCSC’s Investment Caution List, which is available at www.bcsc.bc.ca.

The B.C. Securities Commission is the independent provincial government agency responsible for regulating trading in securities within the province. Learn how to avoid investment fraud at the BCSC's investor education website: www.investright.org.

The Manitoba Securities Commission is a special operating agency of the Government of Manitoba that protects investors through educational programming and promotes fair and efficient capital markets throughout the province.

Recognize “unlocking” investment schemes

Generally, these schemes involve investing in the shares or units of a public or private company (sometimes through a private placement that the company sells to investors by way of an offering memorandum) or debt instruments of some kind, such as bonds, promissory notes and mortgages. However, the common feature of all of these schemes is the promise that you can immediately access a portion of the cash value of your RRSP, RRIF, LIRA, LRSP, or other locked-in retirement savings or income plan without paying taxes. In addition, these schemes sometimes promise excellent returns on the remaining investment or significant tax benefits.

Promoters, or their agents, may advise you to move your retirement funds into a self-directed account, in order to conceal the unlocking transfer from your financial institution or adviser. Once you are in a self-directed account, you have control over your funds and the promoter will provide you with instructions on what to buy.

Individuals or companies that promote these investment schemes package them in a variety of ways, but, in the end, they all have the same effect – you suffer significant investment losses, on top of serious tax and pension repercussions.

Watch out for these common characteristics

Investors should be wary about any advice to withdraw funds from their locked-in retirement savings accounts. These types of schemes often have one or all of these characteristics:

• offers of debt reduction through new sources of income (i.e., dividends, interest payments, etc.); 
• promises of immediate access to assets in locked-in RRSPs or RRIFs; 
• unrealistic returns on an investment, or frequent high interest or dividend payments; or, 
• aggressive advertising campaigns or promotional meetings that talk about investments that will help you unlock your locked-in retirement savings.

If you have been approached or know of an investment that fits the description above, do not invest and contact your provincial securities regulator.

Other common characteristics

The Canada Revenue Agency (CRA), B.C.’s Financial Institutions Commission (FICOM), and the Manitoba Pension Commission (MPC) have concerns about this issue. Some of the common characteristics these agencies point out are:

• a tax-free RRSP or RRIF withdrawal - promoters often promise to return part of the taxpayer’s investment by offshore debit or credit cards, offshore bank accounts, or loan-back arrangements; 
• additional incentives - you may be granted an investment “credit”, such as a loan-back arrangement, additional shares, or a preloaded debit or credit card to induce you to invest; 
• additional fees - you will likely be charged fees that may substantially erode your pension fund, RRSP or RRIF; 
• opinion letters - promoters often provide private letters from tax, legal or accounting professionals that give the impression the letter writer endorses the scheme; or, 
• vulnerable individuals - these schemes often target debt-burdened people who feel they need immediate access to their retirement funds.

Investigate before you invest

Before investing, check the registration status of the person selling the investment by searching the Canadian Securities Administrators National Registration Search at www.securities-administrators.ca.

If the person is not registered, contact your local securities commission immediately and ask questions about the individual and the investment. If they are registered, check with their employer or your provincial securities regulator to see if they can sell this type of investment.

Furthermore, you should have the investment reviewed by a financial or tax expert that is independent of the transaction. This person may alert you to the possible consequences of unlocking your retirement savings account, or the risk the investment may pose to your savings.

What if you think you have encountered an investment scam?

If you are a B.C. or Manitoba resident and you have questions or concerns about a financial adviser or investment, you can:

• contact the BCSC at 604-899-6854, 1-800-373-6393 or inquiries@bcsc.bc.ca  
• contact the MSC at 204-945-2548, 1-800-655-5244 or securities@gov.mb.ca  

Residents from other Canadian provinces can find contact information for their local securities regulator on the CSA website at www.securities-administrators.ca.

Authorities to contact regarding suspected pension or tax schemes

• If you are a B.C. resident or have a pension locked-in under B.C. legislation, contact FICOM. You will find its contact information at www.fic.gov.bc.ca.
• If you are a Manitoba resident, contact the MPC at www.gov.mb.ca/labour/pension  
• CRA investigates fraudulent unlocking scams under the Income Tax Act. For more information, visit its website at http://www.cra-arc.gc.ca or call 1-800-267-3100.
• The Royal Canadian Mounted Police (RCMP) tracks and profiles fraudulent schemes through this website: www.rcmp-grc.gc.ca/scams-fraudes/rep-sig-eng.htm. The website provides contact information for police services in your jurisdiction.

Anyone who has had recent financial dealings with Kim or is a client of Cirplus should contact the BCSC. Anyone who may have information about the whereabouts of Kim should also contact BCSC staff. A Korean translator will be available through our inquiries line at 604-899-6854 or 1-800-373-6393.

Investors should not send any funds to Kim during the investigation.

The BCSC is the independent provincial government agency responsible for regulating trading in securities within the province. If you have questions, contact Andrew Poon, media relations, 604-899-6880 or Ken Gracey, media relations, 604-899-6577.

Background

Manitoba, British Columbia, Alberta, Saskatchewan and Ontario Securities Commissions have issued orders to cease trade York-Rio Resources Inc.

This scheme is commonly known as “recovery room" or “re-up". Victims of investment schemes are offered inflated prices for their shares. Once the investor agrees to sell their shares a contract is drawn up and they are instructed to wire a sum of money to an offshore bank account to cover business costs. The perpetrators withdraw the money that is sent to this offshore account and the victim for a second time loses money.

The Manitoba Securities Commission is a special operating agency of the Government of Manitoba that protects investors through educational programming and promotes fair and efficient capital markets throughout the province.

The B.C. Securities Commission is the independent provincial government agency responsible for regulating trading in securities within the province.

Inquiries

Len Terlinski, Investigator
Manitoba Securities Commission
204-945-2556
1-800-655-5244

Paul Bansal, Investigator
British Columbia Securities Commission
604-899-6611
1-800-373-6393

The term exchange traded funds is used to describe a category of products, some very risky, some not so risky.

Before making a decision to invest in an ETF, you need to find out what kind of ETF is being proposed. If you are considering a “leveraged” or “inverse” ETF, make sure you understand just how risky that might be.  There are 15 leveraged ETFs and 19 inverse¹ ETFs trading in Canada today.

Leveraged and inverse ETF products are better suited to professional investors than they are to retail investors. Professional traders use these short-term trading vehicles to speculate, or to hedge other positions they hold.

Leveraged ETFs promise the possibility of double or triple the returns of an index or a commodity on a daily basis. An index is simply a basket of investment products.  Inverse products promise the reverse of the return of an index on a daily basis.  Some inverse ETFs promise double or triple the reverse of the return of an index.  If prices on the market go up and down over time, you will lose money on these products whether you buy a leveraged or inverse ETF, if you hold it for any length of time.

Conventional index ETFs are set up to replicate an index.  Retail investors who wish to hold a diversified portfolio for a long time may choose to use these ETFs for longer term investing.  Index ETFs may track a broad market index like the Standard and Poors 500 or narrower indices focused on various sectors, commodities or countries.

What you should do before investing in leveraged or inverse ETFs?

Before investing in leveraged or inverse ETFs, you need to do some research to understand where the ETF derives value from and how it invests to earn a return.  Remember that borrowing or using other leverage can make a safe investment risky and a risky investment dangerous. 

