SIA Bill 2011
Avoiding Fraud

Our Vision

A vibrant, competitive financial services sector that has sound regulatory practices and policies that promote confidence.

Our Purpose

To contribute to the growth and development of a financial services sector that is vibrant and competitive.

Fraud is so widespread that for the past 20 years it has been called an epidemic. Although estimates vary depending on what fraud, scams or types of white collar crime are being measured, the percentage of those persons who are victims has remained relatively constant for nearly two decades, with approximately one in every 6 to 7 people in the United States falling victim to a scam every year. Among the most likely targets are the college-educated, financially secure or senior citizens, especially those with money who may be living alone in their later lives. Fraudsters go where the money is. They know how and who to manipulate. They can be so smooth they slide like silk into a person’s life before they blindside them, separating their latest victim from their hard-earned funds. According to the Royal Bahamas Police Force, reported fraud cases in The Bahamas amounted to $2.3 million in 2014. In the world, reported cases of fraud accounted for trillions of dollars in losses, with experts acknowledging that most fraud goes unreported.

The Commission invites you to refer to our website www.scb.gov.bs to verify that an individual or a product is registered. You can also see the names of non-registered securities businesses that are on our radar seeking investors in The Bahamas. Be as smart a consumer when it comes to money as you would be in any other facet of your life.



Be aware of these red flags and tips when making investments:

IF IT SOUNDS TOO GOOD TO BE TRUE, IT PROBABLY IS – When an offer sounds too good to be true, there is usually a reason and most often, your instinct will tell you so. To overcome the instinct, the con may be cloaked in words like “breakout stock pick”, “huge upside and almost no risk”, “incredible gains” or “amazing returns on investment.” Typically, high risk investments offer higher rates of return than less risky investments do, but no legitimate investment can guarantee a “great return” on your money.

ACCOUNT DISCREPANCIES – Unauthorized trades, missing funds or other problems with account statements could be the result of a genuine error – or they could indicate churning. Churning is a fraudulent practice where brokers trade excessively in an investor’s account to make additional commissions. Make sure your account, once established, is managed in the manner you authorized. Also be mindful that the risk for fraud increases when the investment advisor is the same firm as the holder of the assets (the custodian).

PUSHY SALESPERSON – Scammers will use all sorts of high-pressure sales tactics to swindle you. They’ll tell you a once-in-a-lifetime opportunity will be gone if you don’t act immediately or “everyone’s buying it, so you should too”. Resist the pressure. Take the time you need to investigate before sending money.

KNOW THE SALESPERSON – Every con game, whether online, by phone, or in person, revolves around a salesperson or a sales pitch. Know who you are dealing with. Check their background. Call the Commission or visit our website to verify that the person offering you a security is registered.

BEWARE OF THE HALO – Not all salespersons will come across as ‘pushy’. On the other end of the spectrum is the sweet old lady or kind gentleman who “just wants the best for you.” The pitch often involves knowing quite a bit about you personally and emerges after a certain level of comfort is achieved. The skilled con artist knows that earning your trust is one way to get closer to your money. Beware of the individual who suddenly shows up and demonstrates extraordinary personal kindness.

ASK QUESTIONS

– Fraudsters are counting on you not to investigate before you invest. Fend them off by doing your own digging! It is not enough to ask the fraudster for information or references. They have no incentive to be honest. Take the time to do your own independent research


Imagination is all that limits the scams that fraudsters conjure up to tempt the unsuspecting. One of the most common involves an e-mail address with a “.gov” component that looks so authentic every year thousands of people fork over millions of dollars before they realize their money has been taken for a ride that has no return ticket. Fraudsters can be incredibly flexible, turning on a dime when it comes to developing new pitches or comeons. But while the wrapper or hook might change, the most common securities frauds tend to fall into four classic categories.


WATCH OUT FOR THE BIG 4

PYRAMID SCHEMES are scams where fraudsters claim they can turn a small investment into large profits within a short period of time. In reality, participants make money solely by recruiting new participants into the program. The scheme works in a manner that is similar to a chain letter, gathering momentum until it crashes. Fraudsters behind these schemes typically go to great lengths to make their programs appear to be legitimate multi-level marketing schemes, but the schemes eventually fall apart when it becomes impossible to recruit new participants, which can happen quickly.

In one example, the first level starts with each new participant enlisting eight more people. Each of those eight people then needs to recruit eight more, and so on. Participants only make money from new recruitment - there is no real investment. Once recruitment into the group stalls, the participants in the group cannot be paid. Game over. Everyone is a loser except those at the very early levels.

PONZI SCHEMES are scams where a central fraudster or “hub” collects money from new investors and uses it to pay purported returns to earlier-stage investors—rather than investing or managing the money as promised. Like pyramid schemes, Ponzi schemes require a steady stream of incoming cash to stay afloat. But unlike pyramid schemes, investors in a Ponzi scheme typically do not have to recruit new investors to earn a share of “profit.” Ponzi schemes tend to collapse when the fraudster can no longer attract new investors or when too many investors attempt to get their money out—for example, during turbulent economic times.

PUMP-AND-DUMP schemes are scams where a fraudster deliberately buys shares of a very low-priced stock of a small, thinly traded company and then spreads false information to drum up interest in the stock and increase its price. Believing they’re getting a good deal on a promising stock, investors buy at increasingly higher prices. The fraudster then dumps his shares at the high price and vanishes, leaving many people caught with worthless shares of stock. Pump-and-dumps traditionally were conducted out of boiler rooms using coldcalls, faxes or online newsletters. Now, fraudsters are using modern technology such as emails, text messages, and even instant messaging apps.

ADVANCE FEE FRAUD, ALSO KNOWN AS THE NIGERIAN LETTER SCAM , are scams where an investor must send a fee in advance in order to receive a promised service or payoff. The “Nigerian Letter Scam” is a popular type of Advanced Fee Fraud. In this scam, fraudsters use letters or emails to target potential victims. Oftentimes, the fraudster claims to be either a high ranking public official with a fortune or an individual with an inheritance seeking a little financial assistance to retrieve a large amount of money. The fraudster promises a share of the money once it has been transferred in exchange for the assistance. After the fee has been paid, the investor never hears from the fraudster again.



If you believe you have been defrauded or treated unfairly by a securities professional or firm, please send us a written complaint. If you suspect that someone you know has been taken in by a scam, be sure to give us that tip.

Securities Commission of The Bahamas

3rd Floor, Charlotte House
Shirley and Charlotte Streets
P.O. Box N-8347
Nassau, Bahamas

Telephone
1-(242) 397-4100 (Nassau)
1-(242)-225-8171 (Family Island toll free)
1-(360)-450-0981 (International)

Fax
1-(242) 356-7530



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