Jane* opened a trading account with her bank’s discount brokerage last summer. She already has an RRSP, and considers this account her “fun money.” She trades in higher risk stocks, and even decided to try buying on margin - meaning she borrowed money against the value of her portfolio to buy more shares.
A few weeks ago, the markets dipped, and her portfolio decreased in value. So much so that she received a “margin
call.” She needed to deposit a minimum of $500 to keep her account in good standing. Before she made the transfer, she happened to be chatting with her brother, Dick.*
“Don’t worry about it,” Dick said. “Let me show you a trick my friend showed me.”
“You own some shares that trade in pretty low volumes. Log on at the end of the day, just a few minutes left, and enter a bid at a higher than market price. It is not likely to fill, but as the last bid of the day it will raise the closing price on the shares - which will raise the value of your portfolio, and you will no longer have a margin call.”
“Really?” asked Jane. “Is it that easy?”
“Absolutely, said Dick. “People do it all the time. Works like a charm.”
So Jane entered her late day order, the closing price went up, and she didn’t have to deposit any additional funds to her account. She did this for the next four days, at which point the market recovered and her margin was no longer a concern. A few weeks later, when prices fell again, she did the same.
Only this time, she was shocked to get a call from the Securities Commission, who said her account had been red-flagged by market surveillance. They wanted to talk to her about suspicious trading activities.
What had Jane done wrong?
While she may not have realized it was wrong, Jane had been using her account to intentionally manipulate market prices. According to securities laws, any orders must be entered with an intent to trade. Jane had no interest in buying the shares - only in driving the price up. Her actions were therefore in contradiction to the Securities Act, and could lead to an investigation and proceedings by the Securities Commission.
It is important for anyone trading on their own behalf to be aware that they must abide by the same rules as professional traders. Ensure that you are aware of the rules in your jurisdiction.
A great place to start is the Rule Book of the Investment Industry Regulatory Organization of Canada (IIROC). Or, if you can handle the legal jargon, read the NS Securities Act.
You may also want to consider taking an investing course, such as the Canadian Securities Course - a small investment for some valuable knowledge.
Do you trade online? Are there rules or scenarios you are unsure of? Please feel free to ask. We will do our best, with Dick and Jane’s assistance, to answer your questions.
*Dick and Jane are fictional characters. The scenario however is not that uncommon.
Tagged as:
online trading,
rules,
securities law
“Double your money.”
“Earn 500% annually, guaranteed.”
“Make money fast and easy.”
Whether it’s a Facebook ad, a comment on your favourite blog, or someone pushing an investment opportunity on Craigslist or Kijiji, investment scams are all over the internet.
Some are easier to spot than others. Most of us are no longer willing to send our hard earned money to a Nigerian prince - but the scammers know this, and they have gotten smarter. Now they lure you in with offers of “green” investments, guaranteed returns, government sanctioned accounts, and all kinds of vague promises.
Whether they are online or knocking at your door, the question is the same - why would you hand your money over to someone you don’t know, who doesn’t know you or your financial needs?
The internet is a quick and easy way for scam artists to find potential victims for their investment scams. With the internet, fraudsters can operate anonymously from anywhere in the world, making them hard to catch. Once you’ve given your money to an online scam artist, it’s likely gone for good.
Research your investments. The best way to protect your money is to be an informed investor. Before you buy any investment, find out as much as you can about it. Read financial documents like the prospectus and financial statements, which you can find on www.sedar.com.
Public companies and investment funds are required by securities law to file these and other documents on the System for Electronic Document Analysis and Retrieval (SEDAR).
You can also get information from:
- analysts’ reports
- financial newspapers and websites
- investment newsletters
- chat rooms and online communities
You can get a lot of useful information from these sources, but remember each source only forms part of the overall picture of a company. Be skeptical of what you read and check as many different sources as you can to get a more complete picture. You can also get a second opinion from an independent financial adviser.
Visit Nova Scotia Securities Commission’s website to check the registration of an individual or firm, and to find out if they have been involved in any disciplinary actions. You can also contact us to find out what your options are if you think you’ve been scammed.
Tagged as:
fraud,
internet,
scams
In its effort to protect Nova Scotian investors and capital markets, the Nova Scotia Securities Commission investigated 67 complaints and issued $632,500 in administrative penalties in 2009.
The commission concluded nine cases against 10 defendants that included one disclosure violation, six cases involving registrant misconduct, and two cases of conduct not in the public interest.
