5 Tips to Cheat a Fraudster

Unfortunately, every industry has its share of thugs. There’s always a doctor getting involved with a patient; a lawyer overbilling; an author plagiarizing; a politician telling lies; or a salesperson hiding salient facts about the product… we could go on.

Wealth management has its share as well. The stories we all read about usually involve a slick presentation, a trusting person with money to invest, and the hardship that follows after money disappears.

Until this year, Bernie Madoff was the most famous financial fraudster. Madoff – once the chairman of the Nasdaq exchange, believe it or not – confessed in 2008 to orchestrating a multi-decade $18 billion Ponzi scheme. He died in prison while serving a 150-year sentence after requesting a Presidential pardon that fell on deaf ears. Last week, FTX founder Sam Bankman-Friend was convicted of fraud and conspiracy. His sentencing is scheduled for March 2024.

Here are some practical tips to undertake before starting a financial relationship with anyone.

1. Registration. Make sure the firm and the person offering investment advice is registered with their provincial regulator. If the firm is in another province than you, make sure they are registered in your province as well (Canada does not have a national securities regulator). Bernie Madoff was not registered with the Securities and Exchange Commission (SEC) in the United States, despite having thousands of clients. You can look up the registration status for a firm and its people at https://www.osc.ca/en/industry/registration-and-compliance/registrant-search.
   
   
2. Disciplined List. Search the disciplined list to see if the firm or any person associated with that firm is listed for having done something wrong in the past. Type in the name of the firm and any individuals you have been introduced to see if any write-up appears. https://www.sedarplus.ca/csa-order/viewInstance/view.html?id=5b948c1fc5c6f840900a698d4cf6979ee11b703dc90efe8c&_timestamp=1992183448994308
   
   
3. Custodian of Assets. Ask if the firm has direct access to your money or if there is a custodian to act as the safekeeper of your assets. While it is perfectly legal for a registered firm to have access to someone’s money, having an arms-length custodian provides you with an extra safeguard. While Schneider & Pollock Wealth Management Inc. has trading authority over each client account, the assets are held by the National Bank Independent Network.
   
   
4. Writing Personal Cheques. Never, ever write a cheque to an individual person. If your financial representative (let’s call him John Doe) tells you to make the cheque payable to John Doe, not only should you walk away from the arrangement, but you should also introduce the regulator to Mr. Doe. Report the details of this request so that authorities can properly investigate. If you’ve been asked to cut a cheque, chances are other innocent investors have also been asked as well. The Ontario Securities Commission can be contacted at 1-877-785-1555.
   
   
5. Returns that Never Drop. Ponzi schemers commonly report upward sloping returns in both good and bad markets. Be sure to compare the investment strategy with an appropriate benchmark to determine if the historical returns look realistic.