Ontario Securities Commission Investor Alert - June 2004
Investors Beware of Certain Stock Promotion Practices
Toronto - The Ontario Securities Commission (OSC) is warning investors to beware of promoters who advise them to make misrepresentations about their financial status in order to qualify to invest in high risk exempt market securities. The OSC's concerns stem from increasing evidence of these practices in the market.
In a typical scenario, a potential investor receives a telephone call, often from a stock promoter or salesperson that they do not know. Investors should be particularly wary of investment advice given by total strangers, particularly when the advice comes in a "cold call" or over the Internet. The promoter may recommend a particular stock, and note that the investment is limited to accredited investors but that this is a technical requirement, and that an exception will be made for this investor. This advice would see the investor lie about their financial situation to qualify to buy the securities, in violation of the Ontario Securities Act .
The advice to break the law should be a further red flag for the potential investor - after all, if the promoter is recommending that one rule be broken, what assurance does the investor have that other rules will not also be broken, resulting in financial loss?
To qualify as an accredited investor, you must have more than $1,000,000 in financial assets, net of liabilities. This includes cash and securities but not your home. Alternatively, you must have personal annual income over $200,000 or total annual income combined with a spouse of $300,000 for at least two years. The reasoning behind this exemption is that if you meet these criteria, you can afford professional advice and can afford to take on a higher risk with your investment activities. If you do not meet these criteria, the investment likely carries more risk than you can afford.
Often, the promoter also makes statements about the stock's likelihood to make investors rich, either because its value is destined to increase dramatically or because it is about to be listed on a stock exchange. Those statements are further violations of the Ontario Securities Act .
To protect your money:
- Be wary of unsolicited offers received over the Internet or by telephone
- Check the registration and background of the person or company offering you the investment - call the OSC Contact Centre toll-free at 1-877-785-1555
- Never sign documents you have not read, or that do not accurately reflect your financial situation. If someone asks you to fill out a form with false information, ask yourself if this is the kind of person you should rely on for investment advice.
For further information or to file a complaint, check the OSC web site (www.osc.gov.on.ca) or call the OSC Contact Centre at 1-877-785-1555. You can learn more about investment fraud and other investment topics on-line at www.investorED.ca.
