Recognize all of the warning signs of investment fraud

Recently, the BC Securities Commission (BCSC) released the statement that “fewer than half of British Columbians recognize all of the warning signs of investment fraud.”  What’s particularly scary about the report is that, contrary to what you might think, as church-goers we are typically at greater risk of falling prey to fraud than the general public.  

First, let’s look at the warning signs as presented by the BCSC. They list six commonalities associated with investment fraud…

1. Guaranteed high returns with little or no risk

2. Moving money outside the country to avoid tax

3. A strong push to act now

4. An offer of inside information

5. An offer available only to a select few

6. Being encouraged to invest because friends and family have already done so 

The first one (high return; low risk) was the most recognized, while the last one (recommendations from friends and family), was the least recognized and, quite frankly, what puts us as church-goers at greatest risk. Bad or fraudulent investments running through a congregation or even an entire denomination, because someone trusted the wrong person. It can become like a virus, spreading rapidly though an affinity group, because of the greater trust among members.

It often starts something like this. Joe Conman joins the church and puts himself in positions where he gets to know many individuals. He talks about how much good he did while he was at his other church (somewhere far away). He’s a bit flashy. Not crazy flashy, but enough to let everybody know who he is and that he’s doing great. One day he approaches the pastor, with whom he’s managed to ingratiate himself. He has the inside scoop on a special investment deal. It’s 100 percent legal and maybe even has social benefits. There is a tight timeline on it and room for only a select few. Who would he recommend that Joe talk to?  Or maybe, due to some minor technicality, Joe isn’t able to solicit people directly. But if the pastor did it for him, Joe would be very generous to the pastor and/or the church. The pastor trusts Joe enough that he wants a piece for himself and so he becomes even more evangelistic about the opportunity as he talks to others. After all, it’s only human nature to want to have others join in.  

Think that can’t happen? Think again. Just earlier this year, a pastor and his son were found to have deceived congregants in a real estate scheme here in BC. Did they know what they were doing? In this case, personally, I think they did, but call me Pollyanna – in the vast majority of cases I believe that most individuals involved are victims themselves… that they are unwittingly duped into assisting a bad actor to abuse the trust others have in them, rather than acting maliciously.

What can we do to protect ourselves? First off, be aware of the warning signs. In the survey, 65 percent of British Columbians did manage to get at least four out of the six warning signs, but that still left 35 percent of us who didn’t.  Second, and I hate to say it, be less trusting.  

Trust me (pun intended)! This is tough for me to write, because just like every other financial adviser out there, I rely on a measure of trust to do business with my clients. I want clients (current and potential) to trust me implicitly, but on a bigger picture level, I have to sound out the caution: be aware – there are many wolves out there in sheep’s clothing.

A wise man once said to me, “trust – but verify.” Ask hard questions. Talk to other professionals. Be especially wary of pressure tactics, even more so if they are coming from someone you have only known for a short time. For any of us in positions of influence (pastor, elder, etc.) we need to exercise even greater caution, skepticism and due diligence before getting involved in any venture, particularly if we’re encouraging others to follow. As the person of influence, we are held to a higher standard of care, both in God’s eyes – and as if that’s not scary enough – also in the court’s eyes.

Finally, if you do find yourself either the victim of fraud or if you have simply been approached by what you believe might be a scam, report it. If warranted, the police or the BCSC will investigate and you may end up saving many of your friends the heartache of being defrauded.

Jesus Himself said we are to “be as shrewd as snakes and as innocent as doves”.  This is just as true today as when He said it.

I love how Eugene Peterson paraphrased it, “Be wary of false preachers who smile a lot, dripping with practiced sincerity. Chances are they are out to rip you off some way or other. Don’t be impressed with charisma; look for character. Who preachers are is the main thing, not what they say. A genuine leader will never exploit your emotions or your pocketbook. These diseased trees with their bad apples are going to be chopped down and burned.” Matt 7:15 – 20

Arnold Machel, CFP® lives, works and worships in the White Rock/South Surrey area where he attends Gracepoint Community Church.  He is a Certified Financial Planner with IPC Investment Corporation and Visionvest Financial Planning & Services.  Questions and comments can be directed to him at dr.rrsp@visionvest.ca or through his website at www.visionvest.ca.  Please note that all comments are of a general nature and should not be relied upon as individual advice.  The views and opinions expressed in this commentary are those of Arnold Machel and may not necessarily reflect those of IPC Investment Corporation.   While every attempt is made to ensure accuracy, facts and figures are not guaranteed.