Understanding these facts can help you identify some of the risks in investing in leveraged and inverse ETFs.  Knowing the risks of an investment before you buy it is the key to making an informed investment decision.

To learn more about a particular ETF you are considering, go to www.sedar.com and go to Company Profiles, then go to Investment Fund Groups.  Once you find the name of your fund company, you will get a list of all their funds.  When you choose the fund you are considering, you get access to all publicly filed disclosure documents by clicking on the link called “View This Investment Fund’s Documents”.  These documents include the prospectus, financial statements and reports.  Focus primarily on risk factors in the prospectus.

Background

An ETF, or exchange-traded fund, is a basket of underlying investments, whose shares trade on an exchange like the Toronto Stock Exchange (TSX). 

What should I know about leveraged and inverse ETFs?

1. What is a leveraged ETF?  A leveraged ETF is designed to return a multiple of the daily performance of the underlying index.  The manager of the ETF forms a fund based on an underlying index and then borrows against securities in the fund or uses derivatives to enhance the return of the index.  If the underlying index goes up by 2% one day, a leveraged ETF aiming for two times the return of the index should go up 4% that day.
2. What is an inverse ETF?  An inverse ETF aims to achieve the opposite of the daily performance of the underlying benchmark.  The managers use various derivatives to profit from a decline in the value of an underlying benchmark. Inverse-leveraged ETFs aim to return a multiple of the opposite of the daily performance.  If the underlying index goes up by 2% one day, an inverse ETF should go down by 2% that day.  An inverse-leveraged ETF aiming for two times the reverse of return of the index should down 4% that day.
3. What is the effect of daily re-balancing and compounding?  Both leveraged and inverse ETFs re-balance and compound daily.  As a result, returns over periods of longer than one day, especially in periods of market volatility, may be completely unrelated to the return on the underlying index for the same period and may even move in the opposite direction to the underlying index.  If there is significant market volatility, these leveraged and inverse products can lose money no matter which way the market moves over time.

Two real life examples show how the daily focus of these funds combined with a volatile underlying index can yield surprising results:

• A leveraged fund that aimed to return 2 times the daily return on the U.S. Oil and Gas Index, lost 6% during a year when the index itself rose 2%.  
• An inverse fund that aimed to return 2 times the inverse of the return on the U.S. Oil and Gas Index, lost 26% (not 4%) during the same year. 

What are the risks of leveraged and inverse ETFs? 

There are a number of risks associated with investments in leveraged and inverse ETFs.

• Leverage risk – Both leveraged and inverse ETFs borrow directly against investments in the fund or use derivatives to accomplish their objectives.  Using leverage either directly through borrowing or by trading in derivatives can cause magnified losses during adverse market conditions.
• Price volatility risk – The prices of leveraged and inverse ETFs fluctuate much more widely than prices of conventional index ETFs, because of the use of leverage and daily re-balancing and compounding. 
• Counterparty risk – When leveraged and inverse ETFs use derivatives, they are exposed to risk that the person providing the derivative may default.  If that person fails to perform the obligations under the derivative contract, the value of the investment may decline, no matter what the underlying index has done.
• Transparency risk – Unlike a conventional index ETF where the securities making up the index are always known by looking at the underlying index, leveraged and inverse ETFs are not so transparent.  The use of derivatives can make the composition of these ETFs very unclear.
• Fee risk  - Leverage and inverse ETFs have much higher management expense ratios (MERs) than other ETFs because they are not just following an index but actively managing a variety of investments, including derivatives.  The MER on an ETF based on the TSX-60, for example, is 0.17%.   The MER on a leveraged ETF may be 1.15%, almost 7 times as much.  MERs have a huge impact on your return over time.

¹ The 19 inverse ETFs are comprised of 4 ETFs that offer the opposite of the daily performance of an underlying benchmark and 15 ETFs that offer two-times the opposite of the daily performance of an underlying benchmark.

Vancouver/Calgary – With the recent increase in public inquiries regarding investments in real estate securities, the Alberta Securities Commission (ASC) and the British Columbia Securities Commission (BCSC) are urging people who are considering this type of investment to do their homework before investing.

“Many of these investment opportunities are offered by private companies selling real estate securities in the exempt market,” advises ASC Executive Director, David Linder. Private companies are not required to give the same ongoing disclosure (financial statements, press releases or material change reports) as public companies do.

“If investors are considering investing in these opportunities, it’s important to understand that in the exempt market, you are largely on your own without many of the investor protection provisions that are mandated when investing in a public company,” says Linder.

The exempt market generally applies to the sale of securities to investors without a prospectus and the advice of a registered dealer. Some securities are sold under the offering memorandum (OM) exemption. OMs provide varying levels of information about the investment and, unlike prospectuses, they are not subject to a review by securities regulators.
 
These exemptions allow the sale of securities to investors who meet certain criteria – for example, investors who have a relationship with the company or principals and therefore have direct access to information about the investment, or investors who have sufficient financial resources to withstand a loss.

“Investors need to remember that these types of investments are often risky, and high returns are not guaranteed,” says BCSC Executive Director, Brenda Leong. “Sometimes the potential returns described are based on past history, not current market conditions. The securities are usually not listed on any stock exchange, which means your ability to resell them to liquidate your investment is extremely limited, if not impossible.”

Concludes Linder:  “The most important piece of advice to give to people considering an investment described by an OM is to read the ‘risk disclosure’ in the OM.  Then they should consult with a person who is not participating in the deal, such as a lawyer, banker, accountant, financial adviser or someone else with business acumen, before making any decision to participate in the investment.”

To protect yourself, you should:

• Make sure the investment is suitable for your risk tolerance and investment goals.
• Be clear about the terms and jargon used to sell the investment. If you don’t understand something, get clarification in writing.
• Seek independent advice from a lawyer or financial adviser.
• Be aware that you may not have the same legal rights as you would with an investment issued under a prospectus.
• Understand that reselling private company securities can be difficult due to resale restrictions or lack of market.

The “For Investors” section of the ASC website (www.albertasecurities.com) gives investors the information and tools they need to “Check First” before investing. This includes a “How do I check out a real estate investment opportunity?” section with tools for conducting background checks, gauging your risk tolerance and looking up a company’s record with the ASC.  The site also provides an investor alert that explains real estate investment seminars and the “red flags” of investing.

InvestRight is the BCSC’s one-stop resource for investors to educate themselves on how to make informed investment decisions. Its comprehensive website at www.InvestRight.org provides a wide range of tools to help investors develop critical thinking skills they need to protect themselves – information such as how to do background checks, investment products, a scam meter and video clips from victims of investment fraud. Read the Investor Watch on Private Companies. 

The ASC is the regulatory agency responsible for administering Alberta’s securities laws.
The BCSC is the independent provincial government agency responsible for regulating trading in securities within British Columbia. Both agencies are entrusted to foster fair and efficient capital markets in their provinces and to protect investors. 

Media Inquiries:

December 22, 2008 

The British Columbia Securities Commission  is publishing an Investment Caution List  to warn investors about unregistered companies that have contacted B.C. residents to open brokerage accounts, or buy unqualified investments that may not comply with securities laws.

“The BCSC helps protect investors from unsuitable and potentially fraudulent investments through investor education and warnings,” said Brenda Leong, BCSC executive director. “Investors should always know who they are dealing with and research an investment, before they invest. We encourage investors to immediately report any suspicious investment activity to the BCSC.”

