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1. The correct answer is e.
Unusually high rates of return should be viewed as a cause for concern about an investment and would indicate a high-risk investment. Investigate all risk-free promises. Guarantees should also raise concern. Legitimate investments are not guaranteed against loss. Suggesting that you must invest “now” is generally a high-pressure tactic used by swindlers to get the money before investors can change their minds or obtain more information.


2. The answer is b.
Securities regulation is based on a disclosure system - laws requiring companies to provide investors with specific information. This ensures that investors have access to the information they need in order to make sound investment decisions. Companies do not have to show profits nor pay dividends in order to sell stock to investors. Also, companies are not required to repay investors who have lost money by investing in their shares.

3. The correct answer is a.
Buying a CD or GIC is low risk, but you should investigate insurance levels in the event of the bank’s failure. You should also consider inflation risk when dealing with low return investments. If you are going to invest with someone you know through your church or community association, you should ensure that both the person and the investment are properly registered/licensed with your securities regulator. You should thoroughly investigate before investing your hard-earned money. Investing offshore is not a guarantee of tax benefits. In addition, when you invest offshore, you are giving up some of the protections provided by your securities regulator. Investing with someone who calls you with an investment opportunity is also very risky. You should always be skeptical of telephone pitches.

4. The correct answer is d.
You should never make an investment based simply on word-of-mouth, even if the recommendation comes from a family member, friend or acquaintance. Fraudulent schemes are frequently perpetuated this way. The promise of quick, high returns should also alert you to a possible scam. As a general rule, risk and return are proportional; the higher the return, the higher the risk. Even if a company looks and sounds legitimate, you should always check it out. Therefore, ask for more information about the investment and call your securities regulator to see if the investment has been registered or exempted for sale.

5. The correct answer is d.
Information filed on an investment with your securities regulator can include disclosure documents, such as a prospectus or offering memorandum, and is meant to provide you with valuable information in order for you to make a wise investment decision. This is your best source of information about the history of the company and the risks associated with the investment.

When shopping for investments, you should base your decisions on your own financial situation. If you don’t understand an investment or if it feels too risky, don’t invest in it. News stories may be factual, but may not provide investors with enough information on which to base an investment decision. Ads are not necessarily factual. Be aware that con artists use advertisements, technical language, fake testimonials, and news stories to make their schemes appear legitimate.

6. The correct answer is e.
Before making an investment, do your research and ensure that you understand what you are buying, the risks involved and if it is suitable for your personal financial situation. You can obtain written materials from your salesperson, go to the library, use the Internet, and/or get an opinion from another professional. Contact your securities regulator to ask about the salesperson’s background and to verify proper licensing or registration of the investment and salesperson. Never transfer money in the name of a salesperson. Your check/cheque or fund transfer should always be directed to the company in which you are investing or to your brokerage/investment firm to settle your account.

7. The correct answer is d.
Registered/licensed securities salespeople and their administrative staff can and do make errors. These errors and mistakes can be costly and need to be caught and corrected as soon as possible. More importantly, there have been instances where salespeople have intentionally abused their clients’ trust through excessive trading in their accounts, selling them inappropriate financial products and outright fraud. Generally speaking, your salesperson should never buy or sell a security without first getting your approval.

8. The correct answer is e.
With the presence of con artists and the ever-increasing complexity of financial products and markets, today’s investors need to be well informed. The above-mentioned items are all “scams” but represent only a small number of fraudulent investments that are currently being sold to unwitting investors. NASAA provides a current list of these scams that you can review at www.nasaa.org. Consumers need to maintain a heightened sense of caution when investing. Additionally, if the investment is something you are not familiar with, be sure to gather information and understand the product prior to investing. Consult with your securities regulator and review its website for additional investor education materials and information on scams.

9. The correct answer is c.
Securities regulators administer the laws in their jurisdiction. One of their key mandates is to protect investors by ensuring that the rules and regulations are followed. Securities regulators do not sell shares directly to the public, but oversee the companies that do. They do not represent the industry, but provide protection to investors through rules, regulations and educational programs.

10. The correct answer is f.
It is important to ask for and obtain written details of the investment recommendations you receive before you make any decisions. This could include a prospectus, an offering memorandum, research reports and other information. You should also contact your securities regulators for information relating to the registration or exemption status of the securities product in addition to checking to see if your salesperson is registered/licensed to sell the investment product. You should always assess your investment objectives before making an investment in this, or any other product, to determine the risks involved, even if the recommendation comes from someone that you have done business with for many years.

11. The correct answer is e.
You should not judge the legitimacy of an investment by the following: the look of the written promotional materials you receive; where the company’s office is located; its website whether other investors received quick up-front returns; or the name of the company. All of these things may be done to lure investors into a scheme. Do your homework. Obtain information about the company from reputable sources such as the SEDAR website for Canadian publicly traded companies (www.sedar.com) or the EDGAR website for U.S. public securities filings (www.sec.gov/edgar.shtml) and call your securities regulator before you invest.

12. The correct answer is a.
Any investment involves some degree of risk. You should know what degree of risk you are willing to take in order to meet your financial goals and objectives. Securities regulators protect investors by ensuring that securities laws and rules are abided by, but they do not insure investments. Be aware that there have been many problems with companies that falsely inform investors that their investments are guaranteed or insured. SIPC (www.sipc.org) in United States, and CIPF (www.cipf.ca) in Canada, do not insure investments or cover declines in investment value or fraudulent sales. SIPC and CIPF provide coverage in limited circumstances and with set dollar limits in the event of insolvency of a member brokerage firm. Investigate before you invest since you alone are bearing the risk involved with your investments.