Boiler room operators target Ontario investors

Toronto - The Ontario Securities Commission is warning the public that con artists are using boiler-room style sales tactics (refer to our January 2004 Alert on Boiler Room tactics) to take money from investors while claiming to offer "exempt" securities.

The Prospectus Exemption, part of Rule 45-501, lets some companies sell shares without filing a prospectus. The rule is beneficial to the economy, as it makes it less expensive for small businesses to raise money in Ontario. The rule also protects investors; only Accredited Investors (those who can afford to risk – and possibly lose – their entire investment) qualify to invest.

You can qualify as an Accredited Investor if you have more than $1,000,000 in financial assets (not including your home). You can also qualify if your annual income was more than $200,000, or if you and your spouse had an annual income of at least $300,000 for the last two years - and you expect to exceed that income in the current year.

When they call, con artists may claim that Rule 45-501 means that you can invest in their promising small business before shares are available to the public. You may be told that the company will soon list on the stock exchange, with a share price much higher than the current price. It is illegal to make these claims. To make it seem like they are complying with securities laws, the con artists may encourage you to sign a form stating that you qualify as an Accredited Investor, even if you don't qualify. They use high-pressure sales tactics and glossy brochures to sell you shares based on claims of a revolutionary product – but there is usually no real product involved. In reality, these con artists have only one business in mind – pocketing your money.

You can avoid being a target if you watch out for:

• Promises that a company is about to "go public", or list on a public stock exchange. Obtaining a listing is a complex, lengthy process and never a sure thing. Promoters know that stories of "hot" initial public offerings are tempting and may hook reluctant investors.
• Unsolicited phone calls. Don't be afraid to tell a salesperson not to call again, or simply hang up.
• High pressure sales tactics and repeat callers. Take the time to research any investment opportunity and get a second opinion.

In addition:

• Never sign documents you have not read, or do not accurately reflect your financial situation. If someone asks you to fill out a form with false information, are they someone you should rely on for investment advice?
• Check the registration of the person or company offering the investment - before you invest. Call the OSC Contact Centre toll-free at 1 (877) 785-1555.
  

If you suspect a scam, call the Ontario Securities Commission at 1-877-785-1555. You can learn more about investment fraud and other investment topics on-line at www.investorED.ca.