Investors need to be particularly careful when dealing with companies located in offshore jurisdictions. Investigating offshore companies can be complicated and can delay enforcement action. In addition, when money is sent offshore, recovery of investor funds is often difficult or impossible.

The Investment Caution List does not identify all unregistered activity or unqualified securities being promoted in the province. In compiling the Investment Caution List, the BCSC relies on information it receives from the public or other agencies.

Investors are also encouraged to visit www.InvestRight.org, the BCSC’s investor education website, before making an investment decision. The InvestRight website is a one-stop resource that provides a wide range of tools that helps investors develop critical thinking skills they need to protect themselves. If you have questions or problems with an investment or a financial advisor, please call 604-899-6854 or 1-800-373-6393.

Check out the InvestRight Blog and join the conversation about investor education.

Vancouver - The British Columbia Securities Commission and the Alberta Securities Commission have reports about a scheme being offered at free, public seminars at which people are introduced to a way to participate in extraordinary investment returns with references to money moving offshore and Canadian tax avoidance - some of the Red Flags that regulators typically warn investors about.

Seminar attendees are told that they can join an organization for a fee that then allows them to learn about and access a system to become 'portfolio account managers' and restructure their assets through a variety of methods including opportunities in the precious metals industry, consumer debt or capital markets, environmental projects and international mutual funds.

According to reports, under this scheme a fee is paid and members are given a one-year probation period with the organization to restructure their own assets, refer other people into the organization, or introduce a new business opportunity to the group.

Reports say the seminar presenters are careful to stress that they are only selling memberships into their organization and not securities - admitting to audiences that they do not want to run afoul of regulators.

However, regulators are concerned because, according to reports, during the one-year probationary period, members are almost always required to purchase securities. People are told that they can move funds offshore with repeated references to tax avoidance. The regulators want people to be aware that they increase their risk when money is moved offshore because it usually makes efforts to reclaim their money more difficult, if not impossible, should their investments go awry.

The BCSC learned about Kelowna-area residents looking to withdraw money from their RRSP accounts and other retirement savings to invest in the scheme after a seminar was held at a hotel in Kelowna last summer.

Similarly, the ASC has reports indicating investors are being targeted in western Canada and the United States and a seminar is supposedly slated for this month in southern Alberta.  But to date, neither a time nor location for this seminar has been confirmed.

"The BCSC and the ASC hope this alert will encourage investors to stop and think twice before making what could be an unsuitable investment," says ASC Executive Director David Linder.

"We have concerns about this type of scheme because it displays many of the 'red flags' that we warn people about when investing their money," says BCSC Executive Director Brenda Leong.

While the BCSC and ASC are not in a position to reveal the names of those behind this scheme yet, the regulators strongly encourage investors to be cautious about schemes that bear these Red Flags:

• Promise of unreasonably high annual rates of return
• Investment set-up is difficult to understand
• Investors are encouraged to put all of their assets into the deal
• Money is moved offshore
• Numerous references to tax avoidance
• Secrecy - an insider (membership) opportunity

If the public has any information regarding the investment scheme described in this alert, they should report or forward this information to the BCSC immediately.

September 29, 2008 

The uncertainty in today's financial markets is on the minds of many investors who are worried about their savings. With international media outlets covering the political and economic situation in the United States on a minute-by-minute basis, you may also be anxious about your investments and financial future. 

No matter how you are feeling, acting on emotion or hype is a bad idea. It is important to make well-informed investment decisions in order to ensure you meet your long-term financial goals. Before you make an investment decision, you may want to talk to a financial adviser because sudden moves based on media stories or unsound advice can have devastating consequences on your savings.

It is also important to remember that fraud artists follow the news too. These people use current events to design no-risk, high-return investment pitches to separate you from your hard-earned savings. Remember, if an investment sounds too good to be true, you need to stop and evaluate the offer and investigate the person selling it to you. Also, keep an eye out for the five red flags to investment scams. They can help you spot a possible fraudulent investment scheme.

Don't let fear or worry pressure you into a unsuitable investment. Before investing, do your homework. Thoroughly evaluate each investment opportunity, and report suspicious investments to the British Columbia Securities Commission.

The North American Securities Administrators Association published a similar warning to American investors: NASAA Cautions Main Street Investors Against Making Uninformed, Sudden Decisions Amid Wall Street Crisis . Give it a read.

Stay informed. Pass this information along to family and friends. Help them avoid scams. Remember, investment fraud not only hurts individual victims, but also their family, friends, and communities.

The BCSC is the independent provincial government agency responsible for regulating trading in securities within the province. If you have questions or concerns about an investment or individual, contact the BCSC inquiries group by calling 604-899-6854 or 1-800-373-6393 (toll free in BC & Alberta). You can also send and e-mail to inquiries@bcsc.bc.ca.

August 3, 2008                                         
Vancouver - Investment fraud has a greater impact on a victim's health and trust of others than she may realize according to friends and families interviewed in nation-wide research conducted by Canada's securities regulators. 

The British Columbia Securities Commission (BCSC) took a further look at Canadian Securities Administrators (CSA) research conducted in 2006 and 2007 and found that fraud victims do not agree with their friends and family when it comes to rating the magnitude a fraud has on a person's health, social life and trust of others.

Both victims and those close to them said that investment fraud had reduced their trust in others and created higher stress levels in their lives. However, 81 per cent of friends and family of fraud victims said the person affected by the fraud was less willing to trust others, compared to 68 per cent reported by the victims. This was also the case when it came to stress levels, with 68 per cent of friends and family saying victims had higher stress levels, and only 36 per cent of victims reporting a rise in stress. 

"Victims of fraud certainly feel the impact of fraud but it's their family and friends who really see just how seriously it has affected the victim," says Patricia Bowles, BCSC director, communications and education. "What's more, the research reveals that in some cases victims withdraw from their friends, family and the broader community."

The CSA commissioned Innovative Research Group Inc., a national public opinion research firm, to conduct the 2007 CSA Investor Study: Understanding the Social Impact of Investment Fraud and the 2006 CSA Investor Index. 

The research is based on two national online surveys of more than 5,000 Canadians, 18 years of age or older, in both 2006 and 2007. The margin-of-error for each survey (5,568 and 5,868 interviews respectively) is considered accurate within ±1.3 per cent, 19 times out of 20.

InvestRight is the BCSC's one-stop resource for investors to educate themselves on how to make informed investment decisions. Its comprehensive website at investright.org provides a wide range of tools to help investors develop critical thinking skills they need to protect themselves. If you have questions or problems with an investment or a financial adviser, please call 604-899-6854 or 1-800-373-6393 (toll-free in BC & Alberta).

The BCSC is the independent provincial government agency responsible for regulating trading in securities within the province. If you have questions, contact Ken Gracey, media relations, 604-899-6577.

June 13, 2008

Men who are over-confident about their investing knowledge run the risk of falling victim to an investment fraud, according to recent data collected by Canadian securities regulators and research into a multi-million dollar investment scheme.

The British Columbia Securities Commission (BCSC) took a further look at research conducted by the Canadian Securities Administrators (CSA) in 2006 and 2007 and found that men are far more confident than women when it comes to making investment decisions (scoring  a net investment confidence rating of plus-36 per cent compared to minus-14 per cent for women). 