These figures and more were released today as a part of the Canadian Securities Administrators (CSA) 2009 Enforcement Report. (The Nova Scotia Securities Commission is a member of the CSA.)
The report shows actions by Canadian securities regulators resulted in more than $153 million in fines and administrative penalties against individuals and companies in 2009, compared with $12.5 million in 2008. Because of the inter-provincial nature of capital markets, proceedings and prosecutions in other provinces have an impact on Nova Scotia markets and investors.
What do these numbers mean to Nova Scotian investors? We hope they tell you that there is an organization actively working to provide protection to investors, and working to ensure that the capital markets in this province operate fairly and efficiently.
A recent national survey showed that 41 per cent of Nova Scotians said they have been approached with some form of investment fraud, but less than a third actually reported it. When asked who they would report the incident to, 63 per cent indicated the RCMP and 37 per cent said local police. Only 17 per cent said they would go to a financial regulator.
Many concerns about investing and advisor conduct are not criminal issues, and so not in the jurisdiction of the police. To report a complaint to the securities commission, go to our enforcement web page, or call 902-424-4558.
The full report can be found on the Nova Scotia Securities Commission’s website, under “What’s New - Enforcement.”
Tagged as:
complaints,
enforcement,
fraud,
reporting,
Statistics
There’s a great article in today’s Globe and Mail entitled “Want to invest? Learn to save first.” Read it. It is fantastic.
Or at the very least, let me tell what I think the most important message is. If you want to get rich, you have to save money. Plain and simple.
People get excited about the stock market. We want to pick investments that will out do our friends and family - have a little something to brag about at the next cocktail party. “I made a killing on XYZ stock last month, bought it for $2, sold it at $8 just before the bottom fell out. Looks like the wife & I will be cruising in the Caribbean this winter.”
A nice story. But honestly, for the vast majority of us, the money in our savings or retirement accounts is going to accumulate over time not from capital gains, dividends, or interest, but from our own contributions. It’s quite simple, really: how can we expect to earn income on money we haven’t contributed?
The lesson here: start saving. Yes, this is easier said than done, but put aside some time to take a good look at your finances. Create a budget. And make a plan to save. Once you have built up some savings, then you can sit down and ponder the investment possibilities.
Tagged as:
budget,
financial goals,
retirement planning,
savings
I try to follow themes in my blogging - this month was going to be all about new years resolutions and getting your finances in order. Budgeting. Saving. Financial planning. Then the Divorce Fair happened. Suddenly my writing and research made an unexpected turn. (For the record, I love when that happens.)
Tonight and tomorrow morning I will be exhibiting and presenting at the Divorce Fair - hosted by the Legal Information Society of Nova Scotia. I’ve gotten a wide variety of reactions to this. Surprise, amusement, even disgust (mostly from those who refuse to accept the fact that approximately 40% of Canadian couples will divorce).
Divorce is a stressful and painful time. It is a highly emotional process. You may be heartbroken. You may be angry. Your finances are likely the list thing you’ll want to think about - but they may be among the most important issues to focus on. It is extremely important to plan for your divorce. This is the message behind the Divorce Fair.
When most people talk about divorce, aside from custody issues, money is usually top of mind. Who got what, how much, and why? The division of money and assets is a major sticking point in many divorce proceedings. How do you prepare yourself for this? There are a few simple tips:
- 1. Know what you own (and owe). Make a list of your bank accounts, investment accounts, property and other assets you and your spouse own.
- 2. Gather the paperwork. Make copies of your financial papers: account statements, tax assessments, mortgage contracts, insurance policies, etc.
- 3. Be prepared for the costs of the divorce itself. If you are considering a divorce, be prepared and stash money away now to cover lawyers fees, alternate living arrangements, and other costs that may come up.
The other and significantly less known financial risk associated with a divorce or separation is financial fraud. To understand the link, let me remind you of the stress and emotional upheaval that comes with the divorce process. You are struggling to adjust to new financial realities, and in many cases you are managing your finances on your own for the first time, and making decisions you’ve never had to make before.
Sadly, no one is more aware of this than a con artist.
Results from last year’s CSA Investor Index indicated that almost half (46%) of investment fraud attempts were made to people undergoing major lifestyle changes - which included job losses, the death of a loved one, and divorce or separation.
The key to avoiding fraud is to be aware of your vulnerability and know the warning signs. Before you invest, educate yourself on investing basics to make smarter, safer choices, and learn to recognize the red flags of fraud before you become a victim.
Tagged as:
divorce,
education,
financial goals,
fraud,
scams
