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When Fraud Wrecks Your Retirement


MNP's TAKE: Investment fraud has ruined the retirement dreams of thousands of Canadians. And while approximately a third of fraud victims are vulnerable seniors, middle-aged professionals also can fall under the spell of a silver-tongued con artist. Experts say beyond sheer ignorance or greed, the fear of not having enough to retire on can make people blind to red flags when it comes to investment fraud.

Before committing your hard-earned funds to anyone - even people in positions of trust - do a background check with your provincial securities regulator and the National Registration Search to see if the person is licensed and registered. Check enforcement history and the news online. Nothing has guaranteed high returns without risk, so educate yourself and question anyone who tries to hard sell a product. Make sure the person and / or the company they represent are legitimate and recognized in the industry.

For more information on how MNP can help, contact Greg Draper, DIFA, FCPA, FCGA, CFE, ICD.D, at 403.263.3385 or [email protected]


While Canadians are increasingly concerned about saving for life after work, investment fraud lurks in the shadows for many seniors

Warren Mills should be retired. Instead, the 70-year old former English second-language teacher works three days a week as a security guard.

“That’s really all I can handle at this age.”

A victim of investment fraud, his retirement savings are mostly lost – a consequence of handing over his portfolio to an unlicensed adviser about seven years ago.

“He [the adviser] used to go on in a long monologue about how much he knew about stocks – and I fell for it.”

While Canadians are increasingly concerned about saving for retirement, investment fraud lurks in the shadows, wreaking havoc on the unsuspecting. And in cases such as Mr. Mills’s, fraud all but destroys their chances of a comfortable retirement.

Understanding investment fraud’s reach in Canada is difficult. A 2014 report by investor rights advocate FAIR Canada concluded it is likely more widespread than statistics gathered by the provincial regulators indicate.

Even a survey of investors by the Canadian Securities Administrators hints it likely affects thousands of Canadians. Its latest Investor Index from 2012 found 27 per cent of respondents had been approached with a possibly fraudulent investment while almost 5 per cent indicated they had been victims.

And many are seniors like Mr. Mills. According to Saskatchewan’s securities regulator, about 30 per cent of fraud reports it receives involve seniors.

Age aside, those victimized are often blinded to red flags by their anxieties over saving enough to retire. A 2012 study by the BC Securities Commission, for example, concluded besides lacking proper knowledge about investment risk and expected returns, the fear of “running out of money in retirement drives vulnerability to investment fraud.”

Although it’s commonly assumed seniors make up the majority of victims, many are middle-aged, professional men, says lawyer Norman Groot with Investment Counsel PC in Toronto, representing Mr. Mills in a civil case against his former adviser.

More broadly, those “who lose the most money are those who have the most money to lose,” he says. “First of all, they’re confident enough they don’t believe they will get scammed, and second, the fraudster has such a silver tongue that they fool them.”

Mr. Groot cites Bernie Madoff whose hedge fund turned out to be a multibillion-dollar Ponzi scheme. “Just look at his victims,” he says: high-net-worth investors who were supposedly sophisticated investors.

Yet they handed money over to Mr. Madoff because he held a position of trust and power, often preying on friends and acquaintances in the Jewish community.

This is the hallmark of “affinity fraud,” says Greg Gard, the manager of the Joint Serious Offences Team (JSOT) at the Ontario Securities Commission.

“The fraudsters will sometimes take advantage of the intrinsic trust within this close group of people in order to orchestrate an investment fraud.”

Made up of investigators from the OPP, RCMP and the provincial regulator, JSOT investigated Mr. Mills’s case, which bears many of the characteristics of affinity fraud.

Last year, it laid charges against Mr. Mills’s former adviser for his involvement in a fraud that began about seven years ago. At the time Mr. Mills’s son introduced him to Michael Hughes, the chief financial officer of Catch the Fire church that he and his son attended in Toronto.

Mr. Hughes told Mr. Mills he had experience managing investments and, that for a fee, he could manage his money and provide a reasonable return.

Impressed by Mr. Hughes’s knowledge, Mr. Mills then moved his savings from his bank in early 2008 to an online brokerage account managed by Mr. Hughes.

“He was the chief financial officer of the church, so I really trusted him on that basis,” Mr. Mills says.

Soon after, more than half his money was wiped out in a series of risky derivatives investments – unbeknownst to him.

It wasn’t until the Canada Revenue Agency called him in 2013 – one year after retiring and starting to draw income from the account – he realized something was amiss. “He was supposed to be doing my taxes as well,” he says about Mr. Hughes, an accountant. But the CRA informed Mr. Mills he had not filed a return since 2009. “Then I called the financial company that [Mr. Hughes] had put the money into and I found out even though he had been giving me statements indicating I had more than $200,000, the actual account was worth less than $25,000.”

In October, an Ontario court handed down a conditional sentence of two years less a day of house arrest after Mr. Hughes pleaded guilty to one count of fraud over $5,000.

“In Mr. Mills’s case, there was paper trail from all the investment trading records” and from the falsified statements that led to the conviction, Mr. Groot says.

In many others, the paper trail is often non-existent and consequently convictions are more challenging, he adds.

Even with a guilty verdict, recovering money is arduous.

Although ordered to pay Mr. Mills more than $104,000 in restitution, Mr. Hughes recently sought creditor protection.

While he still must pay court-ordered penalties, it reveals Mr. Hughes – now living in Calgary – may not have the assets to pay restitution, a common theme among convicted fraudsters, Mr. Groot says. “The upside to all this – if you want to call it that – is that Mr. Hughes is a relatively young man,” he says. “For the next 20 years of his working life, this judgment for fraud will be a millstone around his neck.”

In the meantime, however, Mr. Mills continues to struggle.

“My retirement has been blown apart.”

This article was written by Joel Schlesinger from The Globe And Mail and was legally licensed through the NewsCred publisher network.