The fact that men - particularly affluent, middle-aged men - are confident investors reaffirms findings from the 2005 Eron Mortgage Study, an analysis of an investment fraud that raised over $240-million from investors. The Eron study found that middle-aged, affluent men are prone to taking economic risks, making them a group that is susceptible to investment fraud. Furthermore, the CSA research found that men are more likely than women to believe investing is a gamble and that it is okay to bend the rules.

"It is important to be confident when investing, but over-confidence may get you into trouble," says Patricia Bowles, BCSC director, communications and education. "Those who described themselves as highly knowledgeable investors - often cocky, affluent men in their 50s - were hit hard by the Eron scheme. These people lost more than twice as much as the other Eron investors."

The 2007 CSA study also found that 46 per cent of men reported someone approached them with a fraudulent investment, compared with 36 per cent of women. Of those approached, 15 per cent of men were defrauded compared to 10 per cent of women. In fact, men who have fallen victim to an investment scam are more likely to have been defrauded more than once - 32 per cent compared to 20 per cent for women.

Although men may be more at risk of falling victim to a fraud than women, the CSA research shows that men tend to be more familiar than women with their most recent investment and the risk associated with it. Men are also more likely to conduct independent research and are less likely to invest "as soon as they heard" about an investment opportunity.

"It is good to see men exhibiting the knowledge and habits that lead to making sound investment decisions," says Bowles. "However, everyone needs to understand that bending the rules and taking chances on something that sounds 'too good to be true' may cost them more than just money."

In the 2007 CSA study, victims of investment fraud reported negative impacts to their health, their personal relationships, and their trust in others.

The CSA commissioned Innovative Research Group Inc., a national public opinion research firm, to conduct the 2007 CSA Investor Study: Understanding the Social Impact of Investment Fraud and the 2006 CSA Investor Index. 

The research is based on two national online surveys of more than 5,000 Canadians, 18 years of age or older, in both 2006 and 2007. The margin-of-error for each survey (5,568 and 5,868 interviews respectively) is considered accurate within ±1.3 per cent, 19 times out of 20.

InvestRight is the BCSC's one-stop resource for investors to educate themselves on how to make informed investment decisions. Its comprehensive website at www.InvestRight.org provides a wide range of tools to help investors develop critical thinking skills they need to protect themselves. If you have questions or problems with an investment or a financial adviser, please call 604-899-6854 or
1-800-373-6393 (toll-free in BC & Alberta).

The BCSC is the independent provincial government agency responsible for regulating trading in securities within the province. If you have questions, contact Ken Gracey, media relations, 604-899-6577.
 

April 24, 2008 

To get ready to retire it is important to think about how you will finance your retirement life. Knowing how much income you can expect once you retire is an essential part to any retirement plan.

One common source of retirement income is a pension plan.  A pension plan is an arrangement between you and your employer or union to help provide you with income during your retirement years. Two common types of pensions are Defined Benefit Plans, Defined Contribution Plans. In addition, many employers offer Group RRSPs retirement plans. If you are unsure which plan you have, simply ask your employer to tell you.

Defined Benefit Plans

A defined benefit plan is one where your employer or plan provider guarantees that you will receive a specific amount of retirement income. The amount is often based on three factors:  how long you are employed, your income, and often the best five years of your employment history. A pre-determined ratio predicts how much of your salary you will get as a pension.

Because it is a fixed amount of income, defined benefit plans make it easier for you to plan for retirement. Typically, only big companies and governments still offer defined benefit plans. One possible reason is that such plans place the responsibility on the employer to ensure its employees receive the fixed amount of retirement income. You should be aware that as a result more and more companies, big and small, are shifting that responsibility to the employee.
 
Even if you are fortunate enough to have a defined benefit plan, you still need to ask some questions. How is your plan protected if your employer goes out of business? It is possible that over time the pension fund can become under-funded and require an injection of money to make it viable. Where will this money come from?  Do the payments under your plan remain at a certain level or rise with the cost of living? Does your plan affect payments from the Canadian Pension Plan? The answers to these questions can change your income projections for retirement.

Defined Contribution Plans

A defined contribution plan is one where your employer or plan provider guarantees to contribute a specific amount to your retirement plan. For employers, these plans have fewer liabilities for them, are easy to administer, and cost less than defined benefit plans. Under the defined contribution plan, the actual amount of retirement income you will receive is somewhat unknown. The income depends on how much money you and your employer put into the plan and how well it is invested. Often employees choose their own investments, which mean they bear the market risk.  Generally, employees who leave the company can take their portion as well as the employer portion with them if they have a certain number of years with the company, usually 2 to 5 years.

Group RRSPs

Although group RRSPs are not pension plans, they are the most popular form of retirement benefit offered by employers.  It is no different than contributing to a personal RRSP except it is done through your pay cheque, creating in effect, forced savings. For an employer, group RRSPs are the easiest plan to put in place and offer a lot of flexibility to employer and employee.

With defined contribution plans and group RRSPs, calculating your retirement income is a little trickier than with a defined benefit plan. You need to take more responsibility to make certain that you have the right advisor and investments in place to ensure you receive adequate retirement income. To do this, here are three basic steps to get you started:

1. Know your yourself - understand your risk tolerance and set proper investment goals.
2. Work with an advisor - choose an advisor wisely to ensure they can help you achieve your investment goals.
3. Know your investments - understand the basic types of investments and the risks and benefits of each one before you make a purchase to ensure they match your investment profile and goals.

Make sure you thoroughly understand the type of pension you have so that you can accurately predict your retirement income and safely plan for your retirement years. Pass this information along to family and friends. Help them be prepared for retirement and gain peace of mind.

The BCSC is the independent provincial government agency responsible for regulating trading in securities within the province. If you have questions, contact our inquiries line at 604-899-6854 or 1-800-373-6393.
 

March 5, 2008

Vancouver - The British Columbia Securities Commission and the Manitoba Securities Commission are investigating an investment that offers people an unusually high annual return - 87.5 per cent - and commissions for bringing in new investors.

The regulators have reports that residents of British Columbia and Manitoba (as well as elsewhere in Canada) have been approached to invest in a 'family and friends private placement program' in which Gold-Quest International, an offshore company, would trade in foreign exchange markets (forex) on their behalf.

In addition, persons purporting to represent Gold-Quest have told investors they can also earn money by referring new investors to the program. They are offered an immediate commission of 10 per cent of the amount a referred person invests and an ongoing monthly commission of four per cent for 12 months. These promoters are not licenced or registered to sell securities in either British Columbia or Manitoba.

Investors send their money - reportedly as low as $500 US - to California banks and receive information and documents back from Nevada-based operations. Investments can be made through online payment systems. Typically, promoters of the investment recruit investors through newspaper advertisements, word-of-mouth and special meetings.

Concerned investors or members of the public who have been approached or have information about this investment are urged to contact the BCSC or MSC, or their local securities regulator. The BCSC and MSC are actively investigating this matter.

The BCSC and MSC strongly encourage investors to be cautious about any investment that bears the following Red Flags:

• Unreasonable or guaranteed high annual returns (with little or no risk)
• Insider tip/membership opportunity or secrecy (usually with an urgency to act quickly)
• Money is moved offshore (references to tax avoidance)
• Profit like the 'experts'
• Great investment opportunity ('your friends can't be wrong')

B.C. investors can report a suspicious investment or inquire about any investment or a financial adviser, by contacting the BCSC at 604-899-6854 or 1-800-373-6393 (toll-free in BC & Alberta). Manitoba investors can contact the MSC at 204-945-2548 or toll-free at 1-800-655-5244 about any suspicious investment opportunity to find out what they can do.

The B.C. Securities Commission is the independent provincial government agency responsible for regulating trading in securities within the province.

The Manitoba Securities Commission is an independent agency of the Government of Manitoba that protects investors and promotes fair and efficient capital markets throughout the province.

Media contacts: 

Ken Gracey
British Columbia Securities Commission
604-899-6577

Ainsley Cunningham
Manitoba Securities Commission
204-945-4733
 

February 19, 2008 

The news is overflowing with stories about how volatile the markets are these days and that investors will earn less as a result. Fraud artists are always out there. But in times like these, people may be more susceptible to fraudulent promises like 'guaranteed high returns at no risk'. These sales pitches are created to appeal to an investor's fear of volatile markets and the desire to make quick high returns without any risk. There are no such investments. Remember, if it sounds too good to be true, it probably is. So keep an eye out for the Red Flags to investment scams.  Do not let your fears pressure you into a new investment. Before you invest, do your homework. Thoroughly evaluate each investment opportunity. Make sure it is legitimate. Avoid scams.

These are similar alerts published by other securities regulators:

• NASAA - State Securities Regulators Remind Investors That Scams Often Hide Behind the Headlines 
   
• Nova Scotia Securities Commission - Dealing with volatile markets  

Give them a read. Be informed. Pass the information along to family and friends. Help them avoid scams. Remember, scams not only hurt the individual victims, but also their family, friends, and communities.
 

The BCSC is the independent provincial government agency responsible for regulating trading in securities within the province. If you have questions, contact Ken Gracey, Media Relations, 604-899-6577.

February 14, 2008

The reasons for this crisis are varied and complex, posing a critical challenge for governments, businesses, and investors.  The crisis originated in the US over subprime loans or mortgages that began in the fall of 2006 and became a global financial crisis during 2007 and 2008. These loans are risky for creditors because borrowers have been defaulting on loan payments at historic rates and with falling property values, some loans may exceed the market price of the assets lenders have access to.

The subprime mortgage resale business was created when the lenders figured out they could bundle higher-risk mortgages together and spread the risk to different buyers, some taking a higher-risk equity position while others taking lower returns for a safer investment.

Canada

In Canada, we have not had the same problem with subprime mortgages because lending practices were stricter in Canada and housing prices have not declined.  However, because of the widespread dispersion of credit risk through collateralized debt obligations and asset-backed commercial paper, it has had a large, negative impact on some Canadian banks and financial institutions.

How does it affect you?

Tight credit conditions have implications for investors in the stock market, who are facing greater uncertainty, greater volatility, and lower earnings than in the recent past. Mortgage lenders and home builders have been hit very hard, but so have other companies such as metals and mining companies.

Non-bank asset-backed commercial paper could be held as part of your investments if you have a pension fund or own a mutual fund. Here is some research you should do to understand your personal exposure:

1. Check to see if your pension fund invested in ABCP by contacting your plan administrator. (Pensions run through BC Investment Management Corp. have no ABCP exposure.)
    
2. Check to see if any bank stocks or mutual funds you hold have ABCP exposure. This information will be disclosed in quarterly financial statements.

Get some advice from a financial advisor before you decide to make changes to your investments based on the current uncertainty in financial markets.  

The BCSC is the independent provincial government agency responsible for regulating trading in securities within the province. If you have questions, contact Ken Gracey, Media Relations, 604-899-6577.
 

January 31, 2008

Vancouver - The British Columbia Securities Commission is warning the public to look out for possible affinity frauds when using social networking websites that facilitate or advertise meetings related to investment products and seminars. 

Websites, like Meetup.com and Craigslist.org, allow people to create groups around investing strategies or advertise seminars for new investment products.

"We are concerned scam artists are using social networking websites to lure people to meetings that may promote fraudulent or unsuitable investment products," says BCSC Executive Director Brenda Leong. "Investors need to do their own research before making an investment and should not simply rely on 'expert' advice given at a seminar or meeting."

Social networking websites create an environment ripe for affinity fraud. Fraudsters can take advantage of the fact people can share information with both their real and "virtual" friends by posting it to their profile, joining a group or simply forwarding the information to others with their approval. Communication tools provided by some social networking websites make it easy to advertise and promote investment scams to a wide audience for free.

"People need to be cautious when acting on or passing investment information to others. Victims of affinity frauds are often family, friends or community members who tell each other about the fictitious investment scheme," says Leong. "Fraudsters can exploit social networking websites to reach people's contacts that may include past friends, associates or even people they've met randomly over time, and create a larger network of potential victims."

Fraudulent investment schemes usually exhibit one or more of the following red flags:

• Promise of high returns
• Great investment opportunity - your friends can't be wrong
• Secrecy - an insider opportunity
• Tax-free investment or use of a structure to evade taxes
• Lack of receipts or documentation about the investment

Leong is warning investors approached about an investment with these characteristics to make sure they do their research before investing. Part of this research is to examine thoroughly the backgrounds of the principals behind the investment deal or the seminar. 

"Investors should be checking to see whether the people selling or promoting the investment are registered to sell securities. Do they have a regulatory history, or have they ever run into financial troubles such as bankruptcy? Also, investors should visit the offices of the business to ensure they are operational and not simply a mailbox," Leong says.

For resources on how to conduct background checks or what to watch out for to prevent falling victim to investment fraud or making an unsuitable investment, visit the BCSC's InvestRight.org website.

"Our research tells us few people are reporting investment fraud to the proper authorities," says Leong. "The BCSC is urging people to report suspicious activity. This information can help us act more quickly to disrupt and stop the activity, and prevent investors from being victimized." 

People are encouraged to report suspicious investment activities, problems with investment or concerns about an adviser to the BCSC's inquiries line at 604-899-6854 or 1-800-373-6393 (toll-free in BC & Alberta).

InvestRight is the BCSC's one-stop resource for investors to educate themselves on how to make informed investment decisions. Its comprehensive website at www.InvestRight.org provides a wide range of tools to help investors develop critical thinking skills they need to protect themselves - information such as how to do background checks, investment products, a scam meter and video clips from victims of investment fraud. The BCSC's RED-FLAGS communications campaign alerts investors to common sales pitches used by scam artists along with a province wide seminar program.

The BCSC is the independent provincial government agency responsible for regulating trading in securities within the province. If you have questions, contact Ken Gracey, Media Relations, 604-899-6577.

May 18, 2007

Vancouver - People with inboxes crammed with unsolicited emails touting penny stocks can now help the British Columbia Securities Commission in its fight against spam by forwarding the unwelcome emails.

The BCSC issued today an investor alert about an over-the-counter quoted company as part of a new program that features halting the trading of securities of companies that are the subject of a stock spam campaign.

BCSC staff has temporarily halted trading of the securities of Compliance Systems Corp. (COPI.OB), a company with shares quoted on the US Over-the-Counter-Bulletin Board. The order bars any trading of the company's shares in BC for three business days.

This new initiative - 'SpamWatch' - alerts investors about and helps prevent the trading in BC of company shares that are the subject of stock spam campaigns.

"With the huge amount of spam circulating that can cause improper or unfair trading, we are stepping up our public warnings by issuing alerts and taking immediate action with temporary halts," says BCSC Executive Director Brenda Leong.

Unsolicited emails or spam can cause unfair trading in securities that can be harmful to investors and can tarnish the reputation of BC's capital markets. By halting trading early in the spam campaign, BCSC staff hope to prevent BC investors from being victimized.

The BCSC is focusing on companies that do not have to disclose financial information to Canadian regulators and are not listed on a Canadian exchange. This is because spam campaigners usually target issuers with securities quoted on the US OTCBB or Pink Sheets.

As part of SpamWatch, BCSC staff are tracking and monitoring stock spam and have dedicated an email address - stockspam@investright.org - for the public to forward unsolicited emails touting stocks.

Not only are investors encouraged to forward stock spam to the BCSC, they can also go to the InvestRight.org website to see a list of companies that have been the subject of spam campaigns along with the companies whose shares the BCSC has halted.

"This list gives investors another reference tool for doing their due diligence when deciding whether to invest," Leong says.

InvestRight is the British Columbia Securities Commission's one-stop resource for investors to educate themselves on how to make informed investment decisions. Its comprehensive website at www.InvestRight.org provides a wide range of tools to help investors develop critical thinking skills they need to protect themselves - information such as how to do background checks, investment products, a scam meter and video clips from victims of investment fraud.

The BCSC is the independent provincial government agency responsible for regulating trading in securities within the province. If you have questions, contact Andrew Poon, Media Relations, 604-899-6880.

FOREX stands for Foreign Exchange. The forex market, also referred to as the currency or FX market, is basically the changing of one currency for another by simultaneously buying one and selling another. Your profits and losses depend on the fluctuations in the exchange rate between the two currencies. 

What should I know about forex?

Before you invest in the forex market be aware that:

1. The forex market is complex and volatile. It takes expert knowledge to track and understand the many variables that affect currency exchange rates. Without this knowledge you are likely to lose your money.
2. There are forex scams. The promise of high returns with low risk in the FOREX market is a red flag that the opportunity may be a scam.
3. Trading on borrowed money can increase your losses. The more money you borrow to invest in the FOREX market, the higher the risk of losing your investment and possibly more.

Understanding these facts can help you identify some of the risks of investing in the FOREX market. Knowing the risks of an investment before you buy is key to making an informed investment decision.

 Learn more about investing in forex 

December 7, 2006

What is spam email?

Spam is unsolicited email that usually advertises a product, service, business, scheme, or strategy. It is typically sent to large numbers of email addresses at a time, by people paid to promote a scheme. A growing proportion of spam email is related to stocks, where someone who doesn’t know you tries to get you to buy stock in a certain company.

What should I be concerned about?

Be wary of unsolicited emails that promote specific investments. Many of these emails promote microcap companies, smaller companies that often have limited assets. Microcap stocks often trade on over-the-counter (OTC) markets that have fewer regulations than the major stock exchanges. These OTC markets include the United States OTC Bulletin Board (OTCBB) and the Pink Sheets.

The OTCBB is a US. electronic quotation system that displays real-time quotes, sale prices and trading information for stocks. Companies listed on the OTCBB must file financial reports with the United States Securities and Exchange Commission (SEC), but do not have to meet the listing requirements of the major exchanges. The Pink Sheets are listings of price quotes for companies that trade in the OTC market. The Pink Sheets are not regulated by Canadian securities regulators or the SEC.

While all investments have some risk, microcap stocks are considered high risk because many of these companies are new and have few assets or business operations. In addition, there is little public information available about them. By contrast, larger public companies that trade on recognized exchanges like the Toronto Stock Exchange (TSX) must meet minimum listing requirements. They must also file financial statements and other reports with securities regulators, which any investor can get for free on such websites as www.sedar.com .

When should I investigate further?

The Canadian Securities Administrators (CSA) urge investors to protect themselves by researching all investment opportunities before investing. Investors should be particularly careful of spam email touting microcap investments, as by their nature these can be very risky investments. While no investment is without risk, up-front research may reduce the risk of investors falling victim to a scam or committing to an unsuitable investment opportunity.

What should I watch out for? 

• Unsolicited recommendations. You do not know the motives of the person sending the email, and they do not know you, your financial objectives or risk tolerance. They are not in a position to give you investment advice.
   
• Wordy disclaimers and liberal use of jargon. Some spam emails have lengthy disclaimers that are at odds with other information in the e-mail. If you read the fine print, you may find that the people sending you the email are being paid to promote the investment. They also may benefit from an increase in the value of the stock they’re encouraging you to buy. They may also use sophisticated scientific or financial jargon to convince you that the people behind the opportunity are professional, knowledgeable and experienced. Don’t take it at face value.
   
• High-pressure sales tactics. Spammers urge you to act with statements like "this one is ready to explode!" and “We have a runner – opportunities like this don’t knock on the door every day.” If they are trying to manipulate the market for the stock, it’s in their interest to get you to act fast.

What should I do if I receive spam? 

• Don’t reply. Even if you just reply to ask the sender to remove you from their mailing list, that tells them that they have a legitimate e-mail address and you may get more spam.
   
• Delete the e-mail. Block further email from that sender. Some web-based email systems also allow you to report the email as 'junk' email. This helps to increase the effectiveness of junk mail filters, and can reduce the amount of spam you receive in the future.

Where should I go for more information?

If you have a question or concern about an email that promotes an investment opportunity, contact the BC Securities Commission or your provincial or territorial securities regulator.

November 21, 2006

Vancouver - The British Columbia Securities Commission is warning people to be on the lookout for a suspicious investment scheme expanding throughout Greater Vancouver that promises investors extraordinary returns and commissions for bringing in new investors.

BCSC staff have received reports that people are being recruited by friends or acquaintances to attend exclusive meetings at which they are pitched a high-return investment requiring potential investors to sign non-disclosure agreements.

"We are concerned that this may be a Ponzi scheme - a scam that pays out current investors with money from new investors," says BCSC Executive Director Brenda Leong. "If it is, then it is only a matter of time before this scheme falls apart with investors losing their money."

While BCSC staff cannot reveal names or specifics yet, says Leong, they have learned that people can only invest with cash, money orders, or bank drafts.

"This cash-only investment criteria is a tell-tale sign that this could be a scam because typically this is used to avoid any incriminating documentation or provide a paper trail," says Leong.

Leong says that the scheme exhibits many of the red flags that signal the investment is too good to be true:

• Promise of high returns
• Great investment opportunity - your friends can't be wrong
• Secrecy - an insider opportunity
• Tax-free investment or use of a structure to evade taxes
• Lack of receipts or documentation about the investment

Leong is warning investors approached about an investment with these characteristics to make sure they do their research before investing. Part of this research is to examine thoroughly the backgrounds of the principals behind the investment deal. 

"Investors should be checking to see whether the people selling the investment are registered to sell securities. Do they have a regulatory history, or have they ever run into financial troubles such as bankruptcy? Also, investors should visit the offices of the business to ensure they are operational and not simply a mailbox," Leong says.

For resources on how to conduct background checks or what to watch out for to prevent falling victim to investment fraud or making an unsuitable investment, visit the BCSC's new InvestRight.org website.

"This is the second InvestRight Investor Alert we have issued since announcing in October that we would be stepping up our efforts to intervene as quickly as possible to disrupt, stop and or prevent fraud from happening in BC communities," Leong says.

"These alerts will help us to raise public awareness about suspicious investment activity. We are urging more people to report these activities to us earlier."

November 6, 2006

Vancouver - British Columbians should be careful if they are approached about investing in nations with rapid economic development such as India, warns the province's securities regulator.

"We are warning people to be wary about being solicited to invest in real estate or infrastructure projects in India with promises of substantial returns," says Brenda Leong, BC Securities Commission executive director. "This is the first InvestRight RED ALERT that we are issuing as part of our efforts to disrupt, stop and or prevent fraud from happening in BC communities."

While BCSC staff cannot reveal names or specifics yet, says Leong, they have seen suspicious investment ploys in which small companies solicit money from Indo-Canadian investors, primarily in the Lower Mainland. Investors are told that India is undergoing rapid economic development and requires massive capital investment over the coming few decades. They are told that some of this investment will come from outside of the country, through Foreign Direct Investment (often abbreviated as FDI). Investors are also told that the Indian government is especially encouraging investments from persons of Indian ancestry living abroad. Typically, investors learn about the investment through friends or business associates.

Leong says people should be careful if they are approached to invest in foreign countries. To protect themselves, investors should:

• Ask questions, do their own research, and make sure they understand the investment they are considering and the risks involved
• Ask for financial statements and check on the veracity of this information
• Make sure they understand clearly how the money is being spent on a project
• Not rely solely on newsletters or company materials for information about a project or status of investments
• Check out the background of the people selling the investment and assess their claims about business connections and their experience in doing business with the foreign country
• Check into a company's claims about leading large real estate or infrastructure projects overseas - especially if the claim is being made by an outfit that seems too small to lead such large ventures

Consider it a Red Flag if those selling the investment promise that the investor can save or escape Canadian taxes, or that the opportunity is a secret deal that investors should keep to themselves. For resources on how to conduct background checks or what to watch out for to prevent falling victim to investment fraud or making an unsuitable investment, visit the BCSC's InvestRight.org website.

In early October, the BCSC announced plans to give people early alert or warning about activity that bear the hallmarks of a fraud.

"Too often when people finally complain or report a scam to us, it is too late for them to get their money back," says Leong. "These InvestRight Investor Alerts will help us to raise public awareness about suspicious activity. We also hope that more people will step forward and report these types of activities to us earlier."

October 17, 2006  

What type of advertisements should I be concerned about?    

Of main concern are paid advertisements placed by those who may not be properly registered to trade in securities. As well, certain ads may provide misleading information to the public regarding potential investments.  These may appear across various types of media, including newspapers, magazines, television, radio, newsletters and the Internet.  

In many cases, investments described in the advertisements may look or sound authentic, but unless investors verify this first with an objective source such as their provincial or territorial securities regulator, they could risk committing their money to a misleading or illegitimate opportunity. Once money changes hands, it’s often difficult or impossible for investors to get their money back.  

When should I investigate further?    

Regardless of the source, the CSA are urging investors to protect themselves by researching any and all investment opportunities before investing. While no investment is without risk, investors can research opportunities to lessen the risk of falling victim to a scam.Investors shouldn’t assume an opportunity is authentic based on where it appears or how it is presented.  

What should I watch out for? 

Promises of high-return, low-risk investment opportunities.Ads may promote quick and above-average growth and  “guaranteed security”. Refer to current bank rates. Above-average growth involving little risk on your part should ALWAYS be questioned.   

• Liberal use of financial jargon.  Sometimes, ads use sophisticated language to convince investors that the people behind the opportunity are professional, knowledgeable and experienced. Anyone can use financial lingo to sound convincing, so don’t take it at face value. 

• Free seminars and workshops.   In addition to promoting free registration, the ad may offer the public additional incentives, like free food, gifts, etc. for participating. Be cautious if you attend one of these sessions. The session may focus on investing or tax-savings strategies, or it may end up promoting a specific investment. Don’t commit until you’ve checked into the person or firm offering the opportunity. 

• High-pressure sales tactics.The ad may urge you to act now and invest while the opportunity’s hot. A sales tactic like this doesn’t necessarily mean you’re a target of a scam. The point is you should NEVER feel pressured to invest. If it’s a good opportunity, it WILL be there long enough for you to check into it first to make sure it’s legitimate. 

• Company’s purported ‘track record’. Many ads promote the fact that the company or person offering the opportunity has been in business a long time, are backed by a large conglomerate, and/or have achieved high performance in years past. A company’s track record should never be the deciding factor when making an investment decision. Research the company’s history and track record but also take other factors, such as your investment objectives, into account before committing. 

• Requests for personal information.  Ads may send you to a toll-free line, website or a free seminar so you can request more information or fill out an application form. Check to ensure the investment opportunity is legitimate before submitting information. If it is a potential scam, your personal information could be shared, sold or held for use in future scams. 

• Tax-savings or tax-shelter incentives.Be wary of paid ads that promote tax-saving incentives, especially leading into RRSP season and tax time. A toll-free number, website or free seminar may be promoted to explain how the tax savings work.  Promoters that tell investors that a tax shelter identification number means the shelter has been approved by Canada Revenue Agency (CRA) are misleading investors. In actual fact, the identification number is for identification purposes only. It does not in any way confirm the entitlement of an investor to claim any tax benefits associated with the tax shelter. 

The CRA also notes that Canadians should be cautious when a promoter tries to sell an investment using charitable donations that promises a tax receipt for more than the amount you paid. The CRA regularly audits these schemes and often reassesses investors for most or all of the receipt value of the donation. The CRA has previously issued the following alert and fact sheets to advise investors of the potential risks and problems associated with some shelters:  

• Tax shelter donation arrangements - Fact Sheet (2003) 
• Tax shelter donation arrangements - Fact Sheet (2004)  
• Potential investors reminded to exercise caution with respect to certain donation arrangements -Taxpayer Alert (2005) 

Where should investors go for more information?     

• CSA Website 
• CRA Website  

This advisory is intended to alert clients with online accounts at Investment Dealers Association of Canada (IDA) Member firms of a potential security risk to these accounts 

August 24, 2006 (Toronto, Ontario) - The IDA’s Enforcement Department has received information from several sources that unauthorized persons have gained access to clients’ online trading accounts. Specifically how this is accomplished is not yet known. We believe this could be done through one of several methods.

One theory is that the client’s personal access information is being discovered through a computer virus on the client’s home computers. The suspected virus monitors the client’s keystrokes and forwards the information on to individuals who then use the information or pass it on to others.

The other theory is that access information is being obtained from the client through a process known as 'phishing'. Most phishing is accomplished by an e-mail purported to be from the firm asking for the client to assist with a security issue by providing their name, account number, password and other information necessary to access the accounts. The phishing emails usually adopt or rely upon corporate logos and information derived from the Member firm’s website.

An alternative to phishing emails are pirate websites that are set up to appear similar to the Member firm’s own website. In rare instances, the corporate website is compromised and clients moved sideways to the pirate site. When clients attempt to login, the information is captured on the pirate site and as result the client unknowingly gives up their information. The client may never know that they are no longer on the legitimate website.

At this point in time, there is no confirmation as to the method used to obtain client access information. There is also no suggestion that the security of Member firms’ on-line systems has been compromised. It appears that clients may have inadvertently given up the information to the persons who subsequently hijack the individuals’ accounts.

Once the clients’ personal identities and passwords are compromised, the perpetrators are able to access the clients’ accounts and execute trading instructions. In the instances reported to the IDA, client portfolios were sold out. The credit was then used to place buy orders for specific securities listed on the OTC Bulletin Board or NASDAQ pink sheets. It appears the purpose of such activity was to manipulate the price of shares in the issuer.

In some instances, the trades were settled before the clients were even aware that there had been an on-line breach of their account. Firms are now receiving client complaints concerning these unauthorized activities. 

Investors who have online accounts should be aware of this risk. Clients should contact their firm regarding any unusual activities in their account. A list of IDA Member firms is available at www.ida.ca  

The IDA is the national self-regulatory organization of the securities industry. The IDA's mission is to protect investors, foster market integrity and enhance the efficiency and competitiveness of the Canadian capital markets. The IDA enforces rules and regulations regarding the sales, business and financial practices of its member firms and their approved persons. Investigating complaints and disciplining Members and approved persons is part of the IDA's regulatory role.

July 7, 2006

What are PPNs?

A principal protected note, or PPN, is an investment product that consists of two parts. One part is an investment that promises to return to you the original amount you invest in the PPN, usually after a six to ten year period. A third party, called the guarantor, guarantees the amount you will receive. The second part of the PPN is a market-based investment, usually linked to a market index, a fund, or another investment product that offers the potential – but not a guarantee – of a profit on your investment.  

PPNs are marketed under various names such as 'linked notes' or 'return notes' with different terms and conditions. Sellers of PPNs attract investors by promising that they can have the principal amount of their investment guaranteed and still have the prospect of earning a rate of return above what might be provided by a GIC or other investment providing a fixed return. 

What should I know about PPNs?

Before you buy a PPN, you should know that with some PPNs:  

Understanding these facts can help you identify some of the risks of investing in PPNs. Knowing the risks of an investment before you buy it is one of the key elements to making an informed investment decision.   

Some PPNs lock up your money for several years and, if you take your money out early, you can lose the guarantee on your principal and be charged a fee.

How does this kind of PPN guarantee my principal?
Using the example of a $100 investment, the majority of your money, say $70, is used by the PPN manager to buy an investment that is guaranteed to be repaid, with interest, after a period of time (for example 10 years). A bank or insurance company will often provide the guarantee on the investment. By the end of the guarantee period, the $70 will have grown to $100 because of interest earned on it. This is how the PPN managers guarantee that they will repay you at least as much money as you originally invested.

What are the risks with this type of guarantee?
Once again, using the example of a $100 investment and a 10-year guarantee period:

If you take any of your money out before the 10-year guarantee period expires, you can lose the guarantee on your principal. The PPN managers will typically also charge you a fee for removing your money early.
The guarantee is only as good as the guarantor providing it and the security backing the guarantee. If the guarantor goes out of business or the security provided is inadequate, then the guarantee on your principal may be worthless. Even though PPNs are sometimes referred to as deposits, PPNs are often not insured by the Canada Deposit Insurance Corporation or the Régie de l’assurance- dépôts du Québec.
What can I do about these risks?

You need to assess if the value of the guarantee is appropriate for you. To help you do this you should at least understand the answers to these questions:

• Can you afford to lock up your money until the end of the guarantee period?
• How reliable is the guarantor providing the guarantee to the PPN managers and the investors?
• Is the security backing the guarantee adequate?
• Is the PPN insured by the Canadian Deposit Insurance Corporation or the Régie de l’assurance -dépôts du Québec? 

With some PPNs, you might receive little or no profit on your investment.

How does a PPN make a profit for its investors?
Using the same example of a $100 investment and a 10-year guarantee period, the PPN manager will use $70 of your money to buy a guaranteed investment that provides at least $100 after 10 years. That leaves $30 (minus any sales commission) to generate the profit for your entire $100 investment. The PPN manager will attempt to invest the $30 in products that will generate a high enough return that is satisfactory to you when calculated as a return on your entire $100 investment.

What is the risk of this strategy?
Using the previous example, some PPN managers take a higher risk on your $30 to try to obtain the desired returns. Generally, a higher return is accompanied by a higher risk that you will not make a profit on your investment.

This may mean that, in the worst case scenario, you still get back your $100. However, you should consider the fact that you will have to wait 10 years to get your principal back with the possibility of no profit having been earned on your investment at all. This can have a negative impact on the growth of your retirement fund.

What can I do about this risk?
To understand the risks associated with a particular PPN you should at least know and understand the answers to these questions:

What are the risks associated with the investments in which the PPN manager will invest your $30?
Based on your investment goals and assets, how much risk are you comfortable taking with your investment?
Are the risks associated with the investments chosen by the PPN manager acceptable to you?

The various fees associated with PPNs can make it harder for you to earn a profit on your investment.

What fees do PPNs charge?
PPN managers decide the amount and kind of fees to charge. Types of fees that some PPN managers charge are:

• Selling commissions
• Management fees
• Performance fees Structuring fees
• Operating fees
• Trailer fees
• Early redemption fees
• Swap arrangement fees

It is more important to understand how much of your money is used to pay fees than it is to understand what each fee means.

What is the risk of having these fees?  

The payment of these fees can decrease the return on your investment. If the total fees on your investment are substantial, you risk making less on your investment than expected.

What can I do about this risk?
You need to decide whether you will receive a satisfactory return on your PPN investment after all of the fees are paid. To help you do this, you should at least know and understand the answers to these questions:

- What is the total amount of PPN fees you will have to pay?
- What rate of return can you expect from the PPN?
- After taking into account the cost of the fees, is that rate of return satisfactory to you?

Helping you find answers to your questions

Is there someone who can help me answer all of these questions?
Yes. You can talk with a registered advisor. He or she can help you assess your financial needs and goals to determine if a particular PPN investment is right for you. A registered advisor can help you:

- Assess whether the conditions of the guarantee are adequate for your investment needs. For example, does the guarantee require you to lock up your money for a period of time that does not suit your investment objectives? Can you afford the penalties if you withdraw your money before the guarantee period expires?
- Review the credentials of the guarantor that is providing the guarantee of your principal to ensure that it is reliable.
- Review the security backing the guarantee to ensure it is adequate.
- Determine if the PPN is insured by the Canadian Deposit Insurance Corporation or the Régie de l’assurance- dépôts du Québec.
- Identify the risks of the investment strategies of the PPN managers to see if they match your investing profile and risk tolerance.
- Evaluate the estimated return on the PPN and assess whether it is realistic. If it is not realistic then establish a reasonable estimate.
- Calculate the total amount of fees associated with a particular PPN investment and assess how that will affect your return on investment.

Your advisor may need to do research to identify the risks, to determine a realistic estimate of your return on investment, and to calculate the total fees. The investment strategy of the PPN manager and the PPN’s fee structure may be very complicated. At present, there are few rules that dictate what PPN managers must tell investors about the investment.

If you are interested in the concept of PPNs, but wary of the risks, you can ask your registered advisor whether other investment strategies would be more suitable for you. For example, you can ask whether proper diversification using other investment products suits your investment profile and can achieve your investment goals on a less restrictive and less risky basis than the PPN you are considering.

Registered advisors have an obligation to ensure that they recommend only investments that are suitable for their clients. Providing your advisor with accurate information and asking the questions outlined in this investor watch can help your advisor fulfil his or her duty when considering if PPNs are an appropriate investment for you. 

What should I know about income trusts?

If income trusts are a bit of a mystery to you, but you want to invest because you have heard great things about them, then at the very least know these three facts: 

Understanding these facts can help you identify some of the risks of investing in income trusts. Knowing the risks of an investment before investing is one of the key elements to making an informed investment